Ferguson Marine: Ferry fiasco firm costs taxpayer nearly £500m..so far

The sum is more than £200m more than what public spending watchdogs were expecting would be spent to finally deliver the two ferries at the centre of the Ferguson Marine debacle last year during its inquiry into the rising costs.

The Scottish Government has sanctioned the ploughing in of just over £330m into Ferguson Marine since it was nationalised at the end of 2019 - including a further £60.9m budgeted for the next financial year. - with the firm's primary aim to deliver the ferries.

It has emerged that ministers have overspent against budget to the tune of over £120m over the last three years in the wake of continuing delays in the production of two vessels being built to serve island communities. Their delivery has been put back   over five years in the wake of soaring costs.

It spent double the budget for Ferguson Marine in 2021/22 alone.

Transport Scotland's business case for the ferries project was just £72m while Audit Scotland's latest update last year expected the final cost of the project to rise to between £238.6m and £243m.

It comes as a row has broken out as it emerged that the Deputy First Minister John Swinney admitted that what was widely stated was a fixed price contract could actually be varied after all.

Tycoon Jim McColl who ran Ferguson Marine before it fell into insolvency in August, 2019, said that Scottish Government-controlled ferry owners Caledonian Maritime Assets Limited had consistently rejected any financial adjustments to the contract in the midst of design changes claiming that it was a fixed price. This led to a legal claim of more than £66m which was sunk when the firm fell into administration and was nationalised.

When the contract was agreed in October, 2015, both ferries were due to cost a total of just £97m - and were to be paid for by CMAL by repaying a ministers' loan over 25 years through using revenue it generates from the fees it gets from the lease of vessels like operator CalMac’s ferry fleet and harbour access fees.

READ MORE: Ferry rust causes CalMac service chaos with three vessels sidelined

But part of the Scottish Government's special deal to allow then independence-supporting tycoon Jim McColl's Ferguson Marine to win the contract in the wake of CMAL's concerns over a lack of financial guarantees, meant that loan was wiped out.

The £83.25m that was drawn down to pay for the construction of the vessels  was "eliminated" after Ferguson Marine under Jim McColl fell into financial trouble.

It had previously pumped in £45m in taxpayer-backed loans into Mr McColl's firm which was mostly lost when it fell into administration. It managed to recover just £7.5m from that through the purchase of the Ferguson Marine assets.

The collapse of the Mr McColl-led Ferguson Marine, which operates the last remaining shipyard on the lower Clyde came amid soaring costs and delays, with the firm and CMAL blaming eacother and resulted in the Scottish Government-pursued nationalisation to ensure the ferries were delivered. It came five years after the tycoon first rescued the yard when it went bust.

After discussions with ministers, the public spending watchdogs Audit Scotland said in March, last year that the extra cost to the taxpayer for the completion of the vessels under the nationalised Ferguson Marine would be only between £110.3m to £114.3m on top of the £120.74m ploughed in.

But the Herald on Sunday can reveal that according to the Scottish Government's own outturn data spelling out actual expenditure,  it has overspent by £121.9m against budget for dealing with the beleaguered Inverclyde shipyard firm Ferguson Marine in the past three financial years alone before deciding to pump in £60.9m more in the next financial year to try to get the ferries job finished.

In 2021/22 what was supposed to be a £47.4m Ferguson Marine budget ended up with an outturn spend of £115.1m. In the last financial year a £35.9m budget has resulted in a spend so far of £55.1m. And in 2020/21 a £49.6m budget ended up with expenditure of £84.7m leaving a £35.1m overspend.

One ferry user official said the public spending auditors should conduct a new inquiry into the Ferguson Marine spending.

"The amounts of money that have been pumped in just, it appears, is undoubtedly a catastrophic waste of money. There are enough funds being spent to build eight ferries under the contract just given to Turkey," he said.

"Of course, when and if the vessels do make it into services, they will be welcomed as they are desperately needed, but the cost is beyond scandalous and there really should be a re-examination from the auditors over how we got here."

Ferguson Marine failed to even bid for the £115m work on building two new lifeline ferries - before it was again awarded to the Turkish firm that was the favourite.

Transport Scotland has said it is hoped that both ferries will be in place by 2026 and that they will serve the communities of Harris and North Uist, which have suffered severe disruption since the beginning of this year.

The Scottish Government agency had previously confirmed that the new ferries will be built to the same specification as those which are already being designed and built in Turkey for Islay.

Video: The Glen Sannox 'launch' in 2017

They said it would “speed up” the replacement of the major vessel fleet and provide a more standardised vessel type that can be used on a variety of different routes, “providing potential economies of scale and enhanced public value”.

That was one of the reasons that the state-owned shipyard firm did not even try to bid for the work.

Industry insiders had told the Herald this gave the Cemre Marin Endustri shipyard in Turkey, which had already won a contract to provide two ferries for Islay would have a "strong competitive advantage" having produced the blueprint through the Islay tender process.

CMAL has already said that the preferred bidder to build the two new ferries to support the communities at Uig, Lochmaddy and Tarbert (Harris) is the Cemre Marin Endustri shipyard firm.

Ferguson Marine had failed to get past the first Pre Qualification Questionnaire hurdle in the Islay ferries contract while it is still struggling to produce two delayed vessels.

It is already known that the four vessels currently under construction will replace 40-year-old MV Isle of Arran, 38-year-old Mv Hebridean Isles and 34-year-old MV Lord of the Isles.

Transport minister Jenny Gilruth has previously said they intended to deploy the latest ferries on the Skye triangle routes - freeing up Hull 802 to potentially join Glen Sannox in serving Arran, one of the country's busiest routes.

East Lothian MP Kenny MacAskill, who was justice secretary for seven years from 2007 and is now deputy leader of the Alba Party says the insistence that the the ferry fiasco deal with a fixed price contract when there was an admission by Mr Swinney that it could be varied was "simply a smokescreen" to try and deflect blame for the issues from CMAL and the Scottish Government onto Jim McColl specifically and pre-nationalised Ferguson Marine more generally.

READ MORE: Taxpayers lose £80m after ministers' gave £100m carrot to ensure ferries deal went to Ferguson Marine

"There never could be a set price as what had been signed off far too quickly to suit the Scottish Government, lacked specification of what it was to be built, hence why construction costs started to rise as issues arose and that has continued irrespective of who has been in charge of the yard."

When quizzed by the MP about the insistence that it was a fixed price contract, Mr Swinney stated in a letter that the contracts contain provisions "in relation to modification and change to the contract specification".

He said: "These allow the client and contractor to discuss any changes proposed by either party to the specification as set out in the contracts, and for appropriate adjustments to be made to the contracted price and timetable for delivery.

"Claims that faults in this project were as a result of changes made by CMAL or the lack of initial specification are wrong. CMAL strongly refute the suggestion that the design was not suitably developed or that any shipyard bidding would not have been aware of what was expected of them.

"There were clear and established mechanisms in the contract to enable changes to be mutually agreed and costed. These were not extensive changes as has been claimed; they resulted in about £1.5m extra costs. This is the basis on which Mr McColl and others have claimed that this was not a fixed price contract. It was. There were mechanisms to agree changes to that fixed price – open to both parties to consider.

"Following an impasse the Scottish Government commissioned an independent view of [Ferguson Marine's] financial claims. Both [Ferguson Marine] and CMAL agreed to accept the outcome. In June 2019, after considering the independent view, the Scottish Government concluded that there was no legal basis for CMAL to pay more than the fixed price for the contract. CMAL thereafter paid 85 per cent of the contract value, as was required in the contract, despite significant outstanding work on the vessels."

Mr Swinney added: "The Scottish Government’s priorities have always been the completion of the two ferries, securing a future for the yard and its workforce, and supporting our island communities that rely on this type of vessel on a daily basis.

Mr MacAskill added: "The letter also confirms that it was the wrong ship and wrong design pushed through by CMAL along with the speed of it where blame rests with the Scottish Government."

A Scottish Government spokesman said: "The Scottish Government continues to conduct the necessary and proper financial due diligence on the delivery of 801 and 802. Whilst this work continues, an additional £21 million of funding has been made available for the current financial year that allows Ferguson Marine to commit to further expenditure and ensure the progress of both vessels.”

The spokesman said that the Scottish Government "deeply regrets" that the vessels are taking longer and costing more than they should and was "committed" to a formal review upon completion.

The spokesman said it was communicated to Parliament in March 2022, that from the point of public ownership, the cost to complete the build of the ferries rose to the range of £119 million to £123 million. The spokesman said that at that point it brought the total direct project cost of delivering the vessels up to an estimated range of £202.3 million to £206.3 million, once contractual payments of £83.3 million, made by CMAL to FMEL, prior to public ownership was included.

The spokesman said that the loans were provided before it went into public ownership and supported the business to fulfil its contractual obligations to CMAL.