Ministers to lose over £35m in ferry fiasco contract award 'sweetener'

The deal was put together to reassure CMAL that it would not be out of pocket if anything went wrong as CMAL executives had "severe misgivings" over Ferguson Marine's inability to provide mandatory financial guarantees.

The loss is on top of £45m in taxpayer-funded loans that were given to prop up Ferguson Marine when it was plunged into crisis over delivering the ferries - and was lost when it fell into administration in August, 2019.

According to an official money trail, the  Scottish Government's Transport Scotland agency ended up providing CMAL with £106m of public money by way of loan to cover the costs of the project including the original £97m contract in payments for the ferries and over £9m more covering further costs such as the ferry procurer's management and crew familiarisation costs.

Transport Scotland officials have now said that while it was previously confirmed that a total of £106m was provided  - they indicated it may be £14m less than originally stated with only £83.25m drawn down out of £97m allocated directly to the ferries.

READ MORE: Scots ministers urged to lift secrecy over ferry millions

Full details of the financial implications of the deal have come as it was confirmed that there has been no money paid to the Scottish Government by CMAL in relation to the loan. And an official list of current voted loans for payback in place seen by The Herald includes all four lifeline ferries currently being built in Turkey, plus 15 other delivered vessels - but not Glen Sannox or Glen Rosa.

CMAL would normally have been expected to pay off the loan with interest typically in 20 to 25 years using revenue it generates from the fees they get from the lease of vessels like CalMac's ferry fleet and harbour access charges.

It would normally be paid back in instalments as the project is ongoing at particular milestones with interest at the Public Work Loan rate applicable on the particular day. Before 2017 the accrued interest was repaid on delivery as a lump sum.

But ministers sanctioned the scrapping of the loan agreement after Ferguson Marine went into administration at the end of 2019 as costs and delays to the ferries soared.

Instead, it sanctioned that CMAL would only pay back the market value of the vessels as decided by an independent shipbroker from Transport Scotland on delivery.

But multiple industry experts The Herald has spoken to expect the market value of the vessels, if delivered, to be a total of between £50m and £60m - leaving the public purse out of pocket to to the tune of over £37.95m.

The Scottish Government has said there will be a new 'voted loan' with  interest.

The Taxpayers' Alliance, a freemarket pressure group, said the deal "stinks" and that further questions "need to be asked" over the contract award.

John O'Connell, chief executive of the TaxPayers' Alliance said: "Scots are smelling a rat in this dodgy deal.

"Taxpayers will be asking serious questions about the processes underlying this arrangement.

"Holyrood should urgently review these arrangements and reassure households that everything is above board."

A ferry user group official said that the full details of the deal "stank to high heaven" and believed that it was a "clear sweetener to CMAL to ensure there were no obstacles to ensure Ferguson Marine got the contract".

He said: "Islanders, as I always say, just want these ferries. They are so badly needed but we cannot ignore the undoubted scandal that has led us to the point while we are still waiting for delivery of the ships six years after they were supposed to have arrived. The dubious machinations of this arrangement between CMAL and the Scottish Government have got to be more closely examined."

Mr McColl, one of Scotland's richest men had acquired Ferguson Marine out of insolvency 11 months before becoming the preferred bidder.

He later told The Herald that he felt he was a "pawn" in the Scottish Government's hunger to save Ferguson Marine to protect Scottish jobs.

Mr McColl, formerly one of Nicola Sturgeon's own economic advisers, denied cronyism but said the SNP government favoured the yard and not him personally and wanted to make "political capital".

Once a supporter of the Scottish Government's policy of independence, but who says he now has no political leanings, Mr McColl said he looked to take on Ferguson Marine in a move partly brokered by former first minister Alex Salmond, who kept the entrepreneur abreast of businesses that needed saving.

"We may have got the contract, but not because of my connections with the SNP, but because of my connections with the previous leader [Alex Salmond]," he previously told The Herald.

SNP ministers came under fire for wasting public money after an inquiry into the ferries fiasco found that Ferguson Marine submitted the most expensive bid for the work out of six competing yards and also the highest specification.

But the shipyard firm fell into administration after a dispute with CMAL over the spiralling costs and delays in the construction of the ferries.

The two dual-fuel ships Glen Sannox and Glen Rosa are both still languishing at Ferguson Marine's Port Glasgow shipyard, six years late and costs expected to quadruple from the original £97m contract.

The deal was established after CMAL raised concerns after it sanctioned Ferguson Marine as the preferred bidder in August 2015 that it faced financial risk because the firm could not provide mandatory builder's refund guarantees - that would cover them should anything go wrong.

CMAL had registered concern that they were being put at commercial risk if Ferguson Marine became insolvent or failed to deliver on the ships without the full refund guarantees.

The Herald previously revealed that the special incentive deal sanctioned by ministers had included a key pledge that they would not have to repay anything until after the vessels had been delivered.

There was also a promise of other public funding to cover other performance risks to ensure it did not lose out and further money to meet any debts to ensure CMAL remained in existence.

Email trails indicate that transport minister Derek Mackay gave final approval for Ferguson Marine to get the contract in October, two months after being named as preferred bidder, despite CMAL concerns.

The SNP's deputy leader Keith Brown, who was then infrastructure, investment and cities secretary, had originally approved Ferguson Marine as preferred bidder for the contract as Mr Mackay, who as transport minister was his junior, was on leave.

An official email showed that Mr Mackay had supported the deal going finally going through to the firm run by then independence-supporting Mr McColl before Mr Brown signed off on it, while a key adviser to the First Minister was also kept in the loop.

The 'bombshell' CMAL loss comes on top of the of the two lost loans for £30m and £15m given to Ferguson Marine by way of Scottish Government intervention as the ferries project got into trouble. Ministers' public pronouncements at the time of the £30m loan in the summer of 2018 stated that it was in place to diversify the business – but it was revealed through confidential internal Scottish Government papers that it was because Ferguson Marine was in financial trouble while dealing with the contract.

The documents revealed that the agreement was clearly linked to the delivery of the vessels and the dispute between FMEL and Scottish Government-controlled ferry owner CMAL over the rising ferry costs.

The Herald revealed that the loans created a path to controversial nationalisation as the agreements came with a "right to buy" proviso.

The Scottish Government began the process of taking control of the last civilian shipyard on the Clyde in August 2019 as it went under as a result of the ferry fiasco.

The Scottish Government said it believed it was acting in the public interest in taking complete control of Ferguson Marine by December, as it saved the yard from closure, rescued more than 300 jobs, and ensured that the two vessels under construction would continue.

A review by a CMAL-commissioned senior lawyer into the procurement of the much delayed and over-budget ferries still to be delivered from the now-nationalised Ferguson Marine found no evidence of fraud amidst allegations the contract award was rigged, though it found parts of the process were "not entirely satisfactory".

But CMAL has said the shortcomings would not have stopped the award of the contract to Jim McColl.

Barry Smith KC's report stated that CMAL had the view during the procurement process and prior to the announcement that the contract had been given to Ferguson’s that "Scottish ministers were determined that the contracts should go to FMEL".

The Herald revealed in May last year that Ferguson Marine could not fulfil mandatory requirements to qualify to contest for the contract for the two ferries.

Evidence showed that the tycoon's shipyard firm which was favoured by the SNP government could not give a commitment to provide a mandatory builder's refund guarantee (BRG) as required and was unable to provide other crucial financial details.

The omission that raised questions about the legality of the procurement process was revealed in a confidential Pre-Qualification Questionnaire (PQQ) completed by Mr McColl's Ferguson Marine before it was ever even considered as a preferred bidder.

It stated that an inability to meet mandatory requirements would result in exclusion not just from any future bidding process, but from the scoring exercise itself. That would mean failing at the first of what was a three-step procurement hurdle.

But Ferguson Marine remained one of six companies with the highest scores which were to be taken forward to the tender stage before a preferred bidder was identified.

The guarantee had to be in place before work started and bidders such as Ferguson Marine had to provide an "evidentiary statement" in the form of a letter from the bank confirming a willingness to provide the guarantee "if requested to show you can provide this requirement".

But Mr McColl's Inverclyde-based shipyard firm was unable to make a firm commitment on the guarantee in the PQQ. It was also unable to provide historical financial information at the time as the company Ferguson Marine Engineering Ltd had been recently formed.

The KC said that the question relating to the minimum requirements was "poorly worded and lacking clarity" but felt that it was incorrect to say that failing to meet the minimum requirement should have resulted in exclusion from the process.

A Scottish Government spokesman said: “The original contract was cancelled along with the loan. The normal voted loan process will apply when the vessels are handed over and this will be based on market value at the time of the handover.

“We have been open and transparent about this process. "