Auditors call for new reviews over Scotland's ferry fiasco after transparency 'failure'

They have said new parliamentary reviews are required to fully learn the lessons over what went wrong as the Jim McColl-fronted Ferguson Marine went into administration in August, 2019 with the ferries undelivered.

Audit Scotland representatives have also suggested there should also be a new MSPs probe over the reasons why ministers decided to proceed with awarding the controversial £97m order to Ferguson Marine without mandatory refund guarantees from the shipbuilder.

An Audit Scotland probe found that ministers went ahead with the contract despite the concerns raised by the Government’s ferry procurement body, Caledonian Maritime Assets Limited (CMAL) over the lack of financial guarantees that placed them at risk.

The auditors' examination of the issues said there was no documented evidence to confirm why Scottish ministers were willing to accept the risks of awarding the contract despite the concerns.

Auditor General Stephen Boyle has said there should be a further examination over what went wrong with the project to ensure lessons are learnt while expressing "frustration" that they were not provided with all the relevant evidence relating to the deal.

Committee convener Richard Leonard said correspondence between officials in the Scottish Government and at CMAL suggested there was a ministerial direction, but that it had not been appropriately recorded.

And he suggested that that the transparency failure was a breach of the Public Finance and Accountability Act.

A ministerial direction, or written authority, is a formal edict from ministers to proceed with a spending proposal despite objections from civil servants.

Mr Leonard said: "It looks like there was ministerial direction but it does not appear to be recorded as required under the Act."

But the Auditor General Stephen Boyle would not go as far as to say there was a breach.

But he said: "It is a fair assessment. "The substance of the discussions were consistent with what I would understand to be ministerial direction or written authority, but the application of it was inconsistent with the requirements of the Scottish Public Finance manual, one of which is that the Auditor General is informed in writing if there is an event that is identified as a request for written authority. No such information came to the office of the Auditor General for Scotland."

Pushed about whether it was a breach of the Act, Mr Boyle said that it was into the "realms of legal judgment".

The First Minister said last month that ministers would "learn lessons" from the delays and overspends of two ferries at the now state-owned shipyard.

Ministers have previously rejected the "catastrophic failure" conclusion of a previous MSPs inquiry into the procurement of the ferries.

The 129-page rural economy and connectivity committee report two year ago, called for a “root-and-branch overhaul” of the ferry procurement process, declaring that established procedures are “no longer fit for purpose”.

The two ferries, Glen Sannox and an unnamed vessel known as Hull 802 will be delayed until at least next year – five years later than planned.

The first ship was meant to enter service on the Arran route in the summer of 2018 but is not expected to be ready until next year at the earliest - five years late. Hull 802, destined for an Outer Hebrides route, has gone the same way. The latest estimated cost for both ships is at least £250m off an original fixed contract price of £97m.

Mr Boyle told MSPs on the Scottish Parliament's public audit committee there remains "operational and workforce challenges" remaining that need to be addressed if the vessels are to be delivered within the new timescales.

He added: "After the vessels are completed all public sector bodies involved must turn their attention to fully considering what went wrong with this project, learning lessons and crucially, preventing a repeat of such problems in the future."

He said there is "clearly a frustration" that the public finance auditors were unable to review all the documentary evidence that led to the decision to award the contract to Ferguson Marine without financial safeguards from them.

"The buyer is insulated by 100% guarantee. But in the circumstances where that didn't occur as we have here, risk flows back to the buyer...

"What we're effectively seeing is that Transport Scotland advised ministers of the nature of the risks, allowing for CMAL's significant concerns and indeed position that the contract should be retendered.

"But the ministers took the view that they wish to proceed with the contract cognisant of those risks.

"There is no documentary evidence of how those risks were considered or how they will be managed during the running of the contract.

"Transparency is hugely important. It matters that important decisions of this nature are set out and recorded. "But through our audit work, we haven't been able to be provided with any evidence to set at how those risks would be managed."

He added: "Our judgment is not that evidence has been withheld from us, during the course of our audit work, rather that an important piece of documentary evidence wasn't prepared to arrive at the judgment that ministers arrived at to accept the scale of risk, so unusual in the scale of this contract."

Antony Clark, Audit Scotland's interim director of performance audit and best value said that without the documentary evidence, it was not in a position to offer advice to MSPs on what thought processes took place, and what advice Transport Scotland gave to ministers.

"I suspect it's something that the committee many wish to take evidence on in due course."

On Wednesday SNP finance minister Ivan McKee batted away claims that there could be a breach of ministerial code of conduct over record keeping failures after Audit Scotland said there was not a proper record over the controversial ferry contract award.

He said that there were already 200 documents in the public domain about the process the Scottish Government went through and that ministers was committed to "open government" and "values and encourages accountability".

The Herald on Sunday revealed that taxpayers lost over £80m after ministers provided a £106m special incentive to ensure that the contract could go through without the normal financial safeguards from the shipbuilder.

The deal was set up to ensure the CalMac ferries contract was given to Ferguson Marine in October, 2015, to reassure CMAL who had "severe misgivings" over the yard's inability to provide financial guarantees were not out of pocket if anything went wrong.

But in the end the taxpayer ended up out of pocket to the tune of over £80m when the Inverclyde shipyard firm went under in August, 2019 - while the costs of the two ferries at the centre of the debacle continue to escalate.

Ministers approved the £106m public money loan with special provisos to CMAL to protect them and would normally have been expected to pay off the loan over 25 years using revenue it generates from the fees they get from the lease of vessels like CalMac's ferry fleet and harbour access charges.

But the £82.5m that had been drawn down from the loan became a taxpayer loss as CMAL says it was "eliminated" after Ferguson Marine went into insolvency.