Scottish ministers approved a calamitous contract for the construction of two ferries despite being warned that it carried “significant risks” for taxpayers, the public spending watchdog has found.
Caledonian Maritime Assets Limited (CMAL), the state-controlled firm that owns and procures CalMac’s ferries wanted to pull out of the contract weeks after the Ferguson marine, led by tycoon Jim McColl, was named as the preferred bidder.
But ministers awarded the CalMac ferries contract to Ferguson Marine despite "severe misgivings" of their ship owners and initial concerns about the yard's inability to provide financial guarantees, Audit Scotland has said.
A watchdog probe revealed that the Scottish Government was unable to provide any documentary evidence explaining why the decision was made.
It said that ministers sanctioned giving the contract to Ferguson Marine in 2015 despite the yard being unable to provide “mandatory refund guarantees” for the financial risk to CMAL.
Audit Scotland has criticised a “multitude of failings” in the delivery Glen Sannox and Hull 802 which are now nearly five years late and will cost the public two-and-a-half times the contract costs - £240m.
The report stated the CMAL board “considered that there were too many risks involved to award the contract” to Ferguson Marine and told Transport Scotland it would prefer to start the procurement process again.
Shortly after the Ferguson Marine was named as the preferred bidder for the ferry contract in 2015, the Scottish Government was told that a full refund would not be offered if the project went wrong.
But Scottish ministers were "aware of the risks but were content to proceed to contract award”.
And the watchdog said it was unable to find documentary evidence justifying the decision adding that “there should have been a proper record of this important decision”.
Finance Secretary Kate Forbes denied that there had been any problems with the Government’s approach to the original contract.
“The procurement process for [these] vessels was undertaken thoroughly, in good faith and following appropriate due diligence, and suggestions to the contrary are wrong,” she said.
“The decision taken to safeguard the future of Ferguson Marine was the right one. Not only did our efforts save the last commercial shipyard on the Clyde from closure, we directly rescued more than 300 jobs and ensured that the two vessels – which are vital for our island communities – will be delivered.
“There is no doubt that getting the vessels completed has been extremely challenging but let me be absolutely clear, these vessels must be delivered as soon as possible.”
The report says that concerns surfaced about offering the contract to Ferguson Marine as it was unable to provide a full Builders Refund Guarantee (BRG), which was one of the mandatory requirements of the contract. The maximum financial risk to CMAL, without full BRGs in place, was 100 per cent of the contract price - £48.5 million per vessel.
Later, with a 25 per cent refund guarantee in place for each vessel, and a final delivery payment worth 25 per cent of the contract price (£12.125 million) for each vessel, CMAL cut its financial risk to 50 per cent of the contract value (£24.25 million per vessel). But Audit Scotland said this was still significantly different to the standard risk profile on a new-build project - which was there would be no financial risk to the buyer.
The day after CMAL registered its concerns, Transport Scotland said that they were aware of the risk but were content to proceed to contract award.
"It is not clear what discussions took place between Scottish ministers and Transport Scotland about the contract award. There is no documented evidence to confirm why Scottish ministers were willing to accept the risks of awarding the contract to Ferguson Marine, despite CMAL’s concerns. We consider that there should have been a proper record of this important decision," said the public spending watchdog.
Transport Scotland advised CMAL that if any of the identified risks arose and CMAL incurred additional costs, ministers would "look favourably" at CMAL’s requests for additional resources.
Scottish ministers would provide funds as they are required for CMAL to meet its debts as they fall due and maintain the company as a going concern.
CMAL accepted the assurances, the watchdog said.
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