Ferguson Marine (Port Glasgow) Holdings Limited

Part of the debate – in the Scottish Parliament at on 23 March 2022.

Alert me about debates like this

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.