Scottish ferries fiasco: Ministers warned 'rigged' Ferguson Marine ferries contract meant no 'level playing field'

Ministers were warned awarding the contract to build two ferries to Ferguson Marine without a full builder’s refund guarantee would have meant the procurement was “no longer a level playing field”.

New disclosures show there were also concerns within the Scottish Government and ferry procurement body Caledonian Maritime Assets Limited (CMAL) about Jim McColl’s use of a South African branch of the bank Investec during the process.

The updated advice was published by the Government on the final day of working before Christmas, releasing previously unredacted paragraphs from the note from CMAL, which warned of the risks linked to the contract following an appeal to the Scottish Information Commissioner.

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The ferries, the Glen Sannox and the unnamed hull 802, will cost more than £300 million and are more than six years’ late, sparking a political scandal.

The lack of a builder’s refund guarantee – a contract clause that would have protected the Government from the shipyard’s failure or if the ferries had performed below the agreed specification – was a central criticism of Audit Scotland’s scathing report into the fiasco.

A BBC Disclosure documentary alleged the procurement process had been “rigged” due to the fact a key specification document found its way to Ferguson Marine, with vast swathes copied and pasted into their bid documentation.

Stephen Boyle, the Auditor General, said there was insufficient documentary evidence held by the Government to explain why the decision to award the contract was made despite the risks set out by CMAL.

The lack of this financial guarantee was viewed by Erik Ostegaard, the then-chair of CMAL, as being “totally off the track of what is normal”, stating on September 26, 2015 that CMAL would have to reject the conditions offered by FMEL.

The award of a ferry contract to Ferguson Marine meant there was "not a level playing field"

Ministers have consistently defended themselves by arguing the briefing paper from civil servants and a short email confirming the minister’s willingness to go ahead is standard practice in government.

Opposition parties have questioned whether ministers awarded the contract to Ferguson Marine for political, rather than economic and taxpayer value, reasons.

However, on October 7, 2015, ministers received a submission from Transport Scotland officials setting out the terms of the contract. In it, officials warned of a potential legal challenge if the award went to Ferguson Marine.

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Previously redacted, ministers are warned awarding the contract to Ferguson Marine could enable a “disappointed competing bidder” to argue “in accepting a lesser refund amount from a financial institution the cost saving of this to FMEL makes it no longer a level playing field”.

The document also raises issues the Government encountered during the construction of the Finlaggan, which serves Islay, when the Polish shipyard Remontowa did not claim for a payment from CMAL to “avoid setting up a guarantee”.

Construction of the MV Loch Seaforth narrowly avoided disaster, with German shipyard Flensburger “very nearly [going] into liquidation” due to the refund guarantee and mortgage on the ship expiring, with no money left to finish the ferry. Keith Brown, then infrastructure Cabinet secretary, wrote to Flensburger in June 2014 stating a 56-day delay to the vessel was “unacceptable” – a year before the award to Ferguson Marine.

CMAL executives have repeatedly claimed the lack of comment from the shipyard on the original draft contract when it first bid for the vessels meant it had agreed to the requirement for a builder’s refund guarantee to be put in place.

However, the note from CMAL to ministers setting out the contract details states: “There could have been an assumption that no comment meant that the draft contract was acceptable in all areas, but I doubt this would have been the reality.”

The eventual guarantee, which was put in place, was issued by two Investec Bank branches – one in the UK and one in South Africa. The latter caused some concern despite ministers being told it was “closely associated with Clyde Blowers Capital”.

Tom Docherty, then of CMAL, said the body “clearly do not wish to deal with two banks” and required “further scrutiny”.

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A Scottish Government spokesman said: “The discussions and exchanges regarding the refund guarantee have been extensively considered by both Audit Scotland and Parliamentary enquiries.”

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