Scottish ferries fiasco: competition watchdog issues stark warning to ministers

In an analysis, the CMA has warned of the dangers of now government-owned Ferguson Marine being awarded work without a competitive tender process, saying "it is unlikely to make it a commercially sustainable business" and "it may also have a negative impact on the wider industry".

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It comes amid an increasingly bitter battle raging over how the £97 million project for two ferries is now costing nearly £230m with no sign of either being available to passengers in the near future.

One of the ferries, MV Glenn Sannox – which is destined for the Arran-Ardrossan route – was due to enter service in the summer of 2018, but construction delays meant that was put back.

The second vessel, known as Hull 802, was supposed to be delivered to CalMac in the autumn of 2018 for use on the Uig-Lochmaddy-Tarbert triangle, but that has also been held up.

Now the trade regulator has stepped in and and said the future procurement process should be "neutral" and ensure it "doesn't favour a state provider".

The CMA added it would be "happy to engage" with the Scottish Government to help develop its thinking on how to procure goods and services while fostering competition across the sector.

The two new "dual fuel" boats, the first UK-built hybrid ships capable of running off liquefied natural gas as well as conventional diesel, are being built by Ferguson Marine Engineering Ltd (FMEL), formerly owned by billionaire Jim McColl, a member of the First Minister’s council of economic advisers.

The yard collapsed last year, with debts of £49m to the Scottish Government, and was eventually taken into public ownership.

Dr Alf Baird, an expert transport adviser to the Scottish Government, has given his own damning indictment of the nation's procurement process, saying it is primarily the result of "cocooning" inside three levels of Scottish Government-controlled bureaucracy.

He said this is Transport Scotland as funders, the procuring and ferry owning company, Caledonian Maritime Assets Ltd (CMAL), and ferry operators Calmac.

In a stark assessment given to ministers, Dr Baird said: "Within these three levels of bureaucracy, the senior staff are predominantly (not all), people who either don’t know much about the global ferry industry or don’t care. This is not a criticism, just an observation.

READ MORE: Scotland's ferry fiasco: how the tangled web of operators and owners works ... in theory at least

"Adding to this outdated infrastructures and a less-than-helpful attitude by the RMT union, results in Scotland holding the unenviable reputation of having the world’s highest ferry subsidy per head of population and one of the most outdated and inefficient state ferry fleets.

"There is no sign of improvement unless there is a paradigm shift in thinking by the Scottish Government. "

His assessment revealed that publicly procured ferries in Scotland are typically up to three times more expensive than comparable private and public/private ferry procurement globally.

While Norway had introduced over 100 new ferries in the past decade alone, Transport Scotland seems incapable of even replacing one ferry annually, said Dr Baird.

There has been continuing questions about why the contract was originally awarded to the Ferguson yard, with some pointing out it was the "highest price" of all the six yards competing for the job.

Liberal Democrat MSP Mike Rumbles last week accused the SNP Government of pouring taxpayers' money “down the drain” by “opting for a company that it was known to be cosy with”.

Concerns were raised in April last year that, as it stands, 16 of the 52 CalMac vessels were beyond their 25-year life expectancy.

Earlier in the week, Mr McColl, who took over Ferguson's in 2014, told MSPs that First Minister Nicola Sturgeon announced the details of the ferry contract, including the cost of the vessels, before it had been agreed.

He said Ferguson Marine was initially pushing for a price of £105m for both ships, but Ms Sturgeon made the award public before the final price was agreed – saying they would cost around £97m.

He told the rural economy committee Ferguson was "forced into administration" by the Government's actions.

Now the CMA has provided its own analysis for the inquiry about the challenges that need to be addressed in procuring new vessels.

It said: "It is important to note the potential risks where state-owned companies are both the supplier and procurer.

"State-owned procurers should be able to scrutinise and query the quality of the delivered product to ensure that it meets the required specifications and if not, hold a supplier to account regardless of ownership."

The watchdog, which has responsibility for investigating entire markets if they think there are competition or consumer problems, warned the events over the stricken ferry procurement process may have a "chilling effect" on future procurement "if a sufficient number of suppliers do not wish to participate".

And it suggested the Scottish Government move quickly after the current ferry procurement process is complete, to indicate that there "will be a focus on designing future procurement of ferries (and ferry services) that enables effective competition and encourages broad participation..."

It also said it is "important" for state bodies to ensure they are not "exploiting unfair advantages" such as using sensitive information to create an "unfair advantage" in the tendering process therefore stifling the "innovation or improved efficiency" that private firms may bring.

Paul Sweeney, the former shadow Scotland Office minister, laid much of the blame of the ferry "fiasco" on the beleaguered former finance secretary, Derek Mackay.

"The CalMac ferries fiasco is one of the biggest public procurement disasters in Scottish history. Decisions made by the ministers caused it," he said.

"This alone is gross incompetence on the part of Derek Mackay. He should explain why he refused to get a grip on the project when it was failing and why CMAL were being so hostile. It was a ridiculous Scottish Government vanity project that has gone disastrously wrong. Take responsibility."

In considering the implications of the Scottish Government decision to take Ferguson into public ownership for the duration of the current and future new ferry contracts, CMA warned about the "costs of crowding out private sector activity" while acknowledging there can be situations where direct provision of goods and services by government is in the best interests of consumers.

"Similarly, Government should ensure that public bodies that compete alongside private firms do not distort the market unfairly," the CMA said.

"The CMA’s view is that nationalised companies should be operated on an arm’s length basis and procurement by public bodies including state owned companies – such as Caledonian Maritime Assets Ltd (CMAL) – should be conducted on a level playing field, with both private and state-owned companies able to have opportunity to engage in the market and supply vessels," the analysis stated.

The Scottish Procurement Policy Handbook says that goods, services and works "should be acquired by effective competition ... unless there are convincing and justifiable reasons to the contrary".

It has emerged that Mr McColl in evidence to MSPs said that during the bidding process that he believed there had been a Turkish yard which had bid less than £70 million for the contract - at least £35m less than Ferguson Marine had first put forward.

The former Ferguson Marine chief said that he thought a points system was used to win the ferries tender and that it was "not all about price".  He also said they took the decision to "offer at cost and make no profit on the work" with the hope that it would act as a good reference for future orders.

And he agreed that the contract was more rushed than normal, saying he would normally have expected the contract specification to be "more fully fleshed out with most of the risks taken care of beforehand".

Glen Sannox was 'launched' on  November 21, 2017 by the First Minister Nicola Sturgeon

He claimed that since the Government moved in there have been no project planning or project management meetings in the previous six months.

The management said they had bid on the specification given at the time but the "critical part" was it subsequently changed with hundreds of alterations in 2017.

Gerry Marshall, the former Ferguson Marine chief executive in July 2017, presented "£14.7m cost overruns" but said that the figure was "just going to get bigger" because the full impact of the changes and the knock on effect would have significance further down the line.

Changes included cutting the number of passengers from per ferry from 1000 to 930, which meant further costs resulting from moving galleys, bulkheads and pillars.

And Mr McColl said: "We had the right to design, and our design was proper and fit for purpose and met the specification. If someone constantly comes back saying, 'No, we do not like it. Change it,' that is very difficult to manage."

He also said if they had been allowed to deal directly with Calmac "the ferries would be sailing now".

"One of the problems that we have had is that there are people sitting on the other side who do not really care about the cost, or who are not responsible for the cost implications," he said. "They thought that they could just pass it all on to us. They were really not thinking as a commercial entity, because any commercial entity would sit down and try to resolve the issue, knowing that the alternative would result in a bigger cost."

And he warned that the delivery of one of the ferries for October 2021 "was very ambitious" pointing out that the Government had dismissed, or was in the process of getting rid of, the remainder of the management while a lot of those who were involved in the initial project work had left.

He concluded: "It is dead clear what needs to happen. There is huge waste in the system.... With all due respect, the issue is much too big for the [rural economy] committee to be able to resolve.

"There should be a public inquiry, because this mess will not get any better otherwise."

A Scottish Government spokesman said: "We have secured the immediate future of the yard and are fully committed to delivering a sustainable future and maintaining shipbuilding on the Clyde.

“A strategy for future work will be crucial to the long-term viability of the yard and we are considering the best approach.

“While there is a lot of hard work to be done, the alternative for the Scottish Government was to walk away which would have resulted in hundreds of job losses and the yards closure.”