Ferguson Marine Due Diligence: Ministerial statement
Statement delivered to the Scottish Parliament by Cabinet Secretary for Wellbeing Economy, Fair Work and Energy on 16 May 2023.
Presiding Officer, today’s statement maintains the commitment given by the former 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 Port Glasgow and to do so in an open and transparent way.
Today I wish to update you on the future resourcing and delivery of vessels 801 and 802 but before I do so I wish to remind you of our three key objectives when we brought Ferguson Marine into public ownership.
- the completion of vessels 801 and 802 in order to provide sustainable, high quality lifeline services to our island communities;
- to support a highly skilled and dedicated workforce; and
- to ensure a sustainable future for the shipyard given its importance to the local economy and the resilience of Scotland.
These remain as valid today as they were then and I continue to be impressed by the way in which the workforce in the yard have worked so hard and with such pride to deliver the vessels in often difficult circumstances. I want to take this opportunity to pass on my thanks to all of those working at Ferguson Marine for their tireless efforts and hard work.
In September 2022, the Parliament through the Net Zero, Energy and Transport Committee were advised by the CEO of Fergus Marine of his forecast relating to an increase in costs of delivery of both the vessels and he set out that his forecast at that time was that the total cost to complete both vessels would be £202.6 million which included a £6.2 million contingency. This meant a forecast cost to complete of Glen Sannox of no more than £97.5 million and for vessel 802 of £105.1 million.
Significant due diligence has been undertaken on the CEO’s revised estimated cost to complete each vessel in line with the requirements of the Scottish Public Finance Manual, which follows on from the requirements of the Public Finance and Accountability (Scotland) Act 2000. This is right and proper, particularly given the current pressures on public expenditure and our Budget as a whole.
This process of due diligence has focused on regularity, propriety and value for money of continuing to complete these vessels.
Given 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 independent external commercial advisors as well as internal expertise within the Scottish Government.
Whilst this process has been undertaken we have ensured that Ferguson Marine have been able to continue to meet their obligations and to maintain progress on the build of each vessel.
As a consequence, the former Deputy First Minister, John Swinney, announced to this Chamber two uplifts to the 2022-23 Ferguson Marine budget of £15 million in December 2022 and £6 million in March 2023. This took the total Budget allocated to Ferguson Marine for 2022-23 to £61.1 million.
This met the 2022/23 requirement for additional funding set out by the CEO in September 2022 and it was right and proper that we did so whilst this due diligence work progressed.
I should be clear of course that the increase in costs is extremely disappointing and I recognise that the building of these ferries has been hampered by delays and cost over runs.
As Mr Swinney set out in March of this year, that due diligence was then nearing a close and it has now completed.
As a consequence, I now wish to provide Parliament at the first opportunity an update on our decisions relating to future funding for FMPG.
I am pleased that we have completed the assessment fully in line with the Public Finance and Accountability Act, Scottish Public Finance Manual and Green Book. Officials have advised me that as a consequence of that due diligence that the regulatory and propriety of completing vessels 801 and 802 under the existing contracts is met.
I can also confirm that with respect to vessel 801 the value for money case for completing that vessel is also met. The cheapest option open to ministers is to complete 801 at Fergusons.
However the case for vessel 802 is more challenging and, I have accepted the judgement of the Scottish Government Accountable Officer that the narrow value for money case has not been made.
Having said that, in making a decision around the way forward, I am guided by a wider set of considerations relating to the original policy objectives and the impact that any decision might have on people, communities and national resilience. It is also important that I consider the impact on Ferguson Marine as well.
These are not matters that can be taken into account in a pure value for money exercise, but clearly they are matters of the utmost importance.
From the very start, we have been clear that our island communities deserve to be supported by two new, energy efficient vessels with the capacity and reliability required to support vibrant island economies.
While I accept that the pure value for money assessment concludes that it could be cheaper to re-procure a new vessel, this work also shows that doing so would result in significant further delays.
A new vessel could not be deployed until at least May 2027 at the earliest – four years from now, and two and half years from the current delivery timescale.
I do not consider that is acceptable to ask our island communities to wait this further period.
Vessel 802 will provide lifeline connectivity to the mainland, ensure that people on Arran are supported for day-to-day needs around health, education and commercial activity and provide a resilient service to support the tourist industry which contributes so much to the island’s economy.
Recent issues with the reliability of an ageing island fleet and the costs associated with hiring replacement vessels in order to maintain services have merely added to the compelling case for delivering additional capacity as quickly as possible.
I am committed to supporting the workforce at Ferguson Marine and recognising the importance for jobs, skills and the opportunities for future generations that the yard provides. More immediately, of course, the continuing delivery of Vessel 802 through Ferguson Marine ensures that the local economy benefits from the company’s spend on salaries, subcontractors and taxes which support the local labour market and wider businesses in the Inverclyde area and beyond, which would be lost if we did not proceed.
Finally, I remain committed to supporting a sustainable future for Ferguson. I believe that confirming our intention to deliver Vessel 802 at the yard provides a platform upon which future success can be built.
Put simply, if Vessel 802 was not delivered at Ferguson’s then the very future of the yard, and the hundreds of jobs it supports, would be in jeopardy.
On the basis of the cost projections in our due diligence, I have therefore provided Written Authority to the Accountable Officer, to secure the continued build of Vessel 802 at Fergusons.
In the light of this decision I can also confirm the preliminary budget set out by the then Deputy First Minister for Ferguson Marine for 2023-24 to support the continued completion of vessels 801 and 802 and I have advised the CEO of this position. Our due diligence work has identified a number of inflationary and other significant pressures that could increase the cost to complete. As part of our ongoing control and scrutiny, the Chief Executive will undertake a detailed review on remaining costs in the light of this due diligence and will update Parliament in due course.
I am also formally asking Ferguson Marine to do everything possible to improve productivity, maximise operational efficiency and ensure that there is a tight control on costs as well as having a focus on delivering the vessels as quickly as possible.
I expect Ferguson Marine to provide a detailed scrutiny of the forecast costs, the expenditure incurred and monthly progress on this and the anticipated delivery dates. In the meantime, I also reluctantly accept the revised delivery dates set out by the Fergusons CEO on 16 March of Autumn this year for vessel 801 and late Summer 2024 of 802.
I am also committed to secure sustainable future for Fergusons. We have already made progress on the work the CEO has done to secure some initial contracts with BAE. To support their progress on a route to a sustainable future and also to ensure the highest levels of internal accountability and oversight I have also separately confirmed an additional £120,000 for cyber security improvements, internal audit and civil engineering that the CEO of Ferguson Marine has set out as essential.
These two ferries, dual fuelled and energy efficient will support the Clyde Coast communities for future generations. They will increase capacity, make it easier for island communities and businesses to send and receive freight and provide a boost for the tourism industry that is so vital to the islands and our country as a whole.
Presiding Officer, to reiterate – when we took Fergusons into public ownership in 2019 we did so to ensure the delivery of 801 and 802 and to secure the future of the yard and its workforce.
We did so because of the vital significance of the vessels to our island communities and the yard and its workforce to the local, regional and national economy.
The decisions I have outlined today deliver on those commitments.
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