Ferguson Marine - due diligence vessel 802: written authority request 13 May 2023
- Published
- 16 May 2023
To continue with the delivery of vessel 802 by FMPG the Director General Economy requested Written Authority from the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy on 13 May 2023.
Cabinet Secretary for Wellbeing Economy, Fair Work and Energy
Completion of Vessel 802
The contract for the delivery of vessels 801 and 802 was awarded by CMAL to Ferguson Marine Engineering Ltd (FMEL) in August 2015 and signed in October 2015. This was a key deliverable within Scotland’s Vessel Replacement and Deployment Plan.
The shipyard was brought into public ownership in August 2019 as Ferguson Marine Port Glasgow Limited (FMPG). From the start, Scottish Ministers’ objectives have been to complete the two vessels given their importance in providing lifeline services to island communities, to secure a future for the shipyard, and to retain jobs and skills in what is one of the last remaining commercial shipyards on the Clyde.
In line with the requirements of the Scottish Public Finance Manual (SPFM), which follow on from the requirements of the Public Finance and Accountability (Scotland) Act 2000 (‘PFA Act’), due diligence has been undertaken on the revised estimated cost to complete each vessel approved by the Board of Ferguson Marine Port Glasgow (Holdings) Limited and submitted by the CEO to the Scottish Parliament and Ministers on 28 September 2022.
Given the increase in estimated costs from those previously set out by the CEO of FMPG in March 2022, the complexity of the build programme and the importance of a full and thorough assessment to support any approval of public expenditure, this due diligence process has been supported throughout by external commercial advisors.
As Accountable Officer I am required under the PFA Act to assess the regularity, propriety and value for money of policies and programmes.
I am satisfied of the regularity and propriety of completing vessel 802 in line with the existing contract but the value for money case, in which I am required to be satisfied that resources are used economically, efficiently and effectively, is more challenging. A comparison of the projected costs from now until vessel completion with the alternative options, allied to risks driven by inflationary pressures and supply chain issues and an uncertain economic outlook, combine to make it very difficult for me to gain sufficient assurance that value for money, as determined by the PFA Act which I must adhere to, can be achieved.
I am therefore required under section 15(8)(a) of the PFA Act to obtain written authority from Scottish Ministers should you wish to proceed with the completion of vessel 802 at FMPG.
While I am bound by the requirements of the PFA Act in relation to the financial judgements, policy decisions are the responsibility of Ministers. There are entirely legitimate and important factors that Ministers can take into account when arriving at a decision on the future of vessel 802. These include the potential impact of that decision on the policy objectives of supporting island communities and improving the resilience of Scotland’s ageing ferry fleet, retaining jobs in Inverclyde, and supporting the future of commercial shipbuilding on the Clyde. In particular, you may wish to consider how under any scenario continuing work on vessel 802 could be an important step towards ensuring the shipyard’s future and the additional implications for these policy objectives that would follow from that.
Should Scottish Ministers wish to progress with completion of vessel 802 on the basis of these wider considerations and benefits, I would be grateful for written authority (pursuant to section 15(8)(a) of the PFA Act) to enable me to implement this. I would, of course, continue to be conscious of the need to scrutinise any and all expenditure incurred on an ongoing basis and will ensure that we maintain a robust approach to financial monitoring so that Ministers are fully sighted on progress, performance and actual costs incurred. I would propose to retain external advisors throughout this period to ensure that, where necessary, estimates and proposals from FMPG are interrogated to the highest independent standards.
In line with the PFA Act, the SPFM, and Cabinet procedures, this letter has been copied to the First Minister and the Deputy First Minister. A copy of this request and of the Written Authority will be shared as soon as possible with the Auditor General for Scotland and with the Clerk of the Public Audit Committee.
GREGOR IRWIN
Director-General Economy Scottish Government
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