Ferguson Marine update: Ministerial statement

Presiding Officer, today’s statement maintains the commitment given by the Cabinet Secretary for Finance and the Economy some time ago to update Parliament on progress in the building of the MV Glen Sannox (801), and Hull 802 at Ferguson Marine and to do so in an open and transparent way.

I am providing this update in place of the Cabinet Secretary.

The first issue I want to address is the Audit Scotland Section 22 Report that was published on Tuesday. I welcome that report and acknowledge the legitimate issues that are raised. My statement will provide much of the update requested by the Auditor General. The report criticizes the bonuses to senior staff at the yard in the financial year 2021-22 and the process by which they were arrived at. The report rightly criticizes the poor governance involved in the process. I agree with that criticism and assure Parliament that new arrangements have been put in place - at my request - to ensure such an eventuality does not arise in the future.

The Scottish Government stands by its commitment to the shipbuilding communities in Inverclyde, and to our Island communities that will rely on the vessels currently being built at Ferguson Marine. I deeply regret that there have been delays to the delivery of the vessels and significantly higher costs than were predicted at the time of the tender award.

Given the concerns over costs, it is only right and proper that the Scottish Government conduct a robust assessment on its use of public funds, and that the request received from the Chief Executive of Ferguson Marine on 28 September, with updated costs to complete both vessels, is also subject to an intense level of robust scrutiny. Those estimates indicated that £21 million of additional funding would be required in this financial year to sustain work on the vessels.

Our full assessment and due diligence on the Chief Executive’s cost estimates is due to complete in the coming weeks. On 15 December, I updated the Parliament on the need for in-year funding of £15 million for Ferguson Marine to ensure they could continue to progress the build of both vessels subject to completion of that work.

Today I am confirming that I am satisfied it is appropriate and necessary to allocate a further £6 million, set out in the Spring Budget Revision published on 02 February, which will take the total additional capital funding for Ferguson Marine in the 2022-23 financial year to the £21 million requested by the Chief Executive in September.

Whilst the due diligence work has been ongoing Ferguson Marine have continued to progress with the build, and the Chief Executive of FMPG has confirmed to me that the MV Glen Sannox successfully completed a dry-docking period at the start of this month and after return to Port Glasgow the yard achieved a major milestone in running the first main engine.

This dry-dock period has allowed the team at Fergusons to make a detailed assessment of progress to date, and what will be required to ensure a high degree of confidence in the robustness of the ship when it is entered into service later this year.

Following this assessment, the Chief Executive of Ferguson Marine has today written to the Net Zero, Energy and Transport Committee with an update of overall progress in preparing a dual fuel vessel to be handed over. He has concluded that due to persistent design gaps and build errors progress has been slower than planned for the 801 vessel.

The Chief Executive has therefore revised the handover dates for both vessels with the MV Glen Sannox now scheduled for autumn 2023, rather than the end of May 2023 that was previously estimated, with a contract backstop of no later than the end of December 2023. He has also indicated that 802 will be handed over in the Autumn of 2024, compared to the previous timescale of the end of March 2024, with a contract backstop of no later than the end of December 2024.

It is a matter of great disappointment that a further revision to the timescale for delivery has been necessary.

I welcome the Chief Executive’s assurances that Ferguson Marine will continue their best endeavours to deliver both vessels sooner than these dates.

The Chief Executive has also set out plans for the MV Glen Sannox to have a sustained testing and sea trials period to help ensure a smooth entry into service later this year.

Presiding Officer, I am conscious that delays to the delivery of any project can lead to an overall increase in costs.

That is why the Scottish Government will work with both Ferguson Marine and our technical advisors CMAL to assess any financial impact to the delivery of both vessels.

I have therefore written to the Chief Executive to notify him that we will review his proposals and confirm our position on this in due course.

Ferguson Marine, whilst acknowledging the potential for an increase in the total delivery costs due to the delay, state they are looking to offset any potential increase through income generated from commercial work.

Presiding Officer, one of our aims has always been to look beyond 801 and 802 and secure a sustainable future for commercial shipbuilding on the Clyde - which is one of the issues raised by the Auditor General in his report.

We know that the Ferguson Marine team continues to pursue a range of opportunities to meet this shared ambition. I am pleased to report that the business has been successful in securing new commercial work and has recently entered into a contract with BAE Systems to support the delivery of their Type 26 frigate programme.

This has involved the secondment of some Ferguson Marine workers to BAE Govan since January this year. Ferguson Marine has been clear to us that these workers are not currently required on 801 and 802 and their secondment is not diverting resources away from completion of the ferries.

Moreover, such diversification helps to support the knowledge transfer and upskilling of the workforce across the industry. This is an important factor to ensure that these skills help support the shipyard to be competitive in aspiring to future contracts.

Scottish Ministers remain committed to do all that we can as shareholder, and as a government to help achieve a prosperous future for the shipyard.

In support of the BAE contract, I can therefore confirm that the Scottish Government has agreed to provide a working capital loan of up to £25,000 with interest to support cashflow during the contract period.

This is a short-term measure and is standard practice for working capital requests from a public body, and in line with terms of the Scottish Public Finance Manual.

This work is a positive step for Ferguson Marine and one that I am sure members will rightly support, as the business looks to build an order book for the future.

Presiding Officer, no further delay in the delivery of these vessels is welcome and I fully share what I expect will be Members’ disappointment at this announcement.

However, the challenges and legacy issues being faced by the team at Fergusons cannot be underestimated and after the appointment last February of the new Chief Executive substantial progress has been made in facing these.

I understand and appreciate why it is so vital that new vessels are introduced into the ferry network, but we must ensure that any vessel introduced is able to provide our island communities with the confidence that it will perform in service and improve the network.

I have discussed this with the Chief Executive and made my disappointment at this delay very clear. He fully appreciates the critical need for these vessels to enter service as soon as possible to support our island communities, a belief I know all members will share.

We stand firm in our commitment that these vessels will be completed.

I would like to put on record my appreciation of the workers at Ferguson Marine and I am sure Parliament will join me in supporting the continued efforts of the workforce at Ferguson Marine who are determined to ensure the successful delivery of these two lifeline ferries.

Presiding Officer, as I have set out here, Parliament will be updated further when the financial due diligence work is completed in the coming weeks. This work is critical to strengthen our ferry network, which has been further enhanced by the procurement of four further vessels for the fleet.

This Government recognises its duty to ensure sustainable ferry services for our island communities and we are determined to fulfil that duty.