Ferguson's, Calmac and the SNP Government: Who will pay the ferryman?

Ferguson's, Calmac and the SNP Government: Who will pay the ferryman?

by Murdo Fraser
article from Friday 28, September, 2018

BACK IN 2014, one of Scotland’s iconic businesses was in trouble. The Clyde’s last commercial shipbuilder, Ferguson Marine Ltd in Port Glasgow, was up for sale, with few potential buyers in sight, and hundreds of jobs at risk. 

The SNP government could not afford to lose such a significant part of Scotland’s economic heritage. The First Minister, Alex Salmond, picked up the phone to his economic advisor Jim McColl (pictured), Scotland’s leading industrialist, and asked him to help out. 

As part of the deal that was struck, McColl would take over ownership of Ferguson’s, and the company were awarded a contract for the construction of two new CalMac ferries. The new vessels, to serve the Isle of Arran, and the Uig Triangle respectively, were to run on LNG (liquefied natural gas), rather than the traditional diesel, and thus represented cutting-edge technology. 

The future of the yard would be secured, new jobs created and apprentices taken on, and islanders would benefit from modern reliable vessels with a lower environmental footprint than those they replaced. What could possibly go wrong?

And yet, four years later, it is all starting to unravel. Initially Ferguson’s saw substantial investment of £25 million on modernising the yard. There is currently 380 staff on site, including 35 apprentices. Employment is projected to rise to 450 next year, and if all goes to plan, to 500 by 2020. These are well-paid, highly skilled, engineering jobs vital to the local economy.

But the problems have been mounting up for the shipbuilder. It came to light just a few weeks ago, following Freedom of Information requests, that Ferguson’s had received loans of £45 million from the Scottish Government (at an interest rate of 15 per cent) in order to support the construction work.

More seriously, there have been serious delays and cost overruns in the construction of the two ferries. The MV Glen Sannox, to service the Arran route, is now already one year late. And the total cost overruns across the contract for the vessels are already in the tens of millions of pounds.

Ferguson’s were given just two and a half months to design a bid for the tender for the two ferries, and submitted this on the understanding that there would be flexibility with CMAL (Caledonian Maritime Assets Limited, the wholly owned Scottish Government company which procures and owns CalMac’s ferries) to work on a detailed specification thereafter. 

The ferry design has proved much more complicated than Ferguson’s originally envisaged, not least because of the novel technology being deployed. Every variation has required agreement not just from CMAL, but also the Maritime and Coastguard Agency (MCA), and Lloyds as insurers. This has added both time and cost to the project.

Relationships between CMAL and Ferguson’s has broken down to the extent that Jim McColl claims he can no longer have a reasonable conversation with his customer. He has instructed independent consultants to draw up a claim against CMAL for £37.4 million, 38 per cent over the original contracted price of £97 million. If CMAL refuse to budge, the matter is likely to end up in the Court of Session in a matter of weeks.

CMAL maintains that it is not due a penny extra over the agreed contract price. In response to a question from my Conservative colleague Jamie Greene MSP at a Parliamentary committee on Wednesday, CMAL’s Chief Executive Kevin Hobbs said that any increase in costs to the budget had to be met by Ferguson’s, although acknowledging that the total price was going to be “an awful lot more” than £97 million.

The whole situation is an almighty mess. CMAL, a Scottish Government-owned company, is refusing to engage with the contractor. The contractor is facing a potentially crippling additional cost in providing the two ferries, which if it has to pay, may well jeopardise its ability to do future work, and maintain levels of employment. 

In the meantime, people in Arran are increasingly frustrated at the delay in providing a new ferry vessel, when the existing ferry serving the route is prone to delays and breakdowns, causing serious disruption and economic cost. And the only people likely to benefit are the lawyers if this all ends up in litigation.

In the background, we have an aging ferry fleet across the rest of Scotland, with a comprehensive programme of replacement required over the next decade. Ferguson’s would be well placed to tender for this work, supporting Scottish engineering and creating jobs, but while the current dispute rages on it is difficult to see how that might progress.

And where is the Scottish Government in all this? What have Scottish Ministers got to say about the debacle? CMAL is after all their company, one in which they own 100 per cent of the shares, and one to which they appoint all the directors. They provided the loan to Ferguson’s to help them take on the work. And they have responsibility for providing lifeline ferry services to Scotland’s islands.

The sad fact is that Ministers are in hiding, refusing to intervene, and leaving the protagonists to slog to out in court. In the interests of Ferguson’s, the Scottish economy, our future industrial base, and communities served by ferries on the West Coast of Scotland, they really need to get a grip and do something to sort all this out, before more damage is done.

 

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