Scottish Ministers 'may have broken law' over failure to record Ferguson Marine deal decision

Scottish Ministers may have broken a law by failing to adequately record decisions taken around the awarding of two new ferries to Ferguson Marine, MSPs have suggested.

Giving evidence to the Public Audit Committee which is expected to launch an inquiry into the ferry fiasco, Auditor General Stephen Boyle said there was a “frustration” all documentary evidence was not available.

He added that one individual connected with Ferguson Marine was unable to give evidence during their investigation due to the existence of non-disclosure agreements.

The contract for the two new ferries for the Clyde and Hebrides were awarded to Ferguson Marine in 2015 despite concerns from CMAL.

The ships are now several years late and have been hit by another delay in recent months due to the length of cabling in one vessel being too short.

Project costs are now estimated at around £240m to the taxpayer, the Audit Scotland report said, due to the delays and failures.

The Auditor General also criticised the lack of documentary evidence around why ministers were happy to accept the additional risks connected to the lack of a full builder’s refund guarantee in the contract.

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.

Auditor General, Stephen Boyle, was giving evidence to MSPs on the ferries fiasco.

He suggested this was not consistent with the Public Finance and Accountability Act.

Mr Boyle said: “It is a fair assessment convener. 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 I should say is that the Auditor General of Scotland is informed in writing if there is an event that is identified as a request for written authority,

"None such information came to the office of the Auditor General for Scotland during those discussions.

"So whilst there is an exchange of correspondence and a clear setting out of the views, we didn’t then see that translate into the formality, I suppose the record keeping, that we would say is clearly consistent with the request for written authority.”

Asked whether this was a breach of the act, Mr Boyle declined to comment and said Audit Scotland’s view was that there was no “formal” written authority from ministers.

He said: “We’d push up against some of the boundaries of our analysis of it and perhaps into the realms of legal judgement as to whether the events that took place are consistent with the act or otherwise.

“What I’m clear on is that none of the government officials have identified that there was written authority requested from ministers and approved as such.

"On that basis, we’ve not been able to say so and are clear in our judgement that there was no formal written authority.”

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

One of the central criticisms of the contract was the lack of a 100 per cent builder’s refund guarantee, something which is considered standard on ship-building contracts.

A partial, 25 per cent, refund guarantee was arranged by CMAL with Ferguson Marine, but officials remained concerned about financial risk.

Pushing back to questions around why the report had not gone into detail about alleged failings by the contractor during the project, Mr Boyle said the lack of the full refund guarantee meant the risk of a failed contract had been passed back from the builder to Ministers.

Gill Miller, audit manager at Audit Scotland, told MSPs the lack of a link between payment to FMEL and and quality in construction was “what caused the issues”.

She said: “That same level of incentive was not there. On a typical project with a 100 per cent refund guarantee, that provides a significant financial incentive for the builder to build a quality product.

“Because that guarantee was not in place, that same level of incentive was not there, that therefore placed more importance on there being a very clear link between the payments that CMAL was making and the quality of the build.

"As we say, that link wasn’t there. CMAL was legally required to make the payments but because the milestones were not clearly defined, I think that’s what caused the issues.

"The money was being paid out but the vessels weren’t being constructed as we would have expected.”

Mr Boyle also called for a “fuller review” of the scandal.

He said: “As we finalise the report, we recommend that there needs to be a fuller review – lessons learns feels too glib to describe the circumstances before us.

"The circumstances that took place in arriving at a contract that is many years late, two and a half times the original budget, to establish how these ought to be delivered in the future.

"We haven’t done that in its entirety given the fact that...the project is still being undertaken, but we share the substance of your concern that there needs to be a fuller review.”

Speaking after the session, convenor Richard Leonard said: "Given the significance of the issues and volume of detail in the Audit Scotland report, the Committee has decided to take further evidence next week with the Auditor General.

"Following the completion of this evidence gathering, we will decide our next steps."

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