The total cost to complete the two delayed lifeline ferries at Ferguson Marine's Port Glasgow yard is estimated to be two and a half times the original price - £240m - according to the Auditor General for Scotland.
A new report revealed that more than two years after the government took control over the shipyard, there were still “significant operational failures” needing to be resolved and further remedial work on the vessels continuing to be uncovered.
The Scottish Government and Caledonian Maritime Assets Limited (CMAL) paid a total of £128.25m to Ferguson Marine Engineering at the point it had entered into administration, despite the ferries being "largely incomplete"
The spending watchdog's latest update showed that “multiple failings have led to delays and cost overruns which continue to obstruct delivery of island ferries”, noting that the project to deliver Vessels 801 and 802 for the Clyde and Hebrides has been beset with “delays and spiralling costs”.
The ferries are now almost four years late, with no certainty on exactly when they will be ready to be put into service by CalMac.
The Auditor General claimed the delay in the projects have “frustrated island communities and weakened resilience across Scotland’s ferry network”.
The report criticised the Scottish Government for approving the contract awarded to Ferguson Marine Engineering in 2015, despite “significant risks caused by its inability to provide mandatory refund guarantees and the severe misgivings of CMAL”.
Stephen Boyle, auditor general for Scotland, criticised the lack of “strategic oversight” for the project, along with unfinished project documentation, adding that the risk and procurement register was not updated and there was no escalation process in place to alert ministers of issues.
The report found: “Ferguson Marine Engineering made several requests to CMAL and Scottish ministers to change the contract terms to aid its cash flow and support vessel delivery.”
In particular, it requested changes to the refund guarantees and the milestone payment schedule to release £48.5m in what it referred to as ‘trapped cash’.
But after seeking legal advice, due consideration of the risks, and discussions with Transport Scotland and the Scottish Government, CMAL agreed to two contract changes in November 2016 and May 2017 which released around £23.55m to Ferguson Marine.
This was seen as a milestone payment, as the Scottish Government agreed to pay some upfront.
The trapped cash requested allowed CMAL to replace the refund guarantee with a surety bond that did not require any cash collateral, thus freeing up £24.25m from escrow.
Scottish ministers agreed to accelerate £14.55m of payments to Ferguson Marine in May 2017, after meeting with a director, but prior to formal consideration and approval by the CMAL board. “The CMAL board twice refused to agree to the contract change as it considered the financial risk was too high”, the report noted.
The report explained that due to a deterioration in the relationship between CMAL and Feguson Engineering, the government was unable to complete its due diligence regarding the ships, and made the decision to nationalise the shipyard “without a full and detailed understanding of the amount of work required to complete the vessels, the likely costs, or the significant operational challenges at the shipyard”.
The Auditor General has made recommendations to the Scottish Government that it hopes will support the completion of vessels 801 and 802 “as quickly and efficiently as possible”, as well as improving future procurement, contract management and increase the transparency of decisions and expected outcomes in relation to supporting private businesses.
It recommended that Transport Scotland and CMAL should undertake, on completion of vessels 801 and 802, a formal review of what went wrong with the project, with a view to learning lessons to help prevent future recurrence with other vessel procurements.
It should also finalise the long-term plan and investment programme for ferries by the end of 2022 and consider the results of Project Neptune’s governance review.
Boyle added: “The failure to deliver these two ferries, on time and on budget, exposes a multitude of failings.
“A lack of transparent decision-making, a lack of project oversight, and no clear understanding of what significant sums of public money have achieved. And crucially, communities still don’t have the lifeline ferries they were promised years ago.
“The focus now must be on overcoming significant challenges at the shipyard and completing the vessels as quickly as possible,” he concluded. “Thoughts must then turn to learning lessons to prevent a repeat of problems on future new vessel projects and other public sector infrastructure projects.”
Convener of the Public Audit Committee, Richard Leonard MSP, said: “Scotland’s ferries provide a lifeline service to our island communities - it is therefore alarming to see that the persistent failings highlighted in today’s report remain unresolved.
“We will begin our scrutiny on this report in the coming weeks and will explore these concerning findings in detail with the Auditor General.”
Responding to the report, Scottish Liberal Democrat economy spokesperson Willie Rennie said: "Island communities are being left all at sea by the failure to deliver new vessels.
"Meanwhile the taxpayer is shelling out four times as much as originally expected to get these vessels built - this is yet another example of the failed SNP industrial intervention policy.”
Scottish Labour’s Transport spokesperson Neil Bibby said: “While ministers have come and gone, the First Minister has been a constant presence throughout this fiasco.
“She must finally take some responsibility for the mess her government has created, and set out a real plan for how they will stop costs spiralling, prevent any more delays and build a sustainable future for the yard and for Scotland’s shipbuilding industry.”
Responding in the Scottish Parliament, Economy Secretary Kate Forbes expressed frustration at the revised delivery and cost schedule for both vessels.
“We knew the challenge we took on when the Scottish Government rescued Fergusons from administration in 2019, but it was a challenge worth taking on.
“We saved hundreds of jobs and we stand by our commitment to the shipbuilding communities in Inverclyde, and our island communities that rely on the vessels.
“I have been crystal clear on what I expect from Ferguson Marine in terms of delivering 801 and 802, as well as turning the business around to be competitive - I recognise the critical nature of completing the ferries for the sake of island communities and I understand the urgency and necessity of delivering these vessels.
“I fully accept the Audit Scotland report’s recommendations on Ferguson Marine in public ownership and work is well underway on a number of the recommendations.
“There is still work to do to complete both the vessels and turnaround the business,” she continued, adding: “The board and leadership of Ferguson Marine know where I stand on this, and they expect to be held to account for delivery of these critical ferries in line with the new schedule.
“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.”
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