ALBA Depute Leader and MP for East Lothian Kenny MacAskill calls for a Public Inquiry into the decisions leading up to the administration and eventual nationalisation of Ferguson Marine shipyard at Port Glasgow as well as the ongoing issues involved in the procurement of vessels.
The last remaining shipyard on the lower Clyde was taken over by the entrepreneur Jim McColl in 2014 but delays and cost pressures with regard to ferries 801 and 802 led to Ferguson Marine Engineering Limited (FMEL) being put into administration in 2019 and eventually nationalised by the Scottish Government in December 2019. The Scottish Parliament’s Rural Economy and Connectivity committee inquiry concluded in December 2020 that the management of the procurement of the vessels at the yard was a “catastrophic failure”.
Opening the Adjournment debate - Shipbuilding and Ferguson Marine Engineering Ltd Insolvency in the House of Commons Kenny MacAskill MP :
Thank you Mr Deputy Speaker
Introduction
This debate goes to the heart of two Scottish institutions. Firstly, Caledonian MacBrayne (Cal Mac) who provide lifeline services to the Scottish Highlands and Islands, and whose ships are acquired for them by Caledonian Maritime Assets Limited (CMAL), both Scottish Government agencies.
And secondly, Ferguson Marine Engineering Limited (FMEL), who operated the last shipyard on the lower Clyde, a river that made ships admired around world. Yet a yard which has been excluded from the most recent CMAL tender to build Cal Mac ships and where orders are going abroad.
Cal Mac and Fergusons are part of Scotland’s story, but they’re also vital to Scotland’s future. Communities devastated by incessant breakdowns and cancellations need a fast and reliable service, to maintain them and allow them to grow. For that new ships are needed. Not only should Fergusons be building them but others from elsewhere and indeed, not just in Port Glasgow but on other sites that can be revitalised the length of the Clyde.
Instead, Cal Mac is floundering, and Fergusons future is threatened. In 2014 Fergusons was saved by the intervention of Jim McColl and all looked rosy. What’s gone wrong? Why have vessels 801 and 802 been so delayed, costs overrun so massively, and Ferguson Marine Engineering Limited gone into liquidation?
At the core are procurement and administration both issues reserved to Westminster. I hope that Ministers may be able to provide answers, if not an inquiry, into what’s a scandal that needs resolved.
Backdrop
Firstly, let me rebut suggestions that the yard or workforce were to blame. History shows what the Clyde can do, and the same skills still remain at Fergusons. Moreover, research by RMT Union has shown, of the 8 ships that have broken down recently only 2 were built on the Clyde and they were amongst the oldest, where difficulties could be expected.
CMAL recognised the skills when placing the order there for ships 801 and 802. In evidence at the Scottish Parliament’s Rural Economy and Connectivity Committee inquiry Jim Anderson Director of Vessels stated:
The Shipyard was already building ships for us. It had a good history of building these type of ships.” Even more convincing was Commodore Luke Van Beek, a Dutch maritime expert, appointed by the Scottish Government:
“I was in no doubt it had the management expertise. Having rebuilt the yard Ferguson Marine had a good shipbuilding system in place.”
For sure there’ll have been mistakes made and more that could perhaps have been done. But it was and remains a skilled workforce and Jim McColl and his company have a global reputation for engineering prowess. His initial intervention was lauded by the Scottish Government. The suggestion that he can succeed around the world but not in Scotland is absurd.
Procurement and liquidation lie at the heart of this mess. Responsibility rests with CMAL and the Scottish Government.
Procurement
Dealing first with procurement there are two aspects. The contract specification and the requirement for the vessels to be dual fuel – that’s operating on both marine diesel and LNG.
Dealing firstly with the contract it’s clear what was signed off by CMAL was lacking in specification and from that most problems arose. A design and build contract for a ship at an initial price of £97 million but many other critical factors weren’t clear. That was a recipe for discord, indeed disaster. Costs rose as changes kept being made, just what was to be built never entirely clear.
As Jim McColl said:
We would normally expect the specification to be more fleshed out.”
Continuing:
“Price was based on the specification that were had at the time. As we have said it was not detailed at that time, there were still some open ends that we had to resolve collaboratively with CMAL.”
The second issue was fuelling. Leaving aside why environmentally you even consider LNG, there remain basic engineering concerns. It’s a relatively new technology. Normally used on larger vessels than on smaller ones like ships 801 and 802, where other options such as batteries or hydrogen are preferred.
Whatever may be suggested by CMAL or the Scottish Government dual fuel LNG was the dictat of CMAL not the want of Cal Mac. As Van Beek said:
“801 and 802 were not the ships Cal Mac wanted.”
Adding:
“When I met the Chief Executive of Cal Mac I was very surprised to discover that it was not and had not been involved, except in having made some observations right at the beginning of the process, when it said that it did not want LNG ships.”
It’s also not surprising that Cal Mac didn’t want LNG ships as there’s no LNG infrastructure in Scottish ports. I asked CMAL what consideration was given to onshore supply systems, what was in situ at the time of requisition and what the situation’s now for LNG? This is the answer:
“At the time the only load out facility in the UK was the Isle of Grain. There were 3 projects looking at the bulk storage in Scotland 2 on the East Coast and one on the West Coast – so far none of these have been built out.”
Cal Mac operates in the Hebrides and on the Clyde which lie on Scotland’s west coast. The Isle of Bute’s in the latter and the Isle of Lewis the former. BUT the Isle of Grain is in Kent on England’s East Coast. No wonder Cal Mac didn’t want it.
Delivery Failure
Having messed up the tender CMAL proceeded to make a bad situation worse. When cooperation between ship builder and vessel procurer was needed CMAL refused to cooperate. That’s confirmed once again by Van Beek who said:
“CMAL had no interest in compromising….
Most damningly adding:
“the people who I met from CMAL were adamant that they did not want to discuss ways to make the situation better.”
FMEL offered mediation. CMAL refused.
This was the modern equivalent of the Titanic racing into the iceberg.
But it was known to the Scottish Government as Van Beek made clear:
“I said exactly the same thing when I briefed Mr Mackay. I said that the relationship between the customer and the client was broken, and that some things that CMAL was doing were very unhelpful.”
Mr Mackay was Derek MacKay, the Scottish Finance Secretary.
Liquidation
So, knowing all that what did the Scottish Government do.
Remove CMAL? No.
They remain running the show and tendering for vessels abroad when works needed on the Clyde.
Instead, they forced FMEL into liquidation. As Jim McColl said in evidence:
“The Scottish Government didn’t save the yard from administration, they forced it into administration by repeatedly refusing to instruct CMAL to engage in reasonable requests for mediation, an expert witness process or arbitration.”
Administration wasn’t the recommendation made by their own expert adviser Commodore Van Beek. He advised arbitration, instead the Scottish Government chose administration. Why?
Well I’m afraid Mr Van Beek can’t help us as he said:
“I have no idea why he chose that route. It was against my advice.”
He – was once again Derek Mackay - who said that the CMAL board would resign on mass if he interfered. Many communities might have said accept their resignations with alacrity.
By the time we get to the Scottish Parliament inquiry the Scottish Government line was “contractor error” was to blame. That was put forward by Paul Wheelhouse then the Islands Minister.
Why were neither the First Minister nor the then Finance Secretary called to give evidence? Rather than the Senior Ministers directly involved, it was left to a junior Minister with no prior involvement to speak for the Government.
Putting forward a position that wasn’t the view of the Governments own expert who’d been supportive of FMEL getting the contract, critical of CMALs actions and who suggested arbitration not administration.
More damningly if the contractors were responsible, why did the First Minister meet privately with Mr McColl when the dispute between FMEL and CMAL was raging? Outwith the presence and even knowledge of CMAL and providing significant financial assistance to FMEL?
If the contractor was in error, why keep funding them? Moreover, why ignore the advice of your own expert?
No wonder the Scottish Parliament committee concluded:
“that there has been a catastrophic failure in the management of the procurement of vessels 801 and 802, leading it to conclude that the processes and structures are no longer fit for purpose.”
Liquidation followed but the questions of this whole sorry saga only increase.
On 14th August 2019 FMEL went into liquidation. FMEL aware of their financial difficulties had already engaged KPMG to act in the administration they saw looming. But the Scottish Government appointed Deloittes insisting that any administrator appointed had to be acceptable to CMAL.
As disclosed to Lord Tyre in a related court case Deloittes and the Scottish Government had been “contingency planning” and the former were appointed by the latter. Despite the Scottish Government being only the second ranking creditor and yet also the largest debtor.
On 16th August Deloittes arrived at the yard, the same day as the Scottish Government declared publicly that it had nationalised it. Yet administrators require to consider the position and speak to all creditors before any disposal can take place. None had but the position wasn’t challenged by Deloittes. It would be some time before the administration was finalised and the yard wasn’t formally taken over by Government until 2nd December.
Instead, what happened was that Deloittes having been appointed administrators at the behest of the Scottish Government, in turn appointed Macrocom, to run the yard. Macrocom, are a company wholly owned by Scottish Ministers.
Deloittes also refused to pursue any potential claim had by FMEL against CMAL. Something that could have been substantial and might also have offered some clarity.
Former senior staff have been moved on and Non-Disclosure Agreements signed. Why? Surely experience was needed, and information should be publicly available?
Questions therefore arise regarding the liquidation and the role of administrators? These actions have been raised with the Institute of Chartered Accountants of England and Wales and questions asked as to whether they acted with “objectivity and integrity”. Hopefully that will be advised soon.
As things now stand the yard’s operated by the Scottish Government but though salaries of senior management grow exponentially, progress is still slow on ships 801 and 802.
At the time of liquidation work on military vessels had been agreed with Babcocks, fishing support vessels were being built with more to be won and work was ongoing on the world’s first hydrogen propulsion system, which had received an international award.
Yet now Islands are still bereft of services, communities and businesses threatened and the yard’s worried about its future, as CMAL tenders orders abroad and other orders have been lost.
So, what needs done?
There needs to be clarity on CMALs actions and the role of government ministers responsible. A Public Inquiry should be held. The Holyrood Inquiry suggested an independent external review. That I believe’ s inadequate. This straddles reserved and devolved competencies? Will the Minister consider seeking to establish a joint inquiry with the Scottish Government as happened for example with the Stockline explosion?
Moreover, for the communities involved and for Scotland’s industrial future action’s needed.
To use football parlance, sack the board and remove the manager.
CMAL should be abolished.
Cal Mac in consultation with the communities, who must have rights, should be responsible for the selection of ships.
The management team that has been put into Fergusons need removed.
The replacement of the Cal Mac fleet, that will involve several vessels a year and over decades to come, should be placed out to tender.
But with the stipulation that Fergusons and other sites in Scotland must be used for their construction by whoever wins it.
We need clarity on what went wrong. But fundamentally we need to secure a ferry service for our remote communities and provide a future for our shipyards.