Jim McColl accuses ScotGov of 'falsehood' as ferry fiasco probe launched

Public spending wathdog Audit Scotland confirmed it had been hampered in their attempts to conduct a wider investigation into how the £97m two- ferry contract's price escalated because it did not have statutory powers to make inquiries over Ferguson Marine as a private company under the leadership of tycoon Jim McColl.

Two lifeline ferries for Scottish Government-owned CalMac were ordered in 2015 when Ferguson Marine was owned by Mr McColl, a then pro-independence businessman who rescued the Inverclyde shipyard firm from administration a year earlier.

READ MORE: All you need to know about the Ferguson Marine bailout

When Mr McColl's pre-nationalisation Ferguson Marine Engineering Limited (FMEL) entered administration in August 2019, it had received £83.25m in milestone payments from the government-owned ferry owning and procurement agency Caledonian Maritime Assets Ltd (CMAL) and £45 million in loan payments from the Scottish Government - yet the vessels were largely incomplete.

Delivery is now over six years late with costs expected to quadruple compared to the original £97m contract costs.

Now it has emerged that an investigation into the money trail is being outsourced to external auditors, at a cost to the public purse expected to run into thousands, and will feature a deep dive into the financial accounts of Ferguson Marine before it was nationalised.

But the Herald understands it will be limited to where the money went.

Mr McColl has told the Herald that it would have to look at more than just the financials otherwise it would be another waste of public money.

He says any desktop exercise would not get to the bottom of the affair, and that it should look into what he called the 'false representation' by ministers and Scottish Government-controlled ferry owners and procurer Caledonian Maritime Assets Limited (CMAL) over the assertion that the £97m contract was a fixed price, meaning the costs could not rise.

He believes that the core of the issue came because CMAL made a knowingly false assertion intended to mislead.

Mr McColl has been calling on Audit Scotland to change the record that states that the contract was a fixed price contract as he says it was clearly not.

Issues over whether it was a fixed price led to CMAL refuting a claim for £67m over the £97m proposed price to complete the ferries under Mr McColl's Ferguson Marine.

The Scottish Government concluded two months before Mr McColl's Ferguson Marine went under nearly five years ago that there was no legal basis for CMAL to pay more than what it said was a £97m fixed price.

Mr McColl says if the extra costs claim had not been rejected because of the idea that it was a fixed price, the ferries would have been built for just £200m rather than the current costing.

(Image: Jane Barlow/PA)

The full unredacted contract for the building of the first of the two ferries, Glen Sannox , seen by the Herald, states that the buyer [CMAL] had the right to request "reasonable modifications and changes" and that the consequences "may included changes in the contract price, delivery date, capacity, draft, speed, fuel consumption, or any other provisions of this contract".

Another clause states that sums due or refundable as a result of "modifications and changes" shall be added to or deducted from the "final instalment".

The focus of the new probe would be on FMEL which spent over £128.25m in public money in relation to the building of the two wildly delayed and over budget lifeline ferries which have not been delivered.

The former owner of the beleaguered shipyard firm Ferguson Marine wants a wider investigation which should include the reasons for the soaring costs of the delivery of two lifeline ferries that remain incomplete at Ferguson Marine's Inverclyde yard.

He said a full forensic probe into what happened while he was in control of Ferguson Marine - believing that the depth of the "scandal has not been properly exposed".

And he says that any probe will not find that the money was spent on anything other than the ferries.

He said: "They need to look at what gave rise to the costs. It has to be a broader than a desktop look at accounts.

"The scope would need to be broad enough to get to the bottom of the problem. What has happened with Audit Scotland is that their scope was far to narrow.

"The key here was that it was not a fixed price contract, meaning there was no way to pay more, and that is what CMAL repeatedly stated and it is falsoe misrepresentation. This was repeated by John Swinney [the current First Minister] and the disgraced finance Derek Mackay. I don't know whether he [Mr Swinney] was in on it or if it was an agreed stance to take."

CMAL deny false misrepresentation and maintain that it was a fixed price contract.

Audit Scotland previously said there are legal issues getting in the way of their attempts to properly scrutinise what happened at FMEL.

That is because they do not believe they have the statutory powers to undertake a forensic analysis of Ferguson Marine's records as it is not a specified body subject to scrutiny under the Public Finance and Accountability (Scotland) 2000.

The public spending regulator has said that ministers would have to make a special order to make FMEL a body subject to scrutiny under the Act.

The Scottish Parliament's Public Audit Committee submitted a request that the order be made by then wellbeing economy secretary Neil Gray nine months ago.

Now ministers have decided that the most "efficacious option" would be to have the accounting records held by FMPG, passed to independent accountants who could then carry out this examination on the Scottish Government's behalf.

They have said the route has been agreed with Audit Scotland and the nationalised Ferguson Marine board is being requested to hand over all the accounting records to Scottish Government to allow the examination and the production of a report.

Include in the proposed scrutiny is the £83.25m of the £97m contract that was paid to Ferguson Marine by CMAL as milestone payments for the completion of the project - despite the fact they were largely incomplete.

Also included in the review is how two loans worth £45m that was given to the yard was spent.

The Herald has previously revealed that when in 2018, the then finance secretary Mr Mackay was telling the public a £30m loan was to "further diversify their business", internal documents stated that the real reason was that Ferguson's was in financial trouble and at risk of falling into administration risking delays to the ferries project.

Derek Mackay at the start of the Glen Sannox build

The loan agreement came with a "right to buy" providing a pathway to nationalisation when it was renamed Ferguson Marine (Port Glasgow).

The public spending watchdog said that while consultants PricewaterhouseCoopers was providing the Scottish Government with reports on FMEL spending, they did not go into detail on where the money went, so were "unable" to trace exactly how that money was spent and what progress was made on the vessels as a result.

Audit Scotland previously found that ministers went ahead with the contract despite the concerns raised by CMAL over the lack of financial guarantees that placed them at risk.

When the build ran into trouble, the shipyard firm fell into insolvency and was nationalised with the Scottish Government in control and with Mr McColl and CMAL blaming each other for the fiasco.

The auditors' examination of the issues said there was no documented evidence to confirm why Scottish ministers were willing to accept the risks of awarding the contract without a builder's refund guarantee in place despite the concerns.

Officials say that without a builder's refund guarantee in place, there was no link between the payments that CMAL was making and the quality of the build.

In an initial investigation into what happened before nationalisation, Auditor General Stephen Boyle said that records relating to transactions were "not organised or categorised".

Mr McColl said: "I welcome an investigation into where the money went because it went into the ships," he said. "But it needs to look at why it was needed.

"It is easy to do a review of the records, and the default position is that FMEL didn't do it properly.

"There would be no proper exposure of what caused the costs, so if they are just looking at the financials... it would be very easy to set up a review like this which is just a waste of money. Because, I tell you they won't come up with anything that shows anything wrong with where the money went.

(Image: Newsquest)

A CMAL spokesperson said: “The contract with FMEL was a standard design and build contract used throughout the world in commercial shipping. It was unequivocally a fixed price contract and we – again - firmly reject any allegations to the contrary.

“Within these types of contracts there are clauses that allow for variations between both parties; in the case of FMEL, the agreed variation was £1.6m across both dual fuel vessels. CMAL normally allows up to 3% [in this case that would have been £2.9m] so the agreed variation was well within the maximum contingency amount.

“It bears repeating that it was FMEL’s own decision to commence the build of hull 801 before FMEL’s design was fully developed. Its claim for £66m only accounted for the period until August 2018, and has been found to be entirely without contractual foundation by three separate QC opinions.

“FMEL also declined to take up the option to test its claim in court. Someone needs to ask why it failed to do that?"

Mr McColl says that this was because the contract states that mediation and arbitration before anything is taken to court which was refused and resulted in a legal claim against CMAL.

“As a public body CMAL will never entertain paying monies to an organisation that are not legally due," said the CMAL spokesman.

A Scottish Government spokesman said: "We are in the process of commissioning an independent examination of the accounting records of the former Ferguson Marine Engineering Limited.

“The report from this will be presented to both Audit Scotland and the relevant Parliamentary Committees in due course.”

The new probe is also not expected to cover allegations that the awarding of the ferry fiasco contract to Mr McColl's Ferguson Marine was rigged.

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".