Will the ferries fiasco sink the SNP?

In a fortnight’s time, the Scottish Parliament’s Public Audit Committee, chaired by Labour’s Richard Leonard and containing a majority of opposition MSPs, is likely to approve a parliamentary inquiry into the ferries scandal.

Derek Mackay, the former junior transport minister who has been dragged into the fiasco in recent weeks, has confirmed that he is willing to testify. Former Cabinet Secretary for Infrastructure, Investment and Cities, Keith Brown, who was MacKay’s boss from 2014 to 2016, is likely to be summoned, as is the First Minister Nicola Sturgeon.

MacKay’s testimony could be explosive – he has a reputation to rebuild after resigning in the midst of a scandal involving him sending inappropriate messages to a 16-year-old schoolboy, and as the former transport minister he has intimate knowledge of the decision to award ferries contracts to a yard which could not deliver. He is likely to know exactly who signed off on the deal , and who should take responsibility.

But how did ambitions to save a totemic Clyde shipyard spiral into a major political scandal, and how can this be prevented in future?

In 2014, a Port Glasgow shipyard called Ferguson Marine was in financial dire straits, heading towards administration and the potential loss of high-skilled, high-paid jobs in one of the most deprived areas of Scotland.

The Scottish Government was determined to save the yard, one of the last remaining commercial shipbuilders on the Clyde. In a region steeped in maritime history and industrial pride, here was an opportunity for the SNP – firstly, to save vital jobs, and secondly, to be seen as the protectors of a Scottish institution and working-class culture that was under serious threat.

The finance minister John Swinney gleefully told the Scottish Parliament that the 12 CalMac ferries that were in operation at the time would be replaced, at a cost of just £250m, over the next decade. Eight years later, just two ferries are set to cost taxpayers £240m, and will be delivered five years later than first envisaged.

The unfinished Glen Sannox

 

In September 2014, just two weeks before the independence referendum, Scottish billionaire Jim McColl, a member of then-First Minister Alex Salmond’s Council of Economic Advisers, stepped in to save the yard.

McColl, who made his fortune by transforming the ailing Clyde Blowers into a portfolio of engineering investment companies, believed that Scottish shipbuilding could have a bright future.

Amid much fanfare, including front page splashes in the Scottish press, the takeover was hailed by the SNP as just a precursor to the “reindustrialisation of Scotland” that would be ignited post-independence.

A year later, just before the SNP’s 2015 autumn party conference, McColl’s Ferguson Marine shipyard was announced as the preferred bidder for a fixed-price £97m contract to build two ferries for Caledonian Maritime Assets Limited (CMAL), the state-owned ferry procurement company, to be operated by CalMac.

Investment in the yard followed close behind, as old buildings were demolished and replaced with state-of-the-art fabrication and design facilities, and the workforce swelled from 70 to 350, including sought-after apprenticeships for young people in the local community.

The awarding of this contract, to a businessman with extensive links to the SNP and the independence movement, forms the crux of the political scandal now engulfing the party, along with the eye-watering financial waste which will ultimately be borne by Scottish taxpayers.

The two ferries – the Glen Sannox and a second ship currently know as Hull 802 – were to be a hybrid design using marine diesel oil and liquefied natural gas, which although not cutting-edge technology elsewhere in the world, it would be a first for a UK shipyard.

Although the hull of the Glen Sannox soon started taking shape on the banks of the Clyde, plans to build the second ship concurrently were scrapped due the ongoing major redevelopment of the yard.

In November 2017, the Glen Sannox temporarily came off the slipway – dressed up for the day  – at a launch ceremony attended by First Minister Nicola Sturgeon. Eagle-eyed observers, however, spotted that the windows on the ship were actually just painted-on black boxes. The ship was expected to enter service on CalMac’s Arran route in mid-2018, but is still sat high and dry on the banks of the Clyde.

The second ship, destined for the Skye, Harris and North Uist route, is still under construction and won’t be ready until summer 2023 at the earliest.

The delay to the ferries caused increased costs for Ferguson Marine, and in a desperate bid to save the yard from a second collapse, the Scottish Government pumped in £45m of loans. However, further delays – the cause of which are disputed by CMAL and Ferguson Marine – led to the directors of Ferguson Marine giving notice that the company would be put into administration on August 9th, 2019.

A week later, the Scottish Government took over management of the yard, and tried to secure a new private buyer, before rejecting three bids for being “insufficiently favourable” to creditors. This led to the Scottish Government formally taking ownership of the yard, and writing off the £45m of loans funded by Scottish taxpayers.

The blackhole of public finances, now more than £140m over budget, and the willingness of SNP leaders to turn the early positives into political photo opportunities, has opened up the Scottish Government to accusations of political corruption by opposition parties – particularly due to the suspicious timings of the announcement of the shipyard takeover, a fortnight before the independence referendum, and the announcement of the CalMac ferries contract being awarded to Ferguson Marine, right before the SNP’s 2015 autumn conference.

The government takeover of Ferguson Marine, however, did little to stop the tide of money flowing out of the yard. When the yard went into administration in 2019, Tim Hair was appointed as ‘turnaround director’, tasked with implementing a major transformation programme and to deliver on the two ferries. He was replaced in late 2021, before a Freedom of Information Act inquiry revealed he was being paid £60,000 a month towards the end of his stint in charge of the yard.

Sturgeon was taken to task on Hair's wage bill in parliament by Scottish Labour leader Anas Sarwar, who asked the First Minister to “explain why she thought it was right to pay Tim Hair over £2m, meaning he earned in just 11 days what the average Scot earns in a year?"

Sturgeon said decisions were taken in line with "proper processes", adding: “I don’t set the market rates for what people are paid.”

Against a backdrop of laughing opposition MSPs, Sarwar said: "Market rate? £3,000 a day? Were you signing Lionel Messi?”

In recent weeks, an Audit Scotland report into the awarding of the contract, which highlighted “multiple failings” in the procurement process, has reignited debate, and suspicions. The report found that Scottish ministers awarded the contract to Ferguson Marine despite the yard being unable to provide “mandatory refund guarantees” for the financial risk to CMAL. A typical shipbuilding contract contains a refund guarantee to ensure risk is borne by the shipbuilder.

The First Minister says there was “mitigation” for the financial risks that concerned CMAL.

In particular, it criticised a “lack of transparent decision-making” after CMAL officials warned ministers against continuing with the award after it became clear Ferguson Marine could not provide a refund guarantee. The report also found that Ferguson Marine’s bid was the most expensive of the six that were received, but the Scottish Government concluded the Clyde shipyard outscored its competitors on “quality”.

And in a damning assessment of the current state of affairs, Audit Scotland found that as of January, there were still 175 technical, safety or quality issues to be resolved - including some that could prevent the issuing of a passenger safety certificate by regulators.

Thousands of spectators turned out in heavy rain to watch Sturgeon 'launch' the Glen Sannox

 

The Audit Scotland report unleashed a wave of political backlash, as conflicting accounts of who was ultimately responsible for the ferries contract began to surface.

At First Minister’s Questions on Wednesday 24th March, Scottish Conservatives leader Douglas Ross described the scandal as “one of the worst public spending disasters since devolution”, before asking which minister was responsible.

Sturgeon said her government takes “collective decisions” and “ultimately, the buck stops with me”, before adding: “Who was Transport Minister at the time in question is, of course, a matter of public record. That was Derek Mackay.” Ross subsequently accused the First Minister of trying to throw the disgraced MSP McKay “under a bus”.

The ‘whodunnit’ of Scottish politics continued a few days later, when Jim McColl himself waded in.

Speaking on the BBC’s Good Morning Scotland, McColl claimed that the SNP had launched a "propaganda campaign" against the management of Ferguson Marine which was done for "political purposes”, before saying that Mackay “was not available at the time to sign off” the contract.

“I believe it was [former Cabinet Secretary for Infrastructure, Investment and Cities] Keith Brown at the time who signed it,” he said.

However, Finance Secretary Kate Forbes subsequently said it was “entirely wrong” to suggest the much-maligned ferries contract was “rushed for political purposes” – and that the contracts were signed by CMAL, not a Scottish Government minister. Although CMAL was responsible for running the procurement process, ministers had to sign off on the decision to award the contract to Ferguson.

McColl also told The Sunday Times that CMAL was under pressure by the government to tender the contract quickly so the award could be announced at the 2015 SNP conference – which Sturgeon said was “absolutely, flatly, not the case”.

In response to the Audit Scotland report, the former senior management team at Ferguson Marine has sent a 10-page report to parliament’s Public Audit Committee, alleging ministers ignored pleas by shipyard bosses to intervene in their dispute with CMAL – a dispute which added extra costs to the project. The dispute centres on design changes CMAL is alleged to have demanded after construction had already started, something CMAL exectuives deny.

The origin of the ferries scandal can be traced back to the Scottish Government’s policy to selectively intervene in failing companies when it sees fit.

In 2013, the Scottish Government bought Prestwick Airport for £1, before loaning the state-owned airport £39.9m, prompting Labour MSP Colin Smyth to say it is “doubtful” the government will ever recoup the money.

And just last year, Scottish ministers were accused of risking £586m of public money to help a metals tycoon purchase the UK's last remaining aluminium smelter.

The guarantees were made when Sanjeev Gupta bought the Lochaber smelter in 2016 but the full extent of government support was only confirmed in November last year – with the government guaranteeing to meet investor’s bond returns even if the power stations broke down or the smelter couldn't afford them.

This is a scandal still likely to unfold, as Gupta’s Liberty Steel empire is currently under investigation by the Serious Fraud Office.

The probe is over suspected fraudulent trading and money laundering, including its financing arrangements with failed company Greensill Capital UK. Greensill, a major lender to Mr Gupta's business, collapsed in March 2021.

Ministers also put £40m of loans into Burntisland Fabrications, which employed about 2,000 people across its two yards in Fife and one on Lewis during peak production on its last large contract, which was for the Beatrice offshore wind farm, in an effort to save jobs and the keep the wind farm project afloat.

A source close to the Scottish Government, with inside knowledge of public contracts, told Holyrood that the government “has a pattern of getting involved in companies under short-term political pressure, but without a sense of longer-term game plan or exit strategy”.

The public contracts expert said: “I think the timing is relevant on this one. The announcement of Jim McColl, stepping in just before the September 2014 referendum, and then a year later, the awarding of the contract to the shipyard without a proper explanation of why it was being awarded in the absence of the guarantees that we would normally expect.

“I don’t think corruption is the word to use here, but I do think their pattern of doing this very quickly, and reactively, is part of a bigger issue, and you can see a bigger pattern emerging.

“They are in the business of politics, and understandably, it happens, but it was never clear how they made those decisions.

“On the one hand, there are lots of companies that are struggling and government doesn’t intervene. How do they decide which ones they will support and which ones they won't?

“And then secondly, there's a really big danger, I think, that they end up propping up old industries at the expense of new ones, against the backdrop of the government’s green strategies.”

Accountability, by its nature, is also retrospective. The Scottish press has fought tooth and nail to uncover government intervention in some companies, using Freedom of Information powers that were often blocked by the Scottish Government, while Audit Scotland, the public spending watchdog, produces an annual report, looking back on the financial year.

The central problem, according to our source, is a lack of transparency:  “The Scottish Government has a record of burying information about its support to business in its annual accounts and trying to block FoI requests, while parliamentary committees have tended to go for immediate issues rather than getting into these longer-term, more complex audit findings and recommendations.”

The scrutiny of parliament, too, falls short because MSPs “tend to go for the immediate benefits themselves, rather than getting into these longer term, more complex issues”.

Ministers have continued to insist that Ferguson Marine will one day have a prosperous future – but to add to the calamity, the state-owned shipyard recently lost the contract for state-owned ferries to a yard in Turkey.