Auditors refuse to carry out Scots ferry fiasco contract probe

Scotland's public spending auditor has come under fire over a refusal to carry out a new inquiry over allegations the awarding of the ferry fiasco contract to tycoon Jim McColl's Ferguson Marine was rigged.

Audit Scotland said in October 2022 that there were concerns and claims relating to whether state-owned ferry owners and procurers Caledonian Maritime Assets Limited (CMAL)  "followed due process" in relation to the contract award in October 2015.

But now it has decided not to continue with inquiries into the procurement controversy.

A review subsequently carried out by a CMAL-commissioned senior lawyer into the procurement of the wildly delayed and over-budget lifeline ferries still to be delivered from the now-nationalised Ferguson Marine found no evidence of fraud though it found parts of the process were "not entirely satisfactory".

Barry Smith KC's report did state CMAL had the view during the procurement process and prior to the announcement that "Scottish ministers were determined that the contracts should go to FMEL".

The Herald revealed in May 2022 that Ferguson Marine could not fulfil mandatory requirements to qualify to contest for the contract for the two lifeline ferries which remain languishing in an Inverclyde yard.

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.

Read more:

Exclusive: Ferguson Marine's vital bid for new ferries to be more pricey than rivals

The fails, which raised questions about the legality of the procurement process, were revealed in a confidential Pre-Qualification Questionnaire (PQQ) completed by tycoon Jim McColl's Ferguson Marine Engineering Ltd (FMEL) before it was ever even considered as a preferred bidder for the building of Glen Sannox and Glen Rosa to serve Scotland's islands.

There have been further claims that Ferguson obtained a 424-page 'crib sheet' from a design consultant setting out CalMac's technical requirements, while other bidders had to rely on a more limited 125-page specification. CMAL says this was not provided by them.

But particular focus fell on the failure of Ferguson to offer a builder’s refund guarantee, which would have protected public money once construction ran into problems – which it did.

Mr McColl has said that he only bid for the work on Glen Sannox and Glen Rosa after receiving written guidance from transport minister Derek Mackay that refund guarantees were not mandatory to win building work.

The Herald revealed that ministers offered a special £106m incentive to ensure Mr McColl’s Ferguson got the £97m contract to ease the concerns of CMAL over the lack of the BRGs which would put them and the taxpayer at financial risk.

CMAL which procures ferries for the CalMac fleet said they were "effectively instructed" by ministers to award the contract to Ferguson.

And Auditor General Stephen Boyle said 16 months ago he was considering expanding previous audit work done on the ships in the wake of the mounting evidence.

Audit Scotland previously questioned why a builder’s refund guarantee – which would protect the buyer – was not part of the contract with Ferguson Marine despite usually being a mandatory consideration.

But Audit Scotland in the wake of the CMAL-commissioned investigation and report had decided not to undertake any further inquiries into the contract award affair.

The auditors said they were "satisfied" that the investigation was "both independent and thorough and that his conclusions were reasonable."

They state: "This investigation highlights some concerns over specific aspects of the procurement process. I am satisfied that CMAL and Transport Scotland have taken steps to correct the issues highlighted in the report and continue to look for opportunities to strengthen their processes."

Read more:

Scotland's Ferries | 'Scandal': CalMac 'denied travel' to ferry passengers in favour of empty gas bottles

Mr Boyle said that having "considered the position carefully" he concluded that a further inquiry "would not add sufficient value to the ongoing scrutiny of the delivery of the vessels".

But Richard Leonard, convener of the Scottish Parliament's public audit committee, has called on Audit Scotland to reconsider.

In a message to Mr Boyle he said: "As you know, following the allegations made about the procurement procedure for [Glen Sannox and Glen Rosa]... one of the key findings of the committee’s report...  was to encourage you to undertake a comprehensive audit of the entire procurement procedure for the vessels at the earliest opportunity.

"The committee is disappointed at your decision at this time, given the outstanding issues that remain regarding the way in which the early stages of the procurement process were handled. In welcoming your commitment to report further, once the vessels are complete, we ask that you give further consideration to carrying out an in-depth analysis of the entire procurement process as part of this work."

Kevin Hobbs, chief executive of CMAL, has accepted that the lawyer's report raised issues relating to the procurement which "in retrospect CMAL would do differently".

He said they included "unclear drafting" of the PQQ relating to the "minimum mandatory requirement".

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

Sign up for Scotland's Ferries and get extra from the journalist who broke the story.

He said the CMAL finance director had been sufficiently reassured that Ferguson Marine had met the PQQ criteria in relation to financial standing and the builder's refund guarantee.

Mr Boyle previously said that if a decision was taken to re-investigate he would focus on “the circumstances that allowed (Ferguson Marine) to progress beyond the pre-qualification stage of the procurement, despite being unable to meet the mandatory requirements”.

An Audit Scotland spokesman said: "The Public Audit Committee have made clear its continued interest in arrangements to deliver vessels [Glen Sannox and Glen Rosa]."