Ferguson Marine: Fears for future of state shipyard over lack of work

And it has been revealed serious questions have been raised over the legality over Ferguson Marine receiving a vital direct award from the Scottish Government crucial for its future for the construction of up to seven small 'loch class' ferries for CalMac.

Meanwhile it has emerged vital contract work with BAE Systems - which is delivering City Class Type 26 frigates on the Clyde and trumpeted as "signalling a new dawn" at the yard has been valued at just £2m.

Former Ferguson Marine owner, tycoon Jim McColl said that the shipyard firm would be insolvent without the taxpayer millions that was being pumped in by the Scottish Government, describing it as a "disaster" saying there is a "big black hole" on its future after the delivery of two much-delayed ferries that are still to be completed.

Ferguson Marine sources have admitted that the BAE contract was "modest" but it was hoped that it would lead to bigger contracts "once Ferguson proves it can do the job"

Ministers earlier this week sanctioned a cash injection of £61m in this financial year after a similar sum last year as Ferguson Marine tries to deliver two long-delayed and hugely over-budget ferries.

READ MORE: Ministers do not rule out more public money millions over ferry crisis

Ministers were accused of presiding over an “outrageous mismanagement of public funds” earlier this week after pressing ahead with the second ferry at the Ferguson shipyard, known only as Hull 802, despite learning it was not value for taxpayer money and that it would be cheaper to scrap the vessel and tender for a new one.

The £97m contract to build the ferries Glen Sannox and Hull 802 has been beset with delays and soaring costs - and is now over five years behind schedule.

Analysis of the money trail based on the Scottish Government's own accounting and audits revealed that with an extra £61m sanctioned for this financial year, the cost to the taxpayer of supporting Ferguson Marine both before and after it forced its nationalisation has soared to more than £450m.

Cost overruns in Scotland.

The Ferguson Marine board have said that it is felt that for the shipyard to improve its efficiency and to be competitive in the broader market, it must secure a pipeline of repeatable work over several years.

And it highlighted two opportunities - the 'loch class' project and the development of work in support of the warship programme with BAE.

It was recognised by the board as "strategically important for Ferguson Marine" prior to any other consideration of more complex, larger vessels in the future.

But Scottish Government documents seen by the Herald on Sunday have revealed serious questions on Ferguson Marine being able to get any direct award from ministers on constructing vessels - as questions were raised over why contracts for four larger ferries were given to a shipyard in Turkey.

A briefing note to ministers about the Turkey contracts said that a direct award of the vessels "is not legal" but they would still be "looking at future contracts".

"Direct award of contracts is only possible in strictly limited circumstances under UK public procurement rules," it said.

"Breaching these rules could lead to legal challenge costing the taxpayer and causing delay. So, we have to be careful but we are looking at future contract from public agencies and whether any might be legally open to direct awards."

Details of Ferguson Marine board discussions from February have further raised further concerns about the future.

According to an official account of discussions, non-executive director Christopher Mackay, an experienced construction and projects lawyer warned that the board "have to have an eye on the solvency issue with [Ferguson Marine] if we do not have a workstream."

Video: The then First Minister launched the Glen Sannox in 2017... it has still not set sail with passengers.

It was noted that a secret report from consultancy firm First Marine International (FMI) had said the yard needed to be "three times more productive".

Last year the Scottish Government paid around £200,000 to FMI which has specific expertise around shipyard competitiveness, to help turn around the yard’s fortunes. It was the second report after Ferguson Marine hired the company a year earlier for similar work.

Ferguson Marine confirmed non-disclosure agreements are in place around the two reports, meaning they contractually can never be published.

But board documents say the FMI report also suggested that the yard "cannot manage" both the BAE and the 'loch class' small vessels projects at the same time. Ferguson Marine disagreed with that.

Chief executive David Tydeman in an update on the 'loch class' ferry project said the Scottish Government-owned ferry owner and contract awarder CMAL would like to start the public procurement process in the spring "if there is no appetite for a direct award before then".

According to an official account of discussions, Kate Hall, deputy director of the strategic commercial assets division of the Scottish Government said there were direct award productivity assessments and it was "a complex issue".

It said: "The Scottish Government do look at social economic benefits when looking at decisions. Productivity in the yard needs to be higher."

Mr McColl said: "Ferguson Marine won't get anything from BAE other than small fabrication work. It is not a commercially run yard. It is a disaster.

"They are unlikely to get any work of quantum because it is a very inefficient low productivity operation. What they have is some simple fabrication work. It is nothing."

He said he would be unlikely to take the yard over if it was put back into private hands by the Scottish Government despite being in favour of a comeback in the past.

He said it would need two years of working capital that would have to come from government to allow the order book to be built up."

The financial collapse of Mr McColl's Ferguson Marine which runs the last remaining shipyard on the lower Clyde, in August 2019, came amid soaring costs and delays to the construction of the two ferries and resulted in a Scottish Government takeover.

It came five years after tycoon Jim McColl first rescued the yard when it went bust.

"I bought it because I believed it has a good commercial future, but not the way it is run just now," he said.

"The people at risk here are the workforce. They are in a position where the government have made it so uncompetitive and uncommercial it is difficult to see how it can be turned round."

READ MORE: ScotGov grants £60m+ extra spend on fiasco ferries despite value fail

Separate Ferguson Marine documents have revealed that the board were concerned about a persistent difficulty in being able to recruit the necessary trades and skills required to meet the requirements of the project plans - due to shortages of key skilled labour resources in the market place. It said the effect of this has been mitigated by placing discrete packages of work with subcontractors and the increased use of agency and contract workers.

Audit Scotland has continued to raise questions about the yard's future despite attempts by new management to map out a long-term plan beyond the delivery of the two ferries.

Nationalised Ferguson Marine has previously responded to concerns over its status as a going concern by insisting there is a strong future for the business, despite its last annual financial review for 2021/22 admitting there was "significant doubt" over its ability to continue as a going concern over questions over future funding.

The board of directors went on to say that they are working with the Scottish Government to "continue to develop our strategy and processes to deliver a sustainable business model which will secure the long-term position of the company".

The Scottish Government in response to concerns said its priorities were to complete the ferries and secure the yard's future, while the deputy first minister said that ministers remained "committed to do all that we can" to help achieve a prosperous future for the yard.

Ferguson Marine say the BAE contract involving fabrication work for just one of the Type 26 vessels being built on the Clyde is around 5% of the value of what the yard might secure if it completes what was a pilot project well.

It involves fabricating three steel units which are to be transported to BAE Systems’ Govan shipyard ready for assembly on what is the third frigate in a series of eight warships that is being built for the Ministry of Defence.

After the award, Mr Tydeman said it heralded "a new era for commercial shipbuilding at Port Glasgow, one we have painstakingly planned and prepared for".

He added: "It demonstrates the ability of our skilled workforce to secure complex new contracts in a commercial environment. And this is just the beginning. We plan to grow our expertise and capabilities to win additional commercial contracts and adjacent markets."

A source added: "The Ferguson Marine chief executive is well aware that he and his team need to earn the confidence of key stakeholders to secure this work."

Timeline

August 2015: Scottish ministers announce Ferguson Marine Engineering Limited (FMEL) as the preferred bidder for the contract to build new CalMac ferries at cost of £97 million.  The first was due to enter service early in 2018, with the second following a few months later.

September 2015: FMEL says it is unable to provide a full builders refund guarantee, a mandatory requirement of the contract.  But government-owned ferry owner and procurer CMAL says it was "effectively instructed" to award the contract to the company owned by independence-supporting Jim McColl.

September 2017: Ministers provide FMEL with a £15m loan to help with cash flow.

June 2018: Scottish Government provides FMEL with a further £30m loan to "further diversify the business" but the Herald later reveal that its real purpose was to support what was a struggling company and came with it "a right to buy".

August 2019: FMEL enters administration and the Scottish Government take control under a management agreement and appoints Tim Hair as turnaround director.

December 2019: Scottish Government completes the move to take the shipyard firm into public ownership and renames it Ferguson Marine Port Glasgow (FMPG). It is estimated it will cost another £110m to complete the vessels.

December 2020: A damning Scottish Parliament Rural Economy and Connectivity Committee probe brands the procurement of the ferries as a "catastrophic failure" and calls for a "root and branch overhaul".

February 2022: Mr Hair advises the Scottish Parliament of vessel delays due to a serious cable problem on Glen Sannox.

March 2023: A long-awaited Scottish Parliament Public Audit Committee report into the Ferguson Marine ferries fiasco identified serious failings, including Nicola Sturgeon’s decision to prematurely announce the shipyard as preferred bidder.

March 2023:  Audit Scotland says uncertainty remains over the final costs and completion dates and raises concerns over performance bonuses to senior managers at Ferguson Marine Port Glasgow.  The public spending watchdog says the two vessels were estimated to cost £293 million, with delivery already five years late.
The Herald revealed that the Scottish Government had pumped more than £450m into the shipyard firm before and after nationalisation amidst a series of overspent budgets.

May 2023: Ministers sanction a £61m budget for Ferguson Marine for 2023/24 after eight months of due diligence, which found that it was not value for money to complete the second of the vessels, known only as Hull 802.