Ferries Fiasco Continues As Costs Spiral Higher And No Delivery Date Yet
23rd March 2022
Audit Scotland today reports on the huge problems and failures by Scottish Government to get to grips with the two ferries being built.
It is still unknown what the final cost will be or indeed if and when the ferries will be delivered.
Major problems remain unresolved at the shipyard constructing two lifeline ferries for Scottish islands.
More than two years after the Scottish Government took over control of the shipyard, significant operational failures still need to be fully resolved and further remedial work on the vessels continues
to be uncovered.
The project to deliver Vessels 801 and 802 for the Clyde and Hebrides has been beset with delays and spiralling costs. The ferries are now almost four years late, with no certainty on when they will be complete. The total cost of the project is currently estimated to be at least £240 million, around two and a half times the original contract price. The vessels were initially estimated to cost a total of £72 million. These issues have frustrated island communities and weakened resilience across Scotland's ferry network.
Scottish ministers approved the contract award to Ferguson Marine Engineering Limited (FMEL) in October 2015, despite significant risks caused by FMEL's inability to provide mandatory refund
guarantees and the severe misgivings of Caledonian Maritime Assets Limited (CMAL). There is insufficient evidence to explain why Scottish ministers made this decision.
As the project progressed, delays, costs, and a contract dispute between CMAL and FMEL, escalated. Despite CMAL and the Scottish Government intervening to support the project, FMEL entered administration in August 2019, with the Scottish Government bringing the shipyard into public ownership.
Stephen Boyle, Auditor General for Scotland, said: "The failure to deliver these two ferries, on time and on budget, exposes a multitude of failings. A lack of transparent decision-making, a lack of
project oversight, and no clear understanding of what significant sums of public money have achieved. And crucially, communities still don't have the lifeline ferries they were promised years ago.
"The focus now must be on overcoming significant challenges at the shipyard and completing the vessels as quickly as possible. Thoughts must then turn to learning lessons to prevent a repeat of
problems on future new vessel projects and other public sector infrastructure projects."
Timeline of key events
2015
August Scottish ministers announce FMEL as the preferred bidder for the contract to design and build two new vessels, at a combined fixed price of £97 million September FMEL confirms that it is unable to provide a full Builders Refund Guarantee (BRG), which was one of the mandatory requirements of the contract September CMAL advises Transport Scotland of the significant risks of awarding the
contract to FMEL, and states its preference is to start the procurement process again
October Transport Scotland advises CMAL that Scottish ministers are aware of the risks
and are content for CMAL to award the contract to FMEL
October CMAL awards the contract to FMEL. Expected vessel delivery dates are May 2018 (vessel 801) and July 2018 (vessel 802)
December CMAL advises the Project Steering Group (PSG) that FMEL has failed to meet some of its contract deliverables
2016
November To aid FMEL's cash flow, CMAL agrees to replace the BRGs with surety bonds, issued by the insurance company HCC plc
Surety bond
A legally binding contract between three parties: the surety (or guarantor), principal and oblige. The surety provides a financial guarantee, protecting the oblige (in this case CMAL) against losses should the principal (in this case FMEL) fail to fulfil an obligation.
2017
February Transport Scotland officially informs Scottish ministers of delays March FMEL changes its build strategy to try and get the project back on track May FMEL requests that CMAL accelerates £14.55 million of milestone payments to aid its cash flow. Scottish ministers agree this change with FMEL.
The CMAL Board approves it, subject to tight controls
July FMEL submits a claim to CMAL for £17.5 million of additional payments.
CMAL disputes the validity of the claim
September The Scottish Government provides FMEL with a £15 million loan to aid its cash flow (CMAL is unaware of this due to commercial confidentiality
2018
February The Scottish Government enters an intercreditor agreement with HCC plc to release £10.7 million of FMEL's cash from escrow to aid its cash flow February CMAL and FMEL abandon mediation attempts
April FMEL advises CMAL that its claim has increased to £27.4 million
May CMAL and Transport Scotland update Scottish ministers on problems with the project and advise them of contingency plans. The parties agree that cancelling the contract is the least preferred option as this would not achieve the main priorities of completing the vessels as quickly as possible and protecting jobs at the shipyard
May The Scottish Government appoints a consultant to review the adequacy of FMEL's labour input to complete the vessels in line with its updated vessel delivery programme
June The Scottish Government provides FMEL with a £30 million loan to aid its cash flow (CMAL is unaware of this due to commercial confidentiality)
June CMAL agrees to FMEL's revised delivery dates of June 2019 for vessel 801 and March 2020 for vessel 802, on the condition that FMEL extends the surety bonds (which are due to expire at the end of 2018)
July As part of the £30 million loan agreement, the Scottish Government appoints an independent operational expert to provide assurance that FMEL is making progress in line with its vessel delivery programme
December FMEL submits a new claim to CMAL for £65.8 million
2019
February The Scottish Government and Transport Scotland initiate Project Kildonan to formally consider contingency plans for the vessels and the shipyard
March CMAL refutes FMEL's revised claim
April FMEL advises Scottish ministers that it will make significant redundancies
May CMAL advises Scottish ministers of its intention to cancel the contract for vessel 801 on the grounds of late delivery. It also informs Scottish ministers that it will make a call on the surety bond (ie, it will request £12.125 million from HCC plc)
May The Scottish Government commissions an independent view of FMEL's claim
June The Scottish Government advises both parties that there is no legal basis for CMAL to pay more than the fixed price of the contract
August The Scottish Government appoints a Turnaround Director to help stabilise the shipyard and put a programme in place to complete the vessels
August FMEL enters administration
December The Scottish Government completes a commercial transaction to bring the shipyard into public ownership and creates a new organisation, FMPG, to complete the vessels
December The Turnaround Director provides an update on costs and timescales for the Scottish Government. The estimated delivery dates are October to December 2021 for vessel 801, and July to October 2022 for vessel 802.
The estimated cost to complete both vessels is £110.3 million to £114.3 million
2020
June Scottish ministers appoint the FMPG Board
August The Turnaround Director updates delivery timescales to account for Covid-19 disruption: April to June 2022 for vessel 801 and December 2022 to February 2023 for vessel 802. There is no change to the cost
2021
June The Turnaround Director updates delivery timescales to account for further Covid-19 disruptions and labour shortages: July to September 2022 for vessel 801 and April to July 2023 for vessel 802. There is no change to the cost
2022
February The Turnaround Director advises the Scottish Parliament of further vessel delays due to a serious cable problem on vessel 801 March FMPG expects to provide the Scottish Parliament with an update on vessel timescales, and any impact on costs
It is still unknown what the final cost will be or indeed if and when the ferries will be delivered.
Read the full report HERE - Pdf 72 pages
