Revealed: Ministers intervened to give another contract to Ferguson Marine in new 'rigging' row

The lack of the mandatory financial safeguards sanctioned by a ministers’ intervention is at the centre of continuing claims of contract rigging over the award of two lifeline ferries Glen Sannox and Hull 802 to the yard run by the formerly Yes-supporting Mr McColl, a friend of ex-First Minister Alex Salmond and a former economic adviser to the present encumbent Nicola Sturgeon.

Ministers offered a special incentive to ensure Mr McColl’s Ferguson got the £97m contract to build Glen Sannox and Hull 802 to ease the concerns of state-controlled Caledonian Maritime Assets Limited (CMAL) over the lack of the BRGs which would put them and the taxpayer at financial risk if things were wrong - which it did. CMAL which procures ferries for the CalMac fleet said they were"effectively instructed" by ministers to award the contract to Ferguson.

Board papers seen by the Herald on Sunday from CMAL which owns the ferries, ports, harbours and infrastructure for the ferry services serving the west coast of Scotland confirm a letter of comfort was received to allow the MV Catriona contract with Ferguson Marine to go ahead eight years ago.

Comfort letters are often used in finance transactions where the lender is not able to obtain guarantees.

It indicated that a precedent was already in place that that the BRGs were not mandatory.

The chief executive Tom Docherty, who left the post in April, 2016, said that as long as there was no challenge, the MV Catriona contract would be awarded to Ferguson Marine.

Eight months later, and five days after ministers approved Ferguson as preferred bidder Mr Docherty said in an email to Transport Scotland, that the refund guarantee seemed unavailable after Ferguson had become preferred bidder for the building of Glen Sannox and Hull 802.

But he said Ferguson had confirmed ownership of the ship from day one of the build "as some form of security" which was the "same arrangement" as put in place for the £12m MV Catriona contract, which was the first since Jim McColl's Clyde Blowers Capital bought the yard out of administration.

Mr McColl said CMAL was forced to give the contract to Ferguson while saying that before being nationalised in August, 2019, he felt the company had been exploited by the SNP government "for political advantage".

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

Last week it emerged the costs of Glen Sannox and Hull 802, are now forecast to soar by nearly £100m from around £240m to nearly £340m.

It further emerged there were further delays to Hull 802 due to serve customers next year, which will not be ready till 2024, while there was a "one or two month worst case slippage" on Glen Sannox.

Mr McColl has said that he only bid for the work on Glen Sannox and Hull 802 after receiving written guidance from transport minister Derek Mackay that refund guarantees were not mandatory to win building work.

Mr Mackay told a local MSP in a letter six months before Mr McColl’s Ferguson Marine yard became preferred bidder that transport bosses saw refund guarantees as only “a preference”.

The Herald revealed in May that Ferguson failed to fulfil mandatory requirements to qualify as the ferry fiasco contract bidder raising fresh questions about the legality of the procurement process.

According to CMAL’s contract rules any would-be preferred bidder would be disqualified without the mandatory guarantees, meaning they would not be scored and therefore fail at the first of the three-step procurement hurdle.

Evidence which showed that the tycoon's shipyard firm which was favoured by the SNP government revealed that Ferguson could not give a commitment to provide a mandatory BRG as required and was unable to provide other crucial financial details including records of past achievements.

The fails were revealed in a confidential Pre-Qualification Questionnaire (PQQ) completed by Ferguson before it was ever even considered as a preferred bidder for the building of two lifeline ferries to serve Scotland's islands.

The cost of both ferries were to be paid for by CMAL by repaying a Scottish Government loan over 25 years through using revenue it generates from the fees it gets from the lease of vessels like CalMac’s ferry fleet and harbour access fees.

But it was revealed that as part of the Scottish Government's special deal to allow Ferguson Marine to win the contract in the wake of CMAL's concerns over a lack of financial guarantees from Jim McColl's firm, the loan was "eliminated". Normally CMAL would pay back what was drawn down of the loans - which had amounted to over £80m before Mr McColl's Ferguson went into insolvency in August, 2019 and taken over by the Scottish Government.

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Mr McColl says that CMAL had "effectively been side-lined" in the selection process of MV Catriona, Glen Sannox and Hull 802 and believed the Scottish Government may have breached EU procurement rules "giving CMAL a hold" over ministers.

"There was a letter of comfort regarding that [MV Catriona] contract and no builders' refund guarantee," he said.

"In the case of 727 [MV Catriona], CMAL had no say in the approval of the contract. Clyde Blowers got a letter of comfort from the government regarding that contract, so CMAL had to award it to Ferguson."

Prior to going into administration Ferguson had bid for and won the contract to build four of these vessels. They had already built and delivered two.

Mr McColl said a condition of the acquisition of Ferguson from administration was that the contract for at least one of the remaining vessels survived the administration process.

He said: "There is really no reason why the security that was put in place for [Glen Sannox and Hull 802] was not an acceptable alternative.

"We now know that CMAL displayed a passionate intensity against the contract for [Glen Sannox and Hull 802] being awarded to Ferguson. They fought the Government hard to avoid placing the contract with Ferguson, but we also now know that the Government forced them to take it.

"They have effectively been side-lined in the selection process in the two contracts awarded to Ferguson.

"It feels like the contract with Ferguson was sabotaged by CMAL and that Ferguson were exploited by the Government purely for political advantage."

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Mr McColl has always blamed repeated design changes by CMAL for issues with Glen Sannox and Hull 802 which led to Ferguson going into administration.

"The Government were able to instruct CMAL to award the contract to Ferguson but would not insist that CMAL engage in a normal commercial dispute resolution process. Why? Were they afraid that CMAL would expose them for instructing them to award the contract to Ferguson for political advantage?"

Erik Østergaard, who was chairman of CMAL, when Ferguson Marine was awarded the contract to build Glen Sannox and Hull 802, made clear to the Scottish Government after Mr McColl's firm was made preferred bidder that the absence of refund guarantees was the major commercial difficulty that CMAL had with finally awarding the contract.

The Herald revealed in April, that taxpayers lost over £80m after ministers provided a special incentive to ensure that a ferry fiasco contract could go through without the normal financial safeguards.

The incentive was given to reassure CMAL who had "severe misgivings" over the yard's inability to provide financial guarantees and wanted to ensure they were not out of pocket if anything went wrong.

The special deal came after CMAL 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.

Transport Scotland then told CMAL that ministers in their capacity of the ferry company's owners had approved the award and "authorised" it to enter into the contracts.

CMAL have since told Audit Scotland they will no longer allow Scottish ministers to stop them from securing mandatory financial safeguards in procuring new vessels.

In June, Mr Østergaard was asked by the Scottish Government public audit committee convenor Richard Leonard: "You were described as possessing 'extensive experience with a number of European shipping concerns in a career that has spanned over 30 years in shipping'. Have you ever known a ship to be built without a builder’s refund guarantee?"

He replied: "Not that I recollect."

The Ferguson yard had previously build two other hybrid ferries for CalMac – the MV Hallaig and MV Lochinvar before it was forced into administration in August, 2014.

Within a month of Mr McColl saving the yard, it was awarded the contract for MV Catriona, which was to have the capacity for 150 passengers, 23 cars and two HGVs, which was expected to be complete and enter into operation in the spring of 2016. It used low-carbon hybrid system that combines traditional diesel power with electric battery power.

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Nicola Sturgeon at Ferguson Marine in December, 2014. Source: CMAL.

By December the First Minister was posing for pictures at the yard to mark the start of construction of Scotland’s third hybrid ferry.

The Scottish Government said the investment, which is being taken forward by CMAL secured around 80 jobs for the Port Glasgow and Inverclyde area.

Ms Sturgeon said: “This investment by the Scottish Government is a vote of confidence in our shipbuilding industry, and shows that Scotland remains at the forefront of ferry design and innovation.

“I’m also very happy to see FMEL getting down to business and showcasing their expertise in low carbon marine technologies. This will help them show that they are a competitive and attractive option to future clients.

“The Scottish Government responded very quickly to the closure of Fergusons, with Ministers forming a task group which met within days. We worked hard to achieve the purchase of the yard as a going concern and were delighted when Jim McColl’s bid delivered this “I wish the shipyard success with this project and look forward to seeing Hull 727 [MV Catriona] take to the waters in 2016.”

The official launch of MV Catriona in December, 2015, came ahead of sea trials the following July and was delivered in September, 2016.

Last week calls were made for a criminal probe following the latest allegations that the awarding of the ferries fiasco contract to Ferguson Marine was rigged.

Deputy First Minister John Swinney has said ministers were "not aware of any impropriety in the procurement process" while saying allegations will be looked into.

CMAL has said there was "no evidence" to support new allegations and Nicola Sturgeon has said there was no evidence of criminality.

It comes after further claims were made last week that Mr McColl's Ferguson had received special help with a “key section” of its ferries contract tender “mostly cut and pasted” from a dossier drawn up by state-owned CalMac which was not seen by other firms in the race.

It is claimed this was instrumental in CMAL giving Ferguson Marine a winning score against other yards, despite problems with the bid.

A spokesperson for CMAL said: “We believe it is inappropriate to compare the contract arrangements for MV Catriona with contract arrangements for the two dual fuel vessels. For vessels the size of MV Catriona, the requirement of independent financial security is less acute.

“We have responded many times to the repeated suggestion from FMEL that CMAL made so-called design changes. We did not. FMEL began building at risk, cutting and fabricating steel, without sign-off, meaning it had to rectify its mistakes. FMEL failed in its contractual obligation to design and build the vessels for a fixed price. Mediation could not proceed because FMEL had no legal basis for their demands for additional payment.”

A Transport Scotland spokesman said: “The MV Catriona was procured by CMAL in a fair, open and transparent tender exercise, in line with their obligations under public procurement regulations. Any suggestions otherwise are wrong.”