THE Scottish Government-controlled owners of Scotland’s lifeline ferries have flagged concern of a risk of administration for the shipyard company at the centre of Scotland’s vessel building fiasco, The Herald on Sunday can reveal.

It comes as an analysis from former managers of the Port Glasgow shipyard at the centre of a ferry-building fiasco referred to “inevitable failure for the business” because of the way it was being run.

Ferguson Marine (Port Glasgow) Holdings (FMPG), which is controlled by ministers and supported by taxpayer cash, made a £100 million loss in its first four months of Scottish Government control.

READ MORE: Ministers under fire for mismanagement as CalMac ferry cancellations continue

Two previous companies running the Ferguson Marine shipyard have gone into insolvency in the past seven years.

Auditors for the state-owned FMPG have said there are no guarantees that it will continue to operate in the future although directors of FMPG have signed off recent financial statements on a “going concern” basis.

Questions over FMPG’s status have come in internal discussions held by the owners and procurers of Scotland’s ferry fleet, Caledonian Maritime Assets Limited (CMAL), in considering continuing risks to them over failures in contracts to build two lifeline ferries.
FMPG was set up by ministers as a vehicle to take over Ferguson Marine Engineering (FMEL) which had fallen into administration while trying to fulfill a disastrous ferry contract.

Soaring costs

The collapse of FMEL, which runs the last remaining shipyard on the lower Clyde, in August 2019, came amid soaring costs and delays to the construction of two lifeline island ferries and resulted in a Scottish Government management takeover.

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It came five years after Jim McColl first rescued the yard when it went bust.

The delivery of new island ferries MV Glen Sannox and Hull 802, which were due online in the first half of 2018, was found to be between four and five years late, with costs doubling to over £200m.

The Scottish Government has said it believes it was acting in the public interest in taking complete control of FMEL by December, as it saved the yard from closure, rescued more than 300 jobs, and ensured that the two vessels under construction will be completed.

Ministers have now taken over the contracts for the ferries and terminated the existing agreements with CMAL.

When the ferries are completed and ready for delivery, it has emerged CMAL will be expected to purchase them for use at what they call a “fair market value”, raising the prospect that ministers will make massive losses on the deal.

The Herald has discovered that at a CMAL meeting attended by senior officials of the Scottish Government agency Transport Scotland, knock-on risks to them had been discussed.

READ MORE: Ferry fiasco: Four more months of delay to launch of lifeline vessels to Scotland's islands

Details of the April meeting of CMAL –which was forecast to make a £1.8m loss in the last financial year – referred to an “FMPG administration risk”.

It concluded that the risk of an FMPG administration had “decreased” because CMAL no longer had a contractual involvement with the Ferguson Marine shipyard “while the business remains under the control of the Scottish Government”. 

Ongoing risk

A CMAL source said that after the financial issues of previous years it “wasn’t a massive leap to note that there was an ongoing risk” from the ferries contract if a supplier had previously gone into administration.

It was also revealed that the CMAL meeting thought that progress on the vessels continues to be “far below” what they would normally anticipate.

There was concern that at the end of February just 86 full-time staff were working across both vessels compared to the 360 that was predicted.

At that point, a weekend shift introduced had only 40 personnel, as opposed to the 120 required, “and this gives an indication of the challenges ahead”, stated a meeting report.

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“It would seem that the necessary skills were either absent or indeed that FMPG was unable to attract the skilled labour in the volumes required,” it said.

It was suggested that as CMAL is now effectively consultants regarding site supervision, it must ensure that it has clear communications and that ministers “listen to our professional opinion”. 

FMPG directors have said signing off financial statements on a “going concern” basis was appropriate “recognising that a new contractual arrangement has been put in place for the commercial requirements of the two ferry vessels being constructed for CMAL, providing a  contractual financial environment that will facilitate the company being paid for work done.

Furthermore, ministers have indicated that they will also provide working capital support.

“The directors consider that this will enable the company to continue to operate for the next 12 months and meet its liabilities as they fall due for payment.”

‘No guarantee’

BUT senior statutory auditor James Andersen of Grant Thornton said: “As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of reference to material uncertainty in this auditor’s report is not a guarantee that the group and the parent company will continue in operation.”

The Scottish Government has pumped over £17m into the business during the four months to March 2020 – including £10m into the construction of the two ferries.

Scotland's public finance watchdog is currently probing claims of a misuse of public funds in relation to the controversial takeover which is being looked at alongside the awarding of £45m of taxpayers-funded loans from the Scottish Government to FMEL before it collapsed.

The Scottish Government is still owed over £40m from the collapse of FMEL having used £7.5m of what they were owed through the loans to buy the business.

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A recruitment launch with Tim Hair.

Ferguson whistleblowers have said that experts looking into the management of Ferguson Marine since the Scottish Government takeover – and the installation of £791,000-a-year “turnaround director”, Tim Hair, rated the yard as among the lowest-scoring businesses they have evaluated in recent years.

READ MORE: State-run 'ferry fiasco' Ferguson Marine shipyard firm makes £100m loss in four months

An inspection of the yard – carried out over a three-month period by global shipbuilding consultancy First Marine International – came more than a year after Mr Hair was handed control of the day-to-day running of the shipyard by ministers.

A separate analysis from former managers of the shipyard at the centre of the ferry-building fiasco says there is a “huge void in the competence required to run the yard efficiently and complete the vessels”. 

They said: “The learning that was lost caused further significant delays, cost increases, and had a definite impact to the capability and capacity of the incoming team.”

‘Lifeblood’ leaves

One yard insider said: “As well as the senior management team, the experienced resources the yard had, have begun to lose confidence in the current regime and have started to leave the business for new positions. 

“These people were the lifeblood of the yard, and their loss will have an even more negative impact on the yard’s long-term future.

“Some people simply do not want to work here any more.

“Given the strength and quality of the workforce which passed into the care of Mr Hair and his new team at the time of nationalisation, it is a scandalous failure not to have retained and further developed the inherent talent, much of which has now dispersed, requiring the influx of foreign nationals where local workers once dreamed of greater things for Port Glasgow and the lower Clyde.

“As things currently stand, the team are operating in an environment of fear for their jobs. 

“The behaviours and culture within the business are, quite frankly, archaic and they show no signs of changing. This coupled with the below-par performance and poor productivity rates, lack of shipbuilding knowledge, lack of experienced resources and the failure to recognise the need for change, indicate inevitable failure for the business.

“Performance and productivity factors within the yard are nowhere near where industry norms suggest they should be and the recently set baseline for completion of the ferries is already being placed under extreme pressure. 

“There has been a definite inability to forecast accurately and that, coupled with the fact that the required resources cannot be secured to meet the planned work scope, indicates that not only will the programme for both ferries be pushed further to the right, but the inefficient way work is also being undertaken means that costs will inevitably increase.”
CMAL said: “Due to the shipyard being taken into public ownership, it was necessary for the contractual arrangements to change.  

“As such, the Scottish Government entered into new contracts with Ferguson Marine (Port Glasgow) to provide governance and funding structures for the completion of the two dual-fuel vessels.”

‘Auditor’s view’

FERGUSON Marine director Tim Hair has said the £100m loss did not reflect the performance of the Inverclyde shipyard. He said it was based on “the auditor’s view of the contractual arrangements in place at the time the shipyard was brought into public ownership”.

He said that as a result of contractual changes “the reported loss will not be realised and will therefore be reversed in the accounts for the year ending March 31, 2021 which will show a corresponding profit”.

A damning report in December 2020, MSPs on Holyrood's rural economy and connectivity committee said the procurement of the boats from the Ferguson Marine yard in Port Glasgow was "a catastrophic failure".

A Scottish Government spokesman said: “The Scottish Government stands firm on its commitment to the vessels, the workforce and the yard.

“We continue to work with partners to minimise the impact of delays and ensure the vessels, which are critical to supporting the lifeline ferry network and the Calmac fleet, enter service as quickly as possible and deliver the service improvements which our island communities depend upon.”