Ferguson Marine update: statement by the Finance and Economy secretary

Thank you Presiding Officer.

Today’s statement is in response to the report 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 today.

We are crystal clear what we 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 801 and 802 for the sake of island communities – coming from the Highlands and Islands, as other members do, with many of my family members and friends dependent on lifeline ferry services, I absolutely understand the urgency and necessity of delivering these vessels as quickly as possible.

We don’t 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 with the Chief Executive on a fortnightly basis, and with the Chair every six weeks, to press the Board and the Management to drive the programme as hard and as fast as possible to successfully complete the vessels. Let me be clear with Parliament today: 

• I expect the Yard, as a priority, to complete those vessels successfully and at the fastest, most achievable pace
• I expect the Yard to turn around its operations so it is competitive, productive and efficient
• And I expect the Yard to win and secure a further pipeline of work on the basis of its operations

Presiding Officer, I also meet with trade union representatives and the workforce, and have heard first-hand the impact on their morale of these challenges and 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.

This Parliament knows the challenge that we took on when we rescued Fergusons from Administration in 2019. But we saved hundreds of jobs and 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 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 required to put Ferguson Marine onto a stable footing.

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 in place, Covid sickness absence, and self-isolation.

Despite that 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, working much more closely with CMAL who have, it’s well known had differences of opinion with the Ferguson leadership about progress at the Yard.

The Chief Executive has bolstered his senior team with an experienced secondee from CMAL, embedding a closer relationship directly within the Yard.  

And, crucially, the Ferguson Marine team is actively pursuing vessel opportunities and is back to being a serious contender for future vessel contracts.

Presiding Officer, it also goes without saying that progress has not been as fast as we would have liked, largely due to ongoing legacy issues.

The then Turnaround Director of Fergusons wrote to Committee on 9th February highlighting a legacy issue around cabling which would impact on the vessels schedule and cost. 

These problems happened before Scottish Government ownership, and whilst the Board has no visibility on work that happened before we brought the yard into public ownership it is important that lessons are 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 associated with the legacy cabling, the Chief Executive has critically reviewed the delivery schedule in its entirety.

The cabling issue will cause a direct 4 month delay on vessel 801. The Chief Executive believes that given the emergence of these legacy issues, an additional 4 months is required and so, his letter sets out that there will be a maximum delay of 8 months in the delivery of 801.

Delays on 801 will inevitably lead to delays on 802. Ferguson Marine however believe they can reduce the delay on 802 to 6 months. 

So that means that 801 will be delivered between March and May 2023, and 802 between October and December 2023. 

Those estimates have importantly been developed in collaboration with CMAL.

Presiding Officer, I won’t rehearse my frustration and I know this Chamber’s frustration with this updated timetable. The Ferguson Marine Board and Chief Executive are aware of the depth of my dissatisfaction with the emergence of the cabling issues and the knock on impact to the timetable. I have made it very clear that these vessels must be delivered in line with this schedule. 

There is also a cost increase which comes with this extension of the programme. 

The Chief Executive has confirmed an additional £8.7 million. Of that cost, £825,000 directly relates to the cabling; £7.875 million relates to overhead, labour and material costs associated with the new schedule.

As such, the cost to complete the ferries will increase to between £119 and £123 million. I have agreed to additional funding to ensure these 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 for which warranties have time-expired. That’s completely separate to the cabling and schedule costs outlined above. The warranty costs were not unknown, but in the spirit of transparency I wanted to quantify these costs.

Turning to Audit Scotland’s report on the arrangements to deliver the ferries now. 

The report reflects fairly on the complex issues which have mired the history of the build out of the ferries, and underpin many of the legacy issues which Fergusons are dealing with today.

The report states 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 their view that, ‘work on the vessels has taken longer than expected, and Covid-19 has delayed progress’.

I fully accept the Audit Scotland report recommendations on Ferguson Marine in public ownership. Work is underway already on a number of the recommendations. Collaboration between FMPG and CMAL has been strengthened considerably; officials are working with FMPG on their business case for investment; and will continue to work with them 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, I will later today proactively publish documents on the Scottish Government website. These, and other contextual information, will, I hope, help those with less proximity to the issues to understand the full picture.

Presiding Officer, I know that there is a shared belief across this Chamber in the importance of those vessels and it is critical that we see them in service as soon as possible for the benefit of our island communities. I reiterate today that there are no ifs, no buts, those vessels must be completed – and they must be completed as quickly and as effectively as possible.

The Board and leadership of Ferguson Marine know where I stand on this issue, they expect to be held to account for delivery of these critical ferries in line with the new schedule 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.

More information

See: Ferguson Marine documents