Ferguson Marine: Two faulty £240m ferries may never set sail with defects and costs rising under SNP control

There are now more faults with the ferries that need resolved than when the Scottish Government took control of the yard at the end of 2019.

The new costs, which now include £45m of 'lost' Scottish Government loans, are now two-and-a-half times the original contract price and more than three times the estimated budget in Transport Scotland’s business case of £72m.

But the new analysis has warned the price of the ferries could continue to soar as, more than two years after the Scottish Government took over control of the shipyard, significant operational failures still need to be resolved and further remedial work on the vessels continues to be uncovered.

The state-owned Ferguson Marine (Port Glasgow) board has reported there was a risk that it has underestimated the amount of work required to complete the vessels.

Ferguson Marine has told Audit Scotland that if the multiple issues are not resolved "there is a risk" that Caledonian Maritime Assets Ltd (CMAL), the taxpayer-funded firm which owns and procures ferries "will not accept the completed vessels".

READ MORE: Ministers axe ferry experts over 'dissenting voices' amid CalMac services 'fiasco'

The two dual-fuel ferries currently languishing at Ferguson Marine's Inverclyde shipyard, are meant to serve the Clyde and Hebrides but has been plagued with setbacks since they were first ordered in 2015.

State-owned ferry operator CalMac is now having to handle an ageing ferry fleet with lifeline vessels MV Glen Sannox and Hull 802 still under construction and delivery currently nearly five years late.

Up to August 16, 2019, the date at which Ferguson Marine under tycoon Jim McColl entered administration, CMAL had issued 346 owner observation reports (OORs) to FMEL, faults which have to be rectified as part of the contract. Of these, FMEL had resolved 180 (52 per cent) and 166 (48 per cent) were outstanding.

Nicola Sturgeon and Jim McColl at the Glen Sannox 'launch' in 2017

As at the end of January 2022, there were 175 outstanding OORs including incomplete structural work - which will increase costs and delays - nine more than when the Scottish Government took control of the yard.

CMAL has reported that it has had to issue "repetitive OORs" as they were not being addressed.

On January, just before controversial turnaround director Tim Hair exited Ferguson Marine, CMAL advised the Scottish Government that Ferguson Marine had failed to achieve a single programme completion date in the previous 20 months.

Meanwhile, it emerged at the time Ferguson Marine went into administration three years ago, CMAL paid Ferguson Marine 85 per cent of the contract value despite "significant outstanding work" being still needed on the vessels.

Shortly before Ferguson Marine went under, CMAL reported to the Programme Steering Group (PSG) that more than six people were working on Glen Sannox and no more than two people were working on vessel 802 at any one time.

Audit Scotland says that Scottish Government-appointed Turnaround Director (Hair) had limited time to assess the vessels, and there is no evidence that the updated vessel costs and timescales were ever challenged.

It has also said that Ferguson Marine does not receive the information it needs to effectively scrutinise progress of both vessels.

The watchdog also raised concern that the Scottish Government does not share full details of CMAL’s concerns about progress with the Ferguson Marine board.

Stephen Boyle, Auditor General for Scotland, said: “The failure to deliver these two ferries, on time and on budget, exposes a multitude of failings. A lack of transparent decision-making, a lack of project oversight, and no clear understanding of what significant sums of public money have achieved. And crucially, communities still don’t have the lifeline ferries they were promised years ago.

“The focus now must be on overcoming significant challenges at the shipyard and completing the vessels as quickly as possible. Thoughts must then turn to learning lessons to prevent a repeat of problems on future new vessel projects and other public sector infrastructure projects.”

Audit Scotland found that both Ferguson Marine and CMAL have both identified that there are "significant  challenges" that need to be addressed if the vessels "are to be delivered". 

CMAL had advised Ferguson Marine that it was concerned about its ability to resolve the OORs which included poor-quality pipework, and issued with cabling.

The report said: "[Ferguson Marine] will have to fully rectify the OORs that relate to  Lloyd’s Register and the Maritime and Coastguard Agency's regulations to ensure the vessels are safe and are issued with the required certificates before they enter service. 

"However, [Ferguson Marine] is concerned that it will be difficult to find solutions for  certain technical OORs. For example, [Ferguson Marine] advised us that remedying inaccessible equipment in vessel 801’s engine room would further delay the build and has suggested an alternative solution to CMAL. CMAL did not agree with this alternative solution.

"[Ferguson Marine] reported there was a risk that it has underestimated the amount of work required to resolve the outstanding OORs. It also reported that if the OORs are not resolved, there is a risk that CMAL will not accept the completed vessels."

CMAL also informed the Ferguson Marine that unless it provided safe access to valves, pumps, and auxiliary equipment on vessel 801 for operation and maintenance, there was a risk that it might not obtain its passenger safety certificate.

Audit Scotland said last month both CMAL AND Ferguson were having  discussions to try and  find solutions.

Effective project planning and resource management continues to be an issue, says Audit Scotland.

A lack of "robust work packaging" means that it is difficult to issue the correct instructions and materials to the workforce at the right time, the report says.

Ferguson Marine workforce representatives told Audit Scotland that the absence of effective planning and project management has led to inefficient working and wastage, with staff standing idle and usable materials being scrapped.

CMAL is also concerned that Ferguson Marine continues with out-of-sequence working, building without approval, and that improvements to its processes have not yet filtered down fully to the shop floor, slowing progress.

It also considers that there is a lack of supervision on the vessels to ensure adherence to production standards and designs.

In January 2022, it reported that this lack of supervision is resulting in a high number of incomplete tasks on the vessels.

The Ferguson Marine board and ministers had stated that they consider putting in David Tydeman as permanent chief executive will enhance the stability of the shipyard.

He has stated that Ferguson Marine and CMAL will work more collaboratively in future.

But Audit Scotland said that while these developments can be considered as "a positive" for the shipyard, there is a "risk that significant changes to its leadership results in a loss of knowledge and may create a period of uncertainty amongst the workforce".

It added: "This, alongside the recent announcement of further problems with the vessels, creates additional risks to vessel delivery which [Ferguson Marine] will have to manage."

Audit Scotland said that before Ferguson Marine fell into insolvency in 2019, ministers provided two loans worth a total of £45m to finish the vessels before it went into administration, but their impact on vessel progress is "unclear".

Glen Sannox was 'launched' by Nicola Sturgeon in 2017

The Scottish Government carried out due diligence prior to awarding the loans to FMEL, but the existence of a £15 million loan was "not transparent", said Audit Scotland.

Ferguson Marine, which had made changes to help address some of the challenges recognised there is a "real risk" that the vessel programme will suffer without buy-in from the workforce.

Its monthly reports now include a list of actions to mitigate this risk, including a series of employee engagement sessions which were due to start in January.

Responding to the report, Finance Secretary Kate Forbes said the decision to take Ferguson Marine into public ownership remains the correct one.

She said: “Not only did our efforts save the last commercial shipyard on the Clyde from closure, we directly rescued more than 300 jobs and ensured that the two vessels – which are vital for our island communities – will be delivered.

“There is no doubt that getting the vessels completed has been extremely challenging but let me be absolutely clear, these vessels must be delivered as soon as possible.

“There can be no ifs or buts when it comes to lifeline services for our island communities.

“I have made that expectation absolutely clear to the Ferguson Marine leadership and board, and we will continue to work closely with the yard to ensure the vessels enter service as soon as possible.

“The procurement process for vessels 801 and 802 was undertaken thoroughly, in good faith and following appropriate due diligence, and suggestions to the contrary are wrong.”

Liberal Democrat MSP Willie Rennie said: “This report places the blame for seven years of ferry failures squarely in the hands of SNP ministers.

“This is yet another example of the failed SNP industrial intervention policy.”

A Ferguson Marine spokesman said: “While significant operational improvements have been made in the past two years, and we have achieved build milestones on vessels Glen Sannox and 802, there remains a lot of work to do; the turnaround of the business has been extremely challenging. Progress has, of course, been seriously hindered by the Covid-19 pandemic. However, even taking account of that, progress has been slower than expected and desired.

"Completing the dual fuel ferries remains a top priority."

A CMAL spokesman said: “The report offers a fair and balanced representation of our role in the procurement process, contract management and project management for the dual fuel ferry project. It makes clear our initial concerns over the award of the contract and early reporting of progress and performance issues. We have acted professionally and appropriately in line with our legal obligations under the contract, which the report acknowledges, and it describes the lengths we went to in the interest of completing the vessels, and to protect jobs and support the shipyard.

“The dual fuel ferry project has presented significant challenges for our team. Island communities are still desperately waiting for the delivery of these ferries, and the time and cost overruns are extremely disappointing.

“We have already applied changes to our procurement and contract management processes because of our experience with this contract, and we will consider further improvements based on Audit Scotland’s report.

"We have established stronger collaboration between our senior teams, including the secondment of our senior vessels project director to the shipyard, which will provide added experience and expertise and improve decision making. We will continue to work in partnership and remain committed to the completion of the two ferries.”