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Chamber and committees

Meeting date: Wednesday, December 18, 2019

Meeting of the Parliament 18 December 2019

Agenda: Portfolio Question Time, ScotRail Franchise, Ferguson Marine, Female Genital Mutilation (Protection and Guidance) (Scotland) Bill: Stage 1, Business Motion, Decision Time, Financial Abuse


Contents


Ferguson Marine

The Deputy Presiding Officer (Linda Fabiani)

The next item of business is a statement by Derek Mackay on Ferguson Marine.

15:01  

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

I am grateful for the opportunity to provide Parliament with an update on Ferguson Marine shipyard in Inverclyde.

The Scottish Government has been working for two years to support a commercial solution for the future of the business and its workforce. We are committed to securing a future for commercial shipbuilding on the Clyde and are proud of the steps that we have taken to save Ferguson Marine.

In August, as a result of the extensive cost and time overruns to the two ferries under construction and severe cash flow limitations, the directors of Ferguson Marine Engineering Ltd gave notice of their intention to put the business into administration. In order to remove the threat of closure, Scottish ministers took control of the yard. That action avoided a lengthy administration that would have created further uncertainty for the workforce and further delays for the communities awaiting delivery of the vessels, and it protected the value of the loans that the Scottish Government had provided to the business.

We immediately took steps to stabilise the business and get delivery of the ferries back on track. We completed the commercial transaction on Monday 2 December, establishing the new business, under the name of Ferguson Marine (Port Glasgow) Ltd, as a company that is wholly owned by the Scottish ministers. Shipbuilding in Scotland is a proud part of our nation’s history, and this Government was not prepared to see the expertise and skills that have been established over more than a century disappear into insolvency. As a result of our actions, we have ensured that shipbuilding on the lower Clyde will be part of our nation’s future.

My priorities for Ferguson Marine remain the same as I set out to Parliament in my statement on 3 September: to protect jobs at the yard, deliver much-needed new ferries and secure a future for Ferguson Marine and commercial shipbuilding on the Clyde. The alternative for the Scottish Government was to walk away, which would have resulted in hundreds of job losses, the yard’s closure and our vital ferries not being finished. I was not willing to walk away.

I publish today a suite of documents that details the Scottish Government’s engagement with Ferguson Marine since the award of the ferries contract in 2015 until the business entered administration in August, and our commitment to a successful outcome. The papers tell the story of the significant issues under the previous management and the steadfast position of the Scottish Government, which acted in good faith at all times to secure a future for the yard.

The contract for the ferries anticipated delivery in mid-2018. The customer, Caledonian Maritime Assets Ltd, had personnel in the yard throughout the build and first highlighted concerns in November 2016. The Scottish ministers encouraged CMAL and FMEL to work together and made every effort to find a solution to FMEL’s problems, including the possibility of mediation, the provision of commercial loans and the input of a range of expert external advisers, often in response to requests from FMEL when it raised concerns regarding the project contract.

Concerns about progress on the vessels were raised at various points, and the advice that we received on those from FMEL and Clyde Blowers Capital—as well as a number of advisers, including independent advisers who were appointed specifically to provide assurance on progress—was conflicting. The lack of clarity on the progress of the vessels and design changes, and the prospect of litigation by FMEL under the contracts, has hindered the project throughout.

The Government consistently acted in good faith, on the best information that was available to us. It is unfortunate that, despite our best efforts, the problems that were incurred by the yard in delivering the design and build contract for vessels 801 and 802 could not be resolved.

The full picture was not revealed until the new management team had control of the yard. On 16 August, we appointed Tim Hair as turnaround director. His mission was to stabilise the business and put in place a programme to complete the two ferries. A programme review board of key stakeholders was established to oversee the work and provide guidance.

I received the board’s final report on 13 December. Copies are available at the rear of the chamber. The report, which has been published today, sets out in stark detail the failings of the previous management. It is difficult to overemphasise the disastrous impact that the absence of proper management processes had on the yard. That has implications for the condition and progress of the ferries that are being constructed in the yard and for the scale of the challenge that lies ahead to put right the failures of the previous management team.

I thank the employees and the new management team, who have worked so hard to deliver the report. The skill, commitment and quality of the workforce has never been in question. The new management team is focused on developing key management practices to implement new and robust processes that will better meet the needs of the business and provide greater control. That will ensure that the mistakes of the past are not repeated.

The challenges that the new management team has faced include the failure to implement a sound management information system on which to base any assessment of progress to date, and critical issues with the design process for the vessels and the approvals process for that design—the design programme for the vessels, which was the responsibility of FMEL as part of the design and build contract, is several years behind, and getting it back on schedule will be a key area of work. Project planning was largely absent, which resulted in out-of-sequence and often abortive work. Controls on subcontracted resource and materials were lacking. Quality control through the build-out process was largely absent, and the vessels have not been maintained in the condition in which we would expect them to be maintained.

It is, of course, of significant concern to me that the advisers who were placed in the yard to report to the Scottish Government could not pinpoint the full extent of those issues while the previous management was in place.

Since we took control of the yard, significant progress has been made in re-organising it. Significant work is under way to address known defects and to take remedial action to ensure that the steel in the vessels receives the necessary paint protection.

Further information is required so that we can fully understand the implications for delivery of the vessels. That includes information on the full extent of rework that is required across the vessels; the condition of the underside of vessel 801, which will need to be inspected in dry dock; and the ability to successfully commission equipment where warranties have expired. The list is not exhaustive. I hope that it provides a sense of the scale of the challenge.

The contracts for the vessels had a value of £97 million and a further £1.5 million increase was agreed through proper mechanisms in the contract; £83 million was paid out to FMEL.

The failures of management, planning and process mean that the vessels are behind their original programme and significant rework is required. As a result, we expect further costs, including the £15 million outstanding of the £32.8 million for vessel 801 and £45.9 million for vessel 802. That includes an allowance of £12.8 million for rework and remediation, which will be undertaken in the period to May 2020. In addition to that, a further £31.6 million will be required for overheads such as yard running costs, consumables and personnel, which would be included in the contract price.

As a result, the additional cost to complete the vessels, beyond the contract price, and to improve the management and operation of the yard in order to do so, will be £94.8 million. The PRB report indicates that the figure could increase to £98.8 million if certain risks materialise.

All those additional costs result directly from the delay and the poor management of the previous management team. They are based on estimated delivery windows of October to December 2021 for 801 and July to October 2022 for 802.

Transport Scotland will continue to work with CalMac Ferries and key stakeholders to mitigate the impact of the delay to the ferries, including by using the ferries resilience fund of £4 million to improve the resilience of the fleet.

We will also continue to take forward a comprehensive review of the needs of the ferry network, develop a future pipeline of vessels that are required to service our island communities, and explore the role that Ferguson’s can play in meeting those needs.

Public ownership of the yard will allow us to ensure that the ferries are completed and provide the workforce with security. We are already seeing progress: 68 new staff members have been recruited to support the yard’s work, and the detailed understanding that we now have of what it will take to complete the ferries is a significant step forward.

Sound governance will be important to ensuring the stability of the business and a clear sense of commercial direction going forward. A board and chairperson will be appointed in the coming months, with members being selected to ensure that the business benefits from the direction of people who have the skills, expertise and experience to support its success.

Bringing the yard into public ownership was the only viable option to achieve our goals of delivering the vessels, safeguarding the jobs and giving a future to the yard. It was, and is, the right thing to do, and I am proud of the progress that has been made since the Scottish Government took control of the business on 16 August. We now have a team approach to work together to complete the vessels, safeguard the jobs and give a future to the yard. That has been our guiding mission throughout, and we will deliver.

The Deputy Presiding Officer

The cabinet secretary will now take questions on the issues raised in his statement, and I will allow around 20 minutes for that.

Jamie Greene (West Scotland) (Con)

I thank the cabinet secretary for advance sight of his statement. The information was promised to Parliament by the end of October and was conveniently buried until after the election. After hearing the cabinet secretary, I now know why.

The on-going saga of the new CalMac ferries is one that should be a source of great shame to the Scottish National Party and all its members. It is an abject failure to deliver to our island communities new ferries, on time or on budget, as today’s statement confirms.

Beleaguered shipyard workers had their business put into administration as a direct result of the actions of the Scottish Government. The cabinet secretary, with no hint of irony, wants us to praise him for saving the yard, which his own Government put at risk of closure in the first place. It is shocking.

The ferries were expected in 2018 and were due to cost £98 million. Today, we learn that the ferries will cost at least £200 million and will be at least three and a half years late. The cabinet secretary is quick to blame the management team at the yard, which begs the question: what Government oversight was taking place during the construction phase?

What role did CMAL have in the demise of the yard in the first place? Where was it during the so-called failures that the cabinet secretary spoke of?

After the yard went into administration, what offers were received for it and on what grounds were they rejected, given that the Scottish Government was the largest creditor in the process?

How much of the money that was paid by the Government to the yard as loans has been written off? What does the cabinet secretary think that the total cost to the taxpayer for the two ferries will be, does he think that that is value for money, and how many ferries could that money have paid for?

Finally, will the cabinet secretary advise those in the chamber what happened to the other commercial work on the yard’s order books, given that the yard is now state owned?

Derek Mackay

I simply say that it is astounding for a Conservative to talk about shame in shipbuilding—it was the Conservatives who destroyed shipbuilding and many other industries in Scotland in which this Government has intervened. If it was not for the actions of the Scottish Government, Ferguson’s would not have a tomorrow. It is the actions that we have taken today that will ensure that Ferguson’s has a future, and that is the important point here.

In a perfect world, it would have been better if Ferguson’s had been able to deliver the two ferries that we paid it for under the £97 million fixed-price design and build contract. I am sorry to say that the previous management has failed and that is why we are in the position that we are in today.

Let us look at what happened at Harland and Wolff—a shipyard elsewhere. What did the United Kingdom Government do when that shipyard went into administration? Nothing. Jamie Greene asked me a question about the workforce. I tell him: the workforce appreciate that it was the SNP that saved the shipyard and their jobs and ensured a continuity of employment. Because of the orderly process that we undertook, the workers did not lose a single penny.

Jamie Greene asked me why other bids post-administration were rejected. That is a matter for the administrators. Does Jamie Greene not even understand the process of administration? We put forward the best bid.

I have outlined the additional costs. Of course, it is regrettable that we will have to pay more money, but the alternative is to walk away, close the yard, lose the jobs and not complete the vessels. The Conservatives are saying, “Isn’t it terrible? The vessels are going to be late.” However, there would not be any vessels if they had their way, because the Tories vote against our budgets that are paying for the vessels in the first place.

On independent analysis and oversight, we got conflicting reports. There was a poor relationship between CMAL and FMEL—I think that that is perfectly well understood. We did not just leave the matter to the opinion of either side; we had independent experts consider the matter, and then we got further conflicting advice. That is why I have published so much information today. In the cold light of day, the information that we have received shows that, with our guiding mission, we have done the right thing throughout. That is why I have been open, transparent and clear with regard to the mission that we have set out.

On the loans, we committed £45 million-worth of loans to support the business. We were being called on to support FMEL and the business in terms of diversification and working capital, and that is what we have done. Actually, the loans are what put us in a strong position in terms of being able to take public control and, ultimately, ownership of the yard.

The Conservatives have a choice. Do they want to support us in rejuvenating commercial shipbuilding on the Clyde—yes or no? I fear that, unlike this Government, they just want to play politics with people’s lives, whereas we have saved jobs and we will deliver these vessels.

The Deputy Presiding Officer

We have had only one question answered, and it has taken five minutes—

Jamie Halcro Johnston (Highlands and Islands) (Con)

It is not our fault.

The Deputy Presiding Officer

Excuse me. I am speaking at the moment and I do not wish to be interrupted.

There is an issue on both sides. There are far too many questions for them all to take one and a half minutes to ask, and the cabinet secretary took far too long in his answer, too. That will have a direct effect on back benchers, as will the time that I am having to take to explain this.

Rhoda Grant (Highlands and Islands) (Lab)

The statement lays bare the disastrous mismanagement of the contract, which has doubled in price and is now four years late. The Scottish Government appears to be passing the buck, but it has responsibility for how taxpayers’ money is spent. Because it has dithered and mismanaged things, the people in Arran, Uist and Harris are now left with inadequate ferry services and no reprieve in sight, and the workforce at Ferguson’s has faced uncertainty about its future.

We support the Scottish Government’s decision to take the yard into public ownership in order to rescue those jobs and vessels. However, it should never have come to that.

What legal action is the Scottish Government taking to recoup costs, given the alleged failures of the previous management? In the interim, will it lease additional vessels to ensure sustainability in the CalMac routes that are affected? Will the cabinet secretary take this opportunity to apologise to the workers and the communities that the Scottish Government has badly let down?

Derek Mackay

I have visited the workers, and I was applauded by them, so I do not think that they are looking for an apology from me. They are probably looking for an apology from those who choose to play political games with Ferguson’s. Our mission throughout was to try to deliver a contract.

Let us be clear: it is just like the comments that I have heard, such as, “What has Abellio got to do with the railways?” and “Who is responsible for delivering the railways?” In this case, it was FMEL that was delivering a design-and-build contract. Unfortunately, it has failed, and the Government has intervened as a consequence. Rhoda Grant said that she welcomes the Government’s intervention, and I did not hear her make a single suggestion about what we could have done differently. At every stage, we were intensively involved to try to ensure that the resolution could be found. However, we have to deliver value for money, act within the law and act in good faith, and that is what we have done.

I invite the Labour Party to read the information that I have committed to publishing today and to say what it would have done differently. Just like the Conservatives, the Labour Party has not supported any of my budgets, which paid for these vessels in the first place. Therefore, when the new vessels are complete, it will be no thanks to the Labour Party.

Maureen Watt (Aberdeen South and North Kincardine) (SNP)

Does the minister agree that, sadly, many of the issues that were faced by the yard were a result of FMEL’s failure to recruit enough professionals with the right technical expertise and know-how to undertake the building of the vessels?

Derek Mackay

I heard the Conservatives complain about my opinion, but the information that I gave on the failure of the yard is not my opinion; it is the view of the turnaround director Tim Hare, who has presented his findings at the yard and the plans for the remedies. There was an issue of management capability and leadership at the yard that needs to be addressed, but we are getting on with doing that. I have a turnaround director and have brought the programme review board together to achieve that outcome.

John Finnie (Highlands and Islands) (Green)

The Scottish Government is to be applauded for its intervention. My constituents will have picked up the phrase “estimated delivery window”. I acknowledge the £4 million resilience that the cabinet secretary referred to. The baseline for all our discussions on this matter is the ferry replacement plan, which he referred to as a pipeline approach. Of course, that pipeline is blocked at the moment. Is he able to say when the blockage will be removed and what the “estimated delivery window” for the third vessel—which is mightily long overdue, too—will be?

Derek Mackay

I will make two brief points. First, as I touched on in my statement, we should now look very closely at a future pipeline of work for vessels. The minister who is responsible for ferries, Paul Wheelhouse, would be happy to pick up the second point on the Islay vessel. My point is that if we get this process right and we turn around the fortunes of Ferguson Marine, we may well have an opportunity to place further work there, which will be welcome in the development of a robust future pipeline of vessel replacement and investment long into the future.

Mike Rumbles (North East Scotland) (LD)

I am afraid that the original placing of the orders for the two new vessels has resulted in an almost doubling of their costs, with an extra £100 million from the taxpayer over the three to four-year delay. The cabinet secretary blames Ferguson Marine’s management for that. He knows the detail. Could he therefore lay out exactly what due diligence was undertaken when he lodged the contract with Ferguson Marine’s management in the first place?

Derek Mackay

I will not be able to do justice to the answer to that question without breaching your request to be concise, Presiding Officer. That is why I have published a whole list of documents that Mike Rumbles is more than welcome to go through. I have been proactive in publishing those documents and making all that information available, some of which might have been requested through the freedom of information process.

Of course due diligence was undertaken on a quality and cost basis when the contract was awarded. Of course, there was oversight throughout the build.

Murdo Fraser (Mid Scotland and Fife) (Con)

You did not do a very good job.

Derek Mackay

I hear Murdo Fraser saying that I did not do a very good job. Remember that the Conservatives awarded a ferry contract to a company that had no boats during their Brexit preparations. We had the wisdom to award a ferries contract to an actual shipyard—which is revolutionary.

I go back to the important point that there was oversight, but we got conflicting information, and even sending in an independent advisor added to the very muddy picture of what exactly was going on. The full extent of our knowledge of what was going on at the yard came only when we took control over the yard. That now equips us with the information and intelligence to turn the yard around and make sure that it is fighting fit into the future. The workforce appreciates that. I said before that the issue was not with the workforce. Frankly, it was with management and management processes.

Stuart McMillan (Greenock and Inverclyde) (SNP)

I thank the cabinet secretary for his statement and for the decisive action that he has taken thus far. Can he provide an assurance that the two-year window provides the Scottish Government with the opportunity to plan the future pipeline of work while vessels 801 and 802 are being completed, and will Ferguson Marine (Port Glasgow) Ltd be the yard that will obtain those orders?

Derek Mackay

This answer will allow me to complete the answer to the question that Jamie Greene quite fairly asked me. Yes, we will get on with completing the two vessels that CalMac is keen to have in its fleet as quickly as possible. There are other contracts and other work that we also want to see completed, but that is still a matter between us and the ferry companies involved. Of course, I want that work to be completed. There is also potentially a lot of interest in the Babcock type 31 frigates.

The structure that we will design should enable Ferguson Marine to take work from both the public and private sector so that we can optimise the opportunities for work to come to the yard from anywhere. However, we need to restore its reputation and complete the vessels that are currently under construction.

Murdo Fraser (Mid Scotland and Fife) (Con)

The Scottish Government puts the blame for this fiasco firmly at the door of the management of Ferguson Marine for its failure to deliver on the ferry contract, but that begs a question. Why, in 2014, was Ferguson’s deemed to be a suitable company to be awarded the contract, given that the management was, to use the finance secretary’s word, “disastrous”? Who in the Scottish Government took the decision at that time? Will they be held to account for their actions?

Derek Mackay

As Murdo Fraser knows very well, Government ministers are given recommendations by officials who have done appropriate weightings of bids. Ferguson’s came out as the best bid, and it was on that basis that the contract was awarded. I do not think that anyone could have foreseen in 2014 the management failures that we have seen. No one foresaw them. What we did know was that Ferguson’s had a very strong workforce. It is a good place to do business, but the actual design and delivery—

Murdo Fraser

The management was “disastrous”.

Derek Mackay

Well, that has come to light after the past few years. It would have been great if we had had a crystal ball and had known then what we know now, but the point is that, when faced with the actions and the information, the Government has taken appropriate action.

Members should not just take my word for it. There is independent opinion, there have been independent reviews, and I am publishing all the information. It is not just Derek Mackay’s opinion. I am informed by others, and not least by the turnaround director, who had no axe to grind with Ferguson’s.

I know that Murdo Fraser is pulling my chain a wee bit here, but he also knows that our actions have been the right thing to do.

Kenneth Gibson (Cunninghame North) (SNP)

I welcome the cabinet secretary’s statement. I am sure that he will understand the disappointment of my Arran constituents that, with sea trials, it is likely to be the summer of 2022 before the Glen Sannox enters service on the Ardrossan to Brodick route. Does he agree that that will at least allow ample time to ensure that the Ardrossan harbour redevelopment is completed, taking the needs of the Glen Sannox fully into account and delivering a more reliable service for the people and communities of Arran?

Derek Mackay

I think that the member makes a fair technical point. Paul Wheelhouse will be more familiar than I am with the issues to do with Ardrossan harbour, but I believe that progress is being made there. If there is a silver lining to the timescale, it is that there is now time to make sure that the harbour is absolutely fit for purpose for the new vessel.

Kenny Gibson, Alasdair Allan and other members have been pursuing me aggressively for some time for delivery of the vessels, because the communities that they represent really want them to be delivered. I understand that. That is also why we have invested in the resilience fund so that we can support CalMac when it is under pressure. We have pushed the fleet to the maximum capacity in order to try to respond to islanders’ needs.

Neil Bibby (West Scotland) (Lab)

If the workforce had been listened to earlier, we would not be in this position. The only way that even the delayed times and costs will be kept to is if there is unity of purpose among the workforce, the management and the Government. Does the cabinet secretary agree that the workforce should therefore be represented not just on the programme board but on the company board, too? Is he aware of the GMB’s concerns about the recent use of temporary and agency workers?

Derek Mackay

I can only say that I have very strong relationships with the trade unions. I see Neil Bibby nodding at that. It would not be truthful to say otherwise. I have put trade union representation on the project review board and I am very happy to look at future structures as well, but I know that the priorities of the trade unions have been to ensure an orderly transition and continuity of employment, to save the jobs and to give the yard a future. I am absolutely committed to that, and the workforce knows it.

The Deputy Presiding Officer

Brevity would help me to get everyone in.

John Mason (Glasgow Shettleston) (SNP)

I understand that 290 direct jobs and 60 contractor jobs are involved. I am not sure how many jobs there are in the supply chain. Can the cabinet secretary clarify how many jobs in the local community have been saved through the action?

Derek Mackay

Based on my most recent figures, the current head count is 334. That comprises 150 permanent staff, 175 temporary staff and nine staff from the contractors that are involved. In addition, recruitment is going on for new employees, with 33 vacancies, so more people will be employed at Ferguson’s as a consequence of our action.

I was delighted to attend the passing out parade, if you like, of the apprentices. It was great to see them completing their apprenticeships and looking forward to employment in Ferguson’s.

Jamie Halcro Johnston (Highlands and Islands) (Con)

The cabinet secretary will be aware that a significant number—potentially as many as half—of Scotland’s ferries are ageing and will require to be replaced in the coming years. Among those are a number of boats in Orkney and Shetland’s interisland fleet, as well as others across the Highlands and Islands. Those are vital, lifeline links.

Given that the Scottish Government intends to explore the role that Ferguson’s will play in providing vessels for the future, can the minister assure my constituents that they can have confidence in the procurement process, that they will not see a repeat of the chaos that there has been, and that communities across the Highlands and Islands will not bear the brunt of delays?

Derek Mackay

The point that I have tried to explain is that there might be a virtue in the Scottish Government’s owning a shipyard in respect of a future pipeline of work. That is not to prejudice what might happen in the future, because my commitment is not necessarily on the ownership of Ferguson’s. However, the fact that it has a future will safeguard the jobs and mean that it can complete the vessels.

I have been a transport minister, and I know about the demands on the ferries and the nature of the ageing fleet. As I have said, if we are building up capacity to ensure that there is shipbuilding in Scotland, we could very well have a robust pipeline in the future, but not to the exclusion of potential private sector work going to Ferguson’s.

Yes, I can give that assurance. We will look at investment in the ferry infrastructure, as we have done, having committed over £1 billion to the ferry network over the past number of years. We have a strong track record of investing in the ferry network, the vessels, the harbours, the infrastructure and road equivalent tariff. I am disappointed that the design-and-build contract has not been successful. However, rather than walking away, we are remedying the situation.

The Deputy Presiding Officer

Alasdair Allan should ask a quick question, please.

Dr Alasdair Allan (Na h-Eileanan an Iar) (SNP)

The cabinet secretary will be aware of how important it is to my constituents in Harris and Uist that vessel 802 in particular enters into service as soon as possible and that both vessels relieve pressure on an ageing fleet. Given the delay, what will be done to engage with communities in Uist and Harris on any revised delivery date?

The Deputy Presiding Officer

That was not very quick. Can we have a quicker answer, please, cabinet secretary?

Derek Mackay

We are straying into the transport minister’s territory. However, as I have said, I have made resources available for resilience, and we will engage with communities. My on-going commitment is to continue to report to Parliament on the progress of the vessels and the progress that we are making. If there is any substantial change to the costs or to the timescale that I have set out, I will ensure that members are aware of it. As I have already pointed out, Alasdair Allan has been very enthusiastic in ensuring that the vessels are delivered. That is why I know that he will be delighted to know that we will finish the job.