Scotland's ferry fiasco: Offshore firm benefits as taxpayer millions spent on fixing damage already done

The taxpayer-funded award has been made to Isle of Man-based International Contract Engineering Ltd to supply engineering servies for the stalled construction of MV Glenn Sannox to "correct and complete" the design.

The Isle of Man, a self-governing territory that is part of the British Crown but enjoys separate autonomy, since its days as an Edwardian seaside resort has more recently has been accused of selling companies' escape from taxes and transparency.

Details of the taxpayer spend comes after it emerged £777,500 was given to Kirkintilloch-based Alliance Project Controls Ltd to supervise the construction work. That contract also did not go out to competitive tender.

The Scottish Government took Ferguson Marine into public ownership at the end of last year after the Port Glasgow yard fell into administration while the cost of delivering the ferries soared from £97m to over £195m. The former management of Ferguson Marine Engineering Limited (FMEL) believe that that has now soared to over £300m.

READ MORE: Firm gets £777,500 taxpayer funded contract to resolve Scots ferry fiasco

The move came after administrators agreed final terms for the transaction with Scottish ministers.

The EU has previously confirmed it was not notified of the state takeover or the issuing of two commercial loans to Ferguson Marine Engineering Ltd (FMEL) in Port Glasgow totalling £45m before the yard fell into insolvency.

Ferguson shipyard won the £97m contract to build two new ferries for Arran and the Hebrides in 2015.

Former Ferguson Marine owner Jim McColl threatened legal action as far back as September 2018, claiming design changes had added to the cost of the £97m contract.

The ships were to be a new hybrid design - powered by marine diesel oil and liquefied natural gas.

The MV Glenn Sannox was due to enter service in the summer of 2018 but construction delays meant that was put back and before the coronavirus pandemic, it was not expected to be ready until the last three months of 2021. It was due to service the Arran to Ardrossan crossing which was the focus of widespread cancellations in March due to safety issues.

A 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. The pre-coronavirus estimate was that it would not be ready until July or August 2022.

The Scottish Government has admitted that this timeline may be impacted by an "extended period" of Covid-19 lockdown but that "design is currently the critical activity and that is progressing well with both ICE and Ferguson engineers working effectively from home".

A Scottish Government-commissioned report into the ferries in December found a lack of project management which meant no one person fully understood the complex construction of the vessels. It claimed poor care had led to equipment damage in the Glen Sannox. Rain had got into Hull 802 and affected its paint protection.

According to details of the contract given to ICE it was to provide work over the supply of engineeering for a revision to the basic design of MV Glenn Sannox. It involves services surrounding the completion of the "detail design and production information".

The new design came after an investigation of the status of the partly-constructed vessel – including performing a laser scanning survey of technical spaces.

It said that the justification for not going to a competitive tender was: "Extreme urgency brought about by events unforeseeable for the contracting authority...."

READ MORE: Law Society of Scotland issues state aid warning to government over ferries fiasco

It added:"The services offered by the supplier were identified as a key requirement to get the design of the vessels onto a schedule that would allow the ships to be built in the shortest time possible. Due to these time restraints and the urgent requirement for the services, the contract was awarded as a NCA [non-compete agreement].

The yard collapsed last summer owing more than £49m to the Scottish government, and it was eventually taken into public ownership.

It led to a war of words between former Ferguson owner, tycoon Jim McColl, the Scottish government and Caledonian Maritime Assets Ltd (CMAL), the taxpayer-funded company which owns and procures ferries.

It led to concerns about the nation's ferry procurement process now engulfed in four levels of Scottish Government-controlled bodies - CMAL, Ferguson Marine as ferry builders, Transport Scotland as funders, and ferry operators CalMac.

In February, the Competition and Markets Authority watchdog warned of the dangers of 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”.

That came as the Scottish Government faced questions about failing to notify the EU about nationalising Ferguson Marine after being found to have given £50m of "illegal state aid" to two airports.

Illegal state aid was found to have been made to Sumburgh Airport on Shetland and Inverness Airport after both received taxpayer support that had not been approved by the European Commission.

Contract award details revealed that the Alliance Project Controls award was also made without prior publication for a "call for competition" in the Official Journal of the European Union.

The justification given for avoiding going for tender was also given as: "Extreme urgency brought about by events unforeseeable for the contracting authority..."

It said the project managers were originally contracted when Ferguson Marine were in administration and that "this is therefore a continuation of that contract".

The details briefing continued: "The services offered by the supplier were identified as key requirement to get the planning of a detailed build programme for the vessels and create a schedule that would allow the ships to be built in the shortest time possible."

It said the contract was awarded in accordance with Public Contracts (Scotland) Regulation 33.1 (ii) on the basis that there is "now a body of knowledge and understanding built up by the supplier that cannot be readily transferred within a reasonable timescale".

The Herald on Sunday previously revealed concerns by the Competition and Markets Authority about the "potential risks" of state control over the ways are operated, run and paid for in Scotland.

It said 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 watchdog, which has responsibility for investigating entire markets if they think there are competition or consumer problems, had 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..."

A Scottish Government spokesman said: "The award to ICE was subject to proper approval as a non-competitive action. The need to move promptly was one of the factors considered in the approval.

"The Turnaround Director’s report, released in December 2019, identified the ability to increase resource at Ferguson and the management of the existing design contractor as key challenges. The report also made reference to ICE, an internationally-recognised ship design specialist, as a potential source of additional technical resource.

"Ferguson’s management subsequently concluded that the best solution was to consolidate the outsourced design to ICE and to access the large pool of graduate Naval Architects and Engineers that they employ.

"The Turnaround Directors report identified that the design of the ferries was immature and incomplete and this had been the cause of major rework on the ferries. The report also identified that the design work would be completed by zone in order to allow the production work on the ferries to be completed with any change minimised.

"The work contracted with ICE is for the completion of the design to produce the required production information and also to correct previous problems identified. The work is proceeding as described in the report."

ICE were approached for comment.

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