Ferguson Marine (Port Glasgow) Holdings Limited

– in the Scottish Parliament on 23rd March 2022.

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Photo of Alison Johnstone Alison Johnstone Green

The next item of business is a statement by Kate Forbes on Ferguson Marine updates. The cabinet secretary will take questions at the end of her statement, so there should be no interventions or interruptions.

Photo of Kate Forbes Kate Forbes Scottish National Party

The statement is in response to the report that has been published today by Audit Scotland and the updated ferries delivery schedule from the chief executive of Ferguson Marine, a copy of which has been sent to the Net Zero, Energy and Transport Committee.

We are crystal clear about what we expect from Ferguson Marine in terms of delivering vessels 801 and 802, as well as in terms of turning the business around to be competitive. I recognise the critical nature of completing 801 and 802 for the sake of island communities; like some other members, I come from the Highlands and Islands, and many of my family members and friends are dependent on lifeline ferry services. I understand the urgency and the necessity of delivering the vessels as quickly as possible.

We do not manage the yard directly, but the chief executive is accountable to the board and the board is ultimately required to deliver on our clear expectations for the business. I meet the chief executive fortnightly and I meet the chair every six weeks to press the board and the management to drive the programme as hard and as fast as possible, in order to successfully complete the vessels.

Let me be clear with Parliament: I expect the yard, as a priority, to complete the vessels successfully and at the fastest most achievable pace; to turn around its operations so that it is competitive, productive and efficient; and to win and secure a future pipeline of work on the basis of its operations

I also meet trade union representatives and the workforce, and have heard at first hand the impact on their morale of the challenges and of the very public criticism of the yard. Many of them have worked in the yard for decades; they know their trade and they know the yard. Their insights have been invaluable.

Parliament knows the challenge that we took on when we rescued Ferguson’s from administration in 2019, but we saved hundreds of jobs and the future of commercial shipbuilding on the Clyde. It was the right thing to do. We stand by our commitment to the shipbuilding communities in Inverclyde and to our island communities that rely on the vessels that the yard will deliver.

The challenges have been great. The initial report on the state of the yard in December 2019 set out the scale and depth of the business turnaround that would be required to put Ferguson Marine on to a stable footing. Undoubtedly, Covid has slowed the turnaround efforts. The yard has twice had to shut down due to Covid and has worked at reduced capacity for many months as a result of the necessary distancing requirements that were in place, Covid sickness absence and self isolation.

Despite the mammoth task, progress is being made. A new permanent chief executive has been in post since February, with fresh eyes and a new approach. He has created a more collaborative culture and is working more closely with Caledonian Maritime Assets Ltd, whose employees—it is well known—have had differences of opinion with Ferguson’s leadership about progress at the yard. The chief executive has bolstered his senior team with an experienced secondee from CMAL, thereby embedding a closer direct relationship with the yard. Crucially, the Ferguson Marine team is actively pursuing vessel opportunities and is back to being a serious contender for future vessel contracts.

It goes without saying that progress has not been as fast as we would have liked, which has been largely due to on-going legacy issues. The then turnaround director of Ferguson’s wrote to the Net Zero, Energy and Transport Committee on 9 February highlighting a legacy issue around cabling that would impact on the vessels’ schedule and cost. Those problems happened before Scottish Government ownership, and although the board has no visibility on work that happened before we brought the yard into public ownership, it is important that lessons be learned. The chief executive of Ferguson Marine has written to committee today quantifying the impact of that legacy issue. As part of his consideration of the delay that is associated with the legacy cabling, the chief executive has critically reviewed the delivery schedule in its entirety.

The cabling issue will cause a direct four-month delay on vessel 801. The chief executive believes that, given the emergence of legacy issues, an additional four months is required, and so his letter sets out that there will be a maximum delay of eight months in the delivery of 801. Delays on 801 will inevitably lead to delays on 802. However, Ferguson Marine believes that it can reduce the delay on 802 to six months, which means that 801 will be delivered between March and May 2023, and 802 between October and December 2023.

It is important to note that the estimates have been developed in collaboration with CMAL. I will not rehearse my frustration, nor Parliament’s frustration, about that updated timetable. The Ferguson Marine board and chief executive are aware of the depth of my dissatisfaction about the emergence of the cabling issue and the knock-on impact on the timetable. I have made it very clear that the vessels must be delivered in line with that schedule.

There is also a cost increase that comes with that extension of the programme. The chief executive has confirmed an additional £8.7 million will be required. Of that cost, £825,000 directly relates to cabling and £7.875 million relates to overhead, labour and material costs that are associated with the new schedule. As such, the cost to complete the ferries will increase to between £119 million and £123 million. I have agreed to additional funding to ensure that the vessels are completed.

I am also taking the opportunity to make provision for previously unbudgeted warranty costs of £3.5 million, to provide a builder’s warranty and warranty cover in respect of equipment whose warranties have time expired. That is completely separate to the cabling and schedule costs that I outlined above. The warranty costs were not unknown, but in the spirit of transparency I want to quantify those costs.

I turn to Audit Scotland’s report on the arrangements to deliver the ferries. The report reflects fairly on the complex issues that have mired the history of the build-out of the ferries and which underpin many of the legacy issues that Ferguson’s is dealing with today.

The report says that

“The turnaround of FMPG is extremely challenging” and it highlights that

“FMPG has implemented some of the significant operational improvements that were required at the shipyard”.

Nonetheless, there is no denying Audit Scotland’s view that

“work on the vessels has taken longer than expected, and ... Covid-19 ... has delayed progress.”

I fully accept the Audit Scotland report’s recommendations on Ferguson Marine in public ownership, and work is already under way on a number of the recommendations. Collaboration between Ferguson Marine and CMAL has been considerably strengthened. Officials are working with Ferguson Marine on its business case for investment, and will continue to do so in order to deliver a competitive and sustainable business.

The Audit Scotland report makes reference to a range of reports and an appropriately complex governance structure. In the interests of openness and transparency, later today I will proactively publish documents on the Scottish Government website. I hope that those documents, as well as other contextual information, will help people who are in less proximity to the issues to understand the full picture.

Across the chamber, there is a shared belief in the importance of the vessels, so it is critical that we see them in service as soon as possible, for the benefit of our island communities. I reiterate that there are no ifs or buts—the vessels must be completed as quickly and effectively as possible.

The board and leadership of Ferguson Marine know where I stand on the issue, and they expect to be held to account for delivery of these crucial ferries, in line with the new schedule that they have communicated to Parliament today. Until those vessels are serving the communities for which they were built, we will not let up in our drive and determination to get them finished.

The Presiding Officer:

The cabinet secretary will now take questions on the issues raised in her statement. I intend to allow around 20 minutes for questions, after which we will move to the next item of business. I would be grateful if members who wish to ask a question could ensure that their cards are in place and that they have pressed their request-to-speak buttons.

Photo of Graham Simpson Graham Simpson Conservative

I thank the cabinet secretary for the advance sight of her statement and a copy of the letter that Ferguson’s that was sent to the Net Zero, Energy and Transport Committee.

The Auditor General’s report is scathing. It should make uncomfortable reading for ministers and, frankly, they should be ashamed. We now learn from the cabinet secretary that, as well as further delays, extra costs of at least £8.7 million will be involved in the project to deliver ferries 801 and 802.

I am not going to give a big preamble, because we will come to a debate on ferries later, so I have just a few questions. Based on what the cabinet secretary has told us and what is in the Auditor General’s report, there is a bit of confusion over costs. The Auditor General says that

“the total cost of the ... project is currently estimated to be at least £240 million”,

which is significantly more than the cabinet secretary told us.

In addition to that, who is to blame for the cabling problem? I might have this wrong, but the cabinet secretary seems to suggest that it was the people who put the cabling in. I do not think that that is true. I think that the problem happened after the cables went in. Can the cabinet secretary give a clear and simple answer to that question?

Finally, on the report from the Auditor General, why did ministers ignore CMAL’s advice not to award the contract to Ferguson’s? Will the cabinet secretary now agree to hold a public inquiry?

Photo of Kate Forbes Kate Forbes Scottish National Party

I will try to be brief with my answers, but I want to do those questions justice.

On the point around costs, I cited the cost to complete the ferries versus what was communicated to Parliament in December 2019. In terms of the overall cost, the member is right to cite the Audit Scotland figures; the cost on which I am updating Parliament is the total additional cost that is associated with the letter that has been communicated to Parliament today, which will be between £122.5 million and £126.5 million. That includes the entirety of the costs in terms of the warranty, today’s update and the costs that were previously communicated to Parliament for completion of the vessels. If there is still confusion, it is easy for me to set out the matter in a written communication to the member.

The cabling issue relates entirely to legacy cables. The cabling was installed by Ferguson Marine Engineering Ltd contractors in late 2018 and early 2019, which was entirely prior to the yard coming into public ownership. It was during planned electrical works for 801 that the issue with the length of the cabling was discovered by the yard.

The legacy cables issue relates to cables that were not already planned for replacement. I want to be clear that we are talking about legacy issues that arose prior to the yard coming into public ownership, and it is during the process of essentially commissioning the vessel that we are discovering where there are still issues. The cabling was installed by a reputable contractor, and the yard had no reason to suspect that there was a problem with it until it started to connect the equipment.

The member asked about an inquiry. The Audit Scotland report is comprehensive, thorough and fair. We have also had the Scottish Parliament committee report on an inquiry, which was chaired by the member’s colleague Edward Mountain. Therefore, there have been two fairly thorough inquiries into the issues.

If I recall correctly, the last point was around interventions by the Scottish Government at an earlier point. The member is shaking his head, so I think that I have answered his three questions.

Photo of Neil Bibby Neil Bibby Labour

I thank the cabinet secretary for the advance sight of her statement. The problem is that islanders have heard it all before—more delays and rising costs. The ship has sailed on Scottish National Party excuses.

From the very start, ministers did not put in place the normal financial safeguards. Why? Can we get the latest total cost for both ferries in writing today? It is time for the Government to take responsibility. The cabinet secretary says that she is holding the new board accountable. I am sorry, but it is the cabinet secretary who is accountable.

We have heard again the tough talk about “no ifs or buts” and that the ferries must be delivered as soon as possible. The ferries are already estimated to be five years late. The reality is that the only chance that islanders have of seeing a new ferry this year is if they take a holiday to Marmaris.

The question for the cabinet secretary is, will she stake her reputation on this, or is it just more words? If it is not just words, will Kate Forbes confirm that, if the ferries are not ready by May and December 2023, she will resign? If she is not confident enough to stake her position on that, why should islanders have any confidence in what she is saying now? What is the point in her being responsible for the issue if she is going to keep passing the buck?

Photo of Kate Forbes Kate Forbes Scottish National Party

I remind the member that, for the past five years, I have represented communities that rely on lifeline services. I am accountable to them, as we all are after every election. With regard to the “tough talk”, as he calls it, what we have committed to today is clear. The chief executive has updated Parliament on the updated schedule. Critically, and perhaps this is fairly new, that has been endorsed by CMAL. CMAL and Ferguson Marine are working together to ensure that we have a schedule that is achievable and that we can stand by and cost in order to deliver.

I have been clear with them that we expect the schedule to be delivered. I have set out the reasons for that schedule, as per the chief executive’s letter, and I have broken down the costs. However, as I said to Graham Simpson, if there is still confusion about the costs, I am happy to ensure that the information is committed to paper so that Neil Bibby fully understands it.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I welcome the clarity in the cabinet secretary’s statement on why we are where we are and how we will move forward. When MV Glen Sannox and vessel 802 were ordered, my Arran constituents looked forward to a state-of-the-art vessel serving the island that would be much more resilient and reliable in bad weather. Can she confirm that, when the boat enters service, that will indeed be the case?

Photo of Kate Forbes Kate Forbes Scottish National Party

The short answer is yes. Communities can have confidence that the vessels will perform in service and improve the network. They will not enter service before rigorous assessment has been done to ensure that they meet the required specifications from CMAL, which, as an adviser to the Scottish Government, maintains a presence in the yard. The vessels will not be handed over for delivery unless they are satisfactory and can deliver the requisite service. They will also not be able to enter service until they have received all the clearances that are required by the Maritime and Coastguard Agency and have classification society approval from Lloyd’s Register.

I hope that that gives Mr Gibson the clarity that he needs. I remind him that, when the vessels are delivered, they will aid my island constituents, too.

Photo of Elizabeth Smith Elizabeth Smith Conservative

The whole ferries fiasco comes hard on the heels of plenty of other examples of SNP mismanagement of taxpayers’ money—the cases of Burntisland Fabrications, Prestwick airport and Rangers administrators, to name just three—and of Audit Scotland’s concerns that there is insufficient transparency from Scottish Government ministers about public spending. Will the Scottish Government commit to Scottish Conservative plans that ministers should open the books regularly and that we should have a formal finance bill procedure in Parliament so that we can have effective scrutiny of what the Government is spending taxpayers’ money on, in order that such a fiasco never happens again?

Photo of Kate Forbes Kate Forbes Scottish National Party

We accept and agree with in full the recommendation in the Audit Scotland report on transparency and accountability, particularly when it comes to investments in private businesses. It calls on us, in line with the new framework for investing in private businesses, to improve the transparency of our investment decisions. Work is on-going on that, and we have already made changes. I am happy to update the member when that work is fully complete.

In relation to more general commitments, I take some issue with the member’s suggestion that work to complete the vessels and save the yard is, in her words, a waste. I stand by the decision to complete the vessels. We will complete them, and we have secured the future of the yard. The money that we are spending on completing the vessels is important money.

Photo of Alasdair Allan Alasdair Allan Scottish National Party

The cabinet secretary will be aware of the pressures on existing services and vessels that serve North Uist and Harris. Delays at Ferguson’s yard have certainly contributed to those pressures and to the human consequences of them. Can the cabinet secretary give an indication of how the new vessels will be utilised to alleviate some of the pressures and problems in my constituency and elsewhere?

Photo of Kate Forbes Kate Forbes Scottish National Party

The member is right to highlight the vital role that the vessels will play and to confirm why it is critical to pursue their completion, contrary to what others might suggest. Those who have been most affected by the delays are those who live in his constituency and in other constituencies along the west coast, in particular.

We need the vessels to provide additional capacity and resilience, and we are already carefully considering the best deployment options in discussion with CalMac, CMAL and service users. Options include the potential for a two-vessel service for Harris and North Uist on the Skye triangle routes—that option was previously raised by those communities—although further consideration is required of the operation and affordability of that proposal. There is also the opportunity to consider maintaining a relief vessel in the fleet for a period of time.

In advance of the new tonnage being made available, the MV Loch Frisa, a new vessel, is expected to enter service soon, which will improve the Craignure to Oban route, particularly in the winter. It will also allow for additional sailings to be made on the Lochboisdale to Mallaig route and for additional capacity on the Mallaig to Armadale service.

Photo of Rhoda Grant Rhoda Grant Labour

We all know, and the cabinet secretary knows, that the blame for the fiasco sits squarely with her Government. Will she guarantee to members that those boats will come into service for our outer island communities?

Photo of Kate Forbes Kate Forbes Scottish National Party

As I said in my statement, I confirm that we are committed to getting the vessels completed and delivered. As I said, some people would prefer that we had given up, but we have not given up and we stand by our commitment to deliver the vessels.

Photo of John Mason John Mason Scottish National Party

We absolutely must keep commercial shipbuilding on the Clyde. In her statement, the cabinet secretary mentioned the skills of the current workforce. Can she say anything about maintaining and building on those skills, for example through apprenticeships?

Photo of Kate Forbes Kate Forbes Scottish National Party

Ferguson Marine boasts an impressive apprenticeship programme. Although the discussion about the work is now focused on the completion of the two vessels 801 and 802, the yard has delivered three smaller vessels since nationalisation—hull 803, hull 804 and hull 805.

On opportunities for apprentices, 43 apprentices are spread across various disciplines—welding, fabrication, mechanical fitting and design engineering—and 38 of them are working towards their level 3 Scottish vocational qualifications. In 2022, another 15 apprentices will join the programme.

Photo of Willie Rennie Willie Rennie Liberal Democrat

The cabinet secretary tries desperately to distance herself from the ferries fiasco, but those ferries were contracted by Government-owned CMAL, paid for by the Government and built initially by a company that is celebrated by the Government—and the Government owned the company when it collapsed. However, no minister has ever faced the music. If the latest delayed deadlines are not met, will the cabinet secretary resign?

Photo of Kate Forbes Kate Forbes Scottish National Party

Contrary to what Willie Rennie just said, absolutely no distancing is going on here. I have set out clearly and robustly in my statement that we are committed to completing the vessels for the sake of island communities, many of which I represent directly; to ensuring that the yard has a future; and to ensuring that we protect jobs. We stepped in to do that, and I stand by the 2019 decision to step in to ensure that neither vessels nor jobs were lost.

Photo of Stuart McMillan Stuart McMillan Scottish National Party

I welcome the secondee from CMAL to Ferguson’s, who will help with the job that needs to be done. It is important that the Scottish Government is clear in its expectations for the yard. However, the new chief executive has only recently been appointed. Does the cabinet secretary agree that it will be important for him to be given time, space and support as he begins to get the yard back on track?

Photo of Kate Forbes Kate Forbes Scottish National Party

Stuart McMillan raises an important point. Ultimately, it is important that the people who are working on the ground in the yard, which includes worker representatives, employees more generally and yard leadership, inform our debates and discussions about the yard.

I have set out again my priorities for the yard’s management. We are engaging regularly with the new chief executive and, as a shareholder, we will continue to support the yard to achieve its goals in any way that we can. I reiterate the point that I have made today that the boats must be completed as quickly as possible. The board and leadership at Ferguson Marine know where we stand on that point. They have a plan in place; they have made substantial changes already; and progress has been made against Audit Scotland’s recommendations. We will continue to build on that progress.

Photo of Maggie Chapman Maggie Chapman Green

The recent appalling behaviour by the bosses at P&O Ferries highlights the weaknesses of poor management and poor oversight of vital transport services, and points to the need for strong industrial relations. The cabinet secretary mentioned regular meetings with trade union representatives and their clear skills and expertise. How can we ensure that these workers play a key role in future work that is vital for the long-term sustainability of the yard and their jobs? How can we reassure people who rely on lifeline ferry services that the deprioritisation of service support in next year’s budget will not have a negative impact on the delays and cost escalations that were announced today?

Photo of Kate Forbes Kate Forbes Scottish National Party

As I said in my statement, input from workers and trade union representatives has been invaluable as we try to get to the bottom of what is needed to make progress at the yard. I have valued their input and meeting them at the yard itself.

The input of workers and trade union representatives, management and CMAL has ensured that we have been able to make progress. We clearly need to build on that and complete the vessels. Ultimately, our three priorities for the yard are completing the vessels, turning the yard around and saving jobs. Had we not intervened, that would not have been the case.

Photo of Jenni Minto Jenni Minto Scottish National Party

In order for it to successfully win new contracts, it is important that work to increase the yard’s efficiency and competitiveness continues. Will the cabinet secretary provide an update of the steps that Ferguson’s is taking to improve its competitiveness?

Photo of Kate Forbes Kate Forbes Scottish National Party

The best way to secure a sustainable future for the yard is to ensure that it can compete for contracts on merit. We are working with the yard to support the development of a business case for investment to help to improve competitiveness, which is another recommendation of the Audit Scotland report.

Driving up day-to-day productivity is rightly an operational matter for the yard. From my discussions with the chief executive and chair, I know that the yard is already doing that as part of the programme that we set up. The yard has set quite clear targets for more efficient work planning so that the use of labour and materials is better focused. One small example of that is the creation of the permit-to-work office on the ship, so that walking on and off ship is minimised.

A lot of investment has been made and there has been a lot of progress. We must keep driving ahead so that Ferguson’s can secure a long-term future.

Photo of Jamie Greene Jamie Greene Conservative

Here is a straightforward question. If the Scottish Government is so keen for Scotland’s proud shipbuilding history to flourish in the modern age, why on earth are we building our new ferries in Turkey and not on the Clyde?

Photo of Kate Forbes Kate Forbes Scottish National Party

I have two things to say to Jamie Greene. Based on the questions of some of his colleagues this afternoon, some people might assume that he would have preferred shipbuilding on the Clyde to be shut down a number of years ago. There is therefore an irony at the heart of his question. Through Government interventions, we protected shipbuilding on the Clyde in the first place.

The second point is on the procurement that Jamie Greene asks about. Ferguson Marine is working to complete the two vessels, and it is important for island communities that those vessels are completed. It is also important that we do not wait to procure two new vessels. I am sure that we will hear during the course of the debate this afternoon how critical it is that we supplement the vessels that are available.

We have made progress in procuring two new vessels, and I do not think that island communities want us to wait.

Photo of Baroness Katy Clark Baroness Katy Clark Labour

Islanders on Arran and other islands were asking for smaller vessels. Does the cabinet secretary now agree with the views of many that Ferguson Marine should have been awarded contracts for smaller, simpler ferries, which could have been constructed far more speedily for those islands?

Photo of Kate Forbes Kate Forbes Scottish National Party

The member is right. In the period since nationalisation, Ferguson Marine has completed three smaller vessels, which demonstrates that there are skills and capability at the yard.

I am sure that this afternoon’s debate will cover ferry policy in more detail, and it is really important that the needs of communities are taken into account when it comes to procurement and design. That is essential. Vessels must be built for the purposes for which they are required. When a smaller vessel is more important, we should go with that, rather than building a vessel around a yard’s capabilities.

Photo of Liam Kerr Liam Kerr Conservative

Given that the warranty on the engines for vessels 801 and 802 has lapsed, when did the Scottish Government first become aware of potential issues with the dual-fuel engines? Will the cabinet secretary comment on claims that they are now old technology, given the fact that they are already seven years old?

Photo of Kate Forbes Kate Forbes Scottish National Party

I am sure that I recently answered a written question from Liam Kerr on the same issue, so he will have that in writing. However, I am happy to respond again.

In terms of the provision that I have announced today for unbudgeted warranties on warranty-expired equipment and builders’ warranties, those were already known about. Today, we have announced an estimate based on 5 per cent of the £70 million equipment costs, to ensure that there is as much transparency as possible around costings. When the vessels begin commissioning, which is targeted for May, that will be the ultimate test of equipment on board that might not have been used because the vessels are being constructed. That is why today’s updated schedule takes into account the need to test legacy issues.

The Presiding Officer:

That concludes the ministerial statement on Ferguson Marine updates.