Ministers have been told to act to make a special order to allow public spending auditors to carry out a full investigation into the soaring costs of Scotland's ferry fiasco.

Audit Scotland has confirmed it has been hampered in their attempts to establish where pre-nationalisation Ferguson Marine Engineering Limited (FMEL) spent over £128.25m in public money in relation to the building of two long-delayed lifeline ferries before it was nationalised.

Two lifeline ferries for Scottish Government-owned CalMac were ordered in 2015 when Ferguson Marine was owned by Jim McColl, a then pro-independence businessman who rescued the Inverclyde shipyard firm from administration a year earlier.

When Mr McColl's FMEL entered administration in August 2019, it had received £83.25m in milestone payments from the government-owned ferry owning and procurement agency Caledonian Maritime Assets Ltd (CMAL) and £45 million in loan payments from the Scottish Government - yet the vessels were largely incomplete.

Delivery is now over six years late with costs expected to quadruple compared to the original £97m contract costs.

The Herald: Nicola Sturgeon and Jim McColl

But Audit Scotland has said there are legal issues getting in the way of their attempts to properly scrutinise what happened at FMEL.

That is because they do not believe they have the statutory powers to undertake a forensic analysis of Ferguson Marine's records as it is not a specified body subject to scrutiny under the Public Finance and Accountability (Scotland) 2000.

The public spending regulator has said that ministers would have to make a special order to make FMEL a body subject to scrutiny under the Act.

The Scottish Parliament's Public Audit Committee has now submitted a request that the order be made by wellbeing economy secretary Neil Gray.

Included in the proposed scrutiny is the £83.25m of the £97m contract that was paid to Ferguson Marine by CMAL as milestone payments for the completion of the project - despite the fact they were largely incomplete.

Also included in the review is how two loans worth £45m that was given to the yard was spent.

The Herald has previously revealed that when in 2018, the finance secretary Derek Mackay was telling the public a £30m loan was to "further diversify their business", internal documents stated that the real reason was that Ferguson's was in financial trouble and at risk of falling into administration risking delays to the ferries project.

The Herald:

The loan agreement came with a "right to buy" providing a pathway to nationalisation when it was renamed Ferguson Marine (Port Glasgow).

The public spending watchdog said that while consultants PricewaterhouseCoopers was providing the Scottish Government with reports on FMEL spending, they did not go into detail on where the money went, so were "unable" to trace exactly how that money was spent and what progress was made on the vessels as a result.

Audit Scotland previously found that ministers went ahead with the contract despite the concerns raised by CMAL over the lack of financial guarantees that placed them at risk.

When the build ran into trouble, the shipyard firm fell into insolvency and was nationalised with the Scottish Government in control and with Mr McColl and CMAL blaming each other for the fiasco.

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 without a builder's refund guarantee in place despite the concerns.

Officials say that without a builder's refund guarantee in place, there was no link between the payments that CMAL was making and the quality of the build.

In an initial investigation into what happened before nationalisation, Auditor General Stephen Boyle said that records relating to transactions were "not organised or categorised".

It emerged in December that David Tydeman, chief executive of the now nationalised Ferguson Marine (Port Glasgow) had stated they have not sought to evaluate old files because they "do not add value to the planning or budgeting work still needed to complete the vessels".

The Herald: David Tydeman of Ferguson Marine

The Public Audit Committee had written to ask him to account for the £240m that they said at that time had been spent on the two ferries.

Of this, £128.25m was paid to pre-nationalisation FMEL.

Audit Scotland in its inquiries had initially examined what happened to a £30m loan provided by the Scottish Government to FMEL.

But the watchdog said that while consultants PricewaterhouseCoopers was providing the Scottish Government with reports on FMEL spending, they did not go into detail on where the money went, so were "unable" to trace exactly how that money was spent and what progress was made on the vessels as a result.

Mr Boyle has previously said that the lack of a link between milestone payments and quality or progress was the industry norm for shipbuilding contracts but was said to be at odds with other large public sector infrastructure contracts.

Public audit committee convener Richard Leonard MSP commented: "The committee continues to press the Scottish Government to put more information about vessels 801 and 802 into the public domain. Many questions around the ferry fiasco remain unanswered.

"Chief among them: what exactly happened to the £128.25 million of public money given to Ferguson Marine Engineering Limited (FMEL)?

“It is encouraging that the Auditor General for Scotland agrees with the Committee that there is clear merit in undertaking this work. However, the AGS does not currently have the power to undertake a forensic analysis of FMEL’s records.

“This can be rectified – the Scottish Government could, if it wished to, open up these records for examination. I have today written to the Scottish Government urging them to make a competent order allowing this to happen.

“The committee is also unconvinced that commissioned reports that have informed government decisions around continuing with this project cannot be published in some form, and so we have asked for this decision to be revisited.

“This Government has repeatedly made clear that it is committed to transparency. This is an opportunity for that to be demonstrated, and we see no reason why this cannot happen as a matter of urgency.”

A Scottish Government spokesman told The Herald: "The Scottish Government remains committed to being as open and transparent as possible in relation to decisions around Ferguson Marine (FMPG) and vessels 801 and 802, and has proactively published more than 200 documents on its website. We have co-operated at every stage of the recent Public Audit Committee inquiry, as well as those previously undertaken by the Rural Economy and Connectivity Committee and Audit Scotland.

“We have received a letter from the Public Audit Committee and will respond in due course.”