Shipbuilding and Ferguson Marine Engineering Ltd Insolvency
(3 years ago)
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Kenny MacAskill (East Lothian) (Alba)
This debate goes to the heart of two Scottish institutions. The first is Caledonian MacBrayne—CalMac—which provides lifeline services to the Scottish highlands and islands and whose ships are acquired for it by Caledonian Maritime Assets Ltd, or CMAL; both are Scottish Government agencies. The second is Ferguson Marine Engineering Ltd, which operated the last shipyard on the lower Clyde—a river where ships admired around world were made—but which has been excluded from the most recent CMAL tender to build CalMac ships, and orders are going abroad.
CalMac and Ferguson are part of Scotland’s story, but they are also vital to Scotland’s future. Communities devastated by incessant breakdowns and cancellations need a fast and reliable service to maintain them and allow them to grow. For that, new ships are required. Not only should Ferguson be building them, but yards elsewhere along the length of the Clyde, not just in Port Glasgow but on other sites that can be revitalised. Instead, CalMac is floundering and Ferguson’s future is threatened.
In 2014, Ferguson was saved by the intervention of Jim McColl, and all looked rosy. What has gone wrong? Why have vessels 801 and 802 been so delayed, why have costs overrun so massively, and why has Ferguson Marine Engineering Ltd gone into liquidation? At the core of those questions are procurement and administration, both of which are issues reserved to Westminster. I hope that Ministers will be able to provide answers, if not an inquiry, into a scandal that needs to be resolved.
First, let me rebut suggestions that the yard or the workforce were to blame. History shows what the Clyde can do, and the same skills still remain at Ferguson. Moreover, research by the National Union of Rail, Maritime and Transport Workers has shown that of the eight ships that have broken down recently, only two were built on the Clyde, and they were among the oldest ships, where difficulties could be expected. CMAL recognised the skills there when placing the order for ships 801 and 802. In evidence to the Scottish Parliament’s Rural Economy and Connectivity Committee inquiry, Jim Anderson, the director of vessels, stated:
“The shipyard was already building ships for us. It had a good history of building these type of ships.”
Even more convincing was Commodore Luke van Beek, a Dutch maritime expert appointed by the Scottish Government, who said:
“I was in no doubt it had the management expertise. Having rebuilt the yard, Ferguson Marine had a good shipbuilding system in place.”
For sure, mistakes will have been made and perhaps more could have been done, but it was and remains a skilled workforce and Jim McColl and his company have a global reputation for engineering prowess. His initial intervention was lauded by the Scottish Government. The suggestion that he can succeed around the world but not in Scotland is absurd. Procurement and liquidation lie at the heart of this mess, and responsibility rests with CMAL and the Scottish Government.
Dealing first with procurement, there are two aspects: the contract specification and the requirement for the vessels to be dual fuel—that is, operating on both marine diesel and liquefied natural gas. Dealing first with the contract, it is clear that what was signed off by CMAL was lacking in specification, and that most of the problems arose from that. There was a design and build contract for a ship at an initial price of £97 million, but many critical factors were not clear. That was a recipe for discord and, indeed, disaster. Costs rose as changes kept being made, and just what was to be built was never entirely clear. As Jim McColl said:
“We would normally expect the specification to be more fleshed out.”
He continued:
“Price was based on the specification that were had at the time. As we have said it was not detailed at that time, there were still some open ends that we had to resolve collaboratively with CMAL.”
The second issue was fuelling. Leaving aside why, environmentally, we would even consider LNG, basic engineering concerns remain. It is a relatively new technology, more normally used on larger vessels than on smaller ones, such as ships 801 and 802, where other options such as batteries or hydrogen are preferred. Whatever CMAL or the Scottish Government may suggest, dual-fuel LNG was the diktat of CMAL, not the want of CalMac. As Van Beek said,
“801 and 802 were not the ships that CalMac wanted… When I met the chief executive of CalMac, I was very surprised to discover that it was not and had not been involved, except in having made some observations right at the beginning of the process, when it had said that it did not want LNG ships.
It is also not surprising that CalMac did not want LNG ships, as there is no LNG infrastructure in Scottish ports. I asked CMAL what consideration was given to onshore supply systems, what was in situ at the time of requisition, and what the situation is now for LNG. This is the answer given:
“At the time the only load out facility in the UK was the Isle of Grain. There were 3 projects looking at the bulk storage in Scotland 2 on the East Coast and one on the West Coast—so far none of these have been built out.”
CalMac operates in the Hebrides and on the Clyde, which lie on Scotland’s west coast. The Isle of Bute is in the latter and the Isle of Lewis in the former, but the Isle of Grain is in Kent, on England’s east coast. No wonder CalMac did not want it.
Having messed up the tender, CMAL proceeded to make a bad situation worse. When co-operation between shipbuilder and vessel procurer was needed, CMAL refused to co-operate. That is confirmed by Van Beek, who said that
“CMAL had no interest in compromising”.
Most damningly, he added that
“the people who I met from CMAL were adamant that they did not want to discuss ways to make the situation better.”
FMEL offered mediation, but CMAL refused. This was the modern equivalent of the Titanic racing into the iceberg.
This was known to the Scottish Government, as Van Beek made clear, saying:
“I said exactly the same thing when I briefed Mr Mackay. I said that the relationship between the customer and the client was broken, and that some things that CMAL was doing were very unhelpful.”
The “Mr Mackay” is Derek Mackay, then the Scottish Finance Secretary. Knowing all that, what did the Scottish Government do? Did they remove CMAL? No, they did not; CMAL remains, running the show and tendering for vessels abroad when work is needed on the Clyde. Instead, they forced FMEL into liquidation. As Jim McColl said in evidence:
“The Scottish Government didn’t save the yard from administration, they forced it into administration by repeatedly refusing to instruct CMAL to engage in reasonable requests for mediation, an expert witness process or arbitration.”
Administration was not the recommendation made by their own expert adviser, Commodore Van Beek. He advised arbitration, but instead the Scottish Government chose administration. Why? I am afraid Mr Van Beek cannot help us on that, as he said:
“I have no idea why he chose that route. It was against my advice.”
The “he” is, again, Derek Mackay, who said that the CMAL board would resign on mass if he interfered. Many communities might have said, “Accept their resignations with alacrity.”
By the time we got to the Scottish Parliament inquiry, the Scottish Government line was that “contractor error” was to blame. That was put forward by Paul Wheelhouse, who was then the Islands Minister. Why were neither the First Minister nor the then Finance Secretary called to give evidence? Rather than the senior Ministers directly involved, it was left to a junior Minister with no prior involvement to speak for the Government and to put forward a position that was not the view of the Government’s own expert, who had been supportive of FMEL’s getting the contract and critical of CMAL’s actions and who suggested arbitration, not administration.
More damningly, if the contractors were responsible, why did the First Minister meet Mr McColl privately when the dispute between FMEL and CMAL was raging, outwith the presence and even knowledge of CMAL, and provide significant financial assistance to FMEL? If the contractor was in error, why keep funding it? Moreover, why ignore the advice of their own expert? No wonder the Scottish Parliament concluded that
“there has been a catastrophic failure in the management of the procurement of vessels 801 and 802, leading us to conclude that these processes are no longer fit for purpose”.
Liquidation followed, but the questions about this whole sorry saga only increase.
On 14 August 2019, FMEL went into liquidation. Aware of its financial difficulties, FMEL had already engaged KPMG to act in the administration it saw looming, but the Scottish Government appointed Deloitte, insisting that any administrator appointed had to be acceptable to CMAL. As disclosed to Lord Tyre in a related court case, Deloitte and the Scottish Government had been “contingency planning”, and the former was appointed by the latter despite the Scottish Government being only the second-ranking creditor, yet also the largest debtor.
On 16 August, Deloitte arrived at the yard—the same day the Scottish Government declared publicly that they had nationalised it. Yet administrators are required to consider the position and speak to all creditors before any disposal can take place. None had, but the position was not challenged by Deloitte. It would be some time before the administration was finalised, and the yard was not formally taken over by the Government until 2 December. Instead, having been appointed administrators at the behest of the Scottish Government, Deloitte in turn appointed Macrocom to run the yard. Macrocom is a company wholly owned by Scottish Ministers. Deloitte also refused to pursue any potential claim by FMEL—now in liquidation—against CMAL. That could have been substantial and might also have offered some clarity.
Former senior staff have been moved on, and non-disclosure agreements have been signed. Why? Surely experience was needed at that juncture and information should be publicly available. Questions therefore arise regarding the liquidation and the role of administrators. These actions have been raised with the Institute of Chartered Accountants in England and Wales and questions have been asked as to whether it acted with “objectivity and integrity”. Hopefully, we will be advised on that soon.
As things now stand, the yard is operated by the Scottish Government, but although the salaries of senior management grow exponentially, progress is still slow on ships 801 and 802. At the time of liquidation, work on military vessels had been agreed with Babcock, fishing support vessels were being built, with more to be won, and work was ongoing on the world’s first hydrogen-propulsion system, which had received an international award. Now, though, islands are still bereft of services, communities and businesses are threatened, and the yard is worried about its future as CMAL tenders orders abroad and other orders have been lost.
Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)
Does my hon. Friend, as the biographer of the late Jimmy Reid, share my concern that this whole sorry affair, and the Scottish Government’s involvement in it, renders their protestations about Type 26 frigates risible and is deeply damaging to the proud history of shipbuilding on the Clyde?
Kenny MacAskill
I agree with my hon. Friend. The history of Scottish shipbuilding is a fantastic record, but it also has a future. To have a future, it has to be not simply on the upper Clyde but on the lower Clyde, and that takes me to what needs to be done.
There needs to be clarity on CMAL’s actions and the role of Government Ministers responsible. A public inquiry should be held. The Holyrood inquiry suggested an independent external review. That, I believe, is inadequate. This straddles reserved and devolved competencies. Will the Minister consider seeking to establish a joint inquiry with the Scottish Government, as happened, for example, with the Stockline explosion? Moreover, for the communities involved and for Scotland’s industrial future, action is needed. To use football parlance, sack the board and remove the manager. CMAL should be abolished.
CalMac, in consultation with the communities, which must have rights, should be responsible for the selection of ships. The management team that has been put into Ferguson needs to be removed. The replacement of the CalMac fleet, which will involve several vessels a year and over decades to come, should be placed out to tender, but with the stipulation that Ferguson and other sites in Scotland must be used for their construction by whoever wins it.
We need clarity on what went wrong, but fundamentally we need to secure a ferry service for our remote communities and provide a future for our shipyards on the lower Clyde.
The Parliamentary Under-Secretary of State for Scotland (Iain Stewart)
May I begin by congratulating the hon. Member for East Lothian (Kenny MacAskill) on securing this debate? I will turn to the important points and questions that he has raised shortly, although I do have to say at the outset that they are for the Scottish Government, and not for me, to answer.
I first want to put this debate in the context of shipbuilding in Scotland more generally. As a global trading island nation with a proud maritime history, shipbuilding is an important part of our industrial identity. Scotland, like every part of the United Kingdom, offers much to our security, sovereignty and prosperity and plays a critical role in the collective defence of our region and global interests.
My Department has been working closely with the Ministry of Defence to deliver on our ambition to support military shipbuilding in Scotland, and the industry there currently benefits most from MOD expenditure. The Secretary of State for Defence, in his role as ship- building tsar, is acutely aware of the value of shipbuilding in Scotland. He is leading work across Government to deliver on his vision to support industry across the Union, enabling it to become more productive, innovative, and competitive.
UK naval shipbuilding is currently centred around BAE Systems’ Scotstoun and Govan shipyards and Babcock’s Rosyth shipyard, which also have strong naval export markets. These yards are producing the Type 26 and Type 31 frigates—two crucial naval procurements. Three of the Type 26 ships—HMS Glasgow, HMS Cardiff and HMS Belfast—are under construction on the Clyde. Manufacture of these new, highly capable ships is securing about 1,700 skilled shipbuilding jobs in Scotland and some 4,000 jobs throughout the supply chain across Britain until 2035.
On 23 September 2021, the shipbuilding tsar officially cut steel for HMS Venturer, the first of the Royal Navy’s Type 31 frigates, during a ceremony held at Rosyth dockyard. The event marks a significant milestone in the programme for the Royal Navy, defence and shipbuilding in Scotland, with all five vessels to be built by Babcock on the firth of Forth at an average production cost of £250 million per vessel. The Type 31 contract, awarded in November 2019 and to run until 2028, has led to a £71 million infrastructure investment for the dockyard and sustains 130 apprenticeships and 20 graduate positions.
Last month, my noble Friend the Minister of State, Baroness Goldie, had the opportunity to speak with some of Babcock’s current apprentices to hear at first hand how their academic interests in science, technology, engineering and maths have led to a career in defence manufacturing. Since March 2020, Babcock has supported approximately 300 apprentices, mostly from the local area of Dunfermline and West Fife. My right hon. Friend the Secretary of State for Scotland recently visited the Govan shipyard, where he was briefed on the Type 26 programme by Simon Lister, head of BAE’s naval ships business, and had the opportunity to engage with employees and trade union representatives.
Our national shipbuilding strategy refresh will be published later this year. It will set out how the Government intend to set the conditions for success in the UK shipbuilding industry, both domestically and for exports, and how the Government will work with the industry to create lasting transformation. Scottish yards are likely to benefit from the new investment in the Type 32 multi-role ocean surveillance and multi-role support ships, and in Royal Fleet Auxiliary landing ship conversion. The shipbuilding strategy refresh will set out how the Government will provide further support to industry on exports and how we will engage with overseas partners to secure export successes. Indeed, my noble Friend the Lord Offord was in India just the other week, helping to explore the potential for future export orders.
A regular drumbeat of design and manufacturing work in UK yards is needed to maintain the industrial capabilities that are important for UK national security, and to drive efficiencies that will reduce longer-term costs in the shipbuilding portfolio and help to secure further export success. A stable pipeline of orders, as the hon. Gentleman has indicated, is clearly necessary to build and maintain a skilled workforce.
Ronnie Cowan (Inverclyde) (SNP)
It is good to see a debate taking place in this House on a company based in my constituency of Inverclyde. In fact, the three companies —CMAL, Caledonian MacBrayne and Ferguson—are all based in Inverclyde. It would have been nice to have been notified that this debate was going to happen. I would have expected that courtesy to be extended to me by the hon. Member for East Lothian (Kenny MacAskill).
I share the Minister’s optimism for British shipbuilding. Look at what we are building with Ferguson Marine, after all the troubles it has had—yes, it has been a stormy journey, but it will be retooled, and have new shedding and a re-energised workforce, with 40 apprentices working out of there. I could not have said that five, six or seven years ago. My hope for Inverclyde and for Ferguson Marine is a successful and buoyant future.
Iain Stewart
I thank the hon. Gentleman for his intervention, although I am afraid it is not for me to intervene on a family feud, if I can put it that way, with the hon. Member for East Lothian. I am well aware that there are traditional courtesies, which should be maintained.
I am glad to hear that there is optimism in the constituency of the hon. Member for Inverclyde (Ronnie Cowan). I had the pleasure of visiting Greenock—I do believe that I gave him due notice of that—particularly to look at the new ocean liner terminal, which I hope will bring increased tourist footfall to his part of the world.
It is clear that the UK Government recognise and will show our support for the future of shipbuilding in Scotland through all the means that we have available—namely, in the form of military spending and support.
Let me turn to the points raised by the hon. Member for East Lothian. I am well aware of the challenges of providing reliable ferry services, particularly to the rural and island communities in Scotland, but when the UK Government have received various representations on the lack of suitable ferries in Scotland, we have been firmly told by the Scottish Government that this is a process for them and not for us.
Kenny MacAskill
Does the Minister accept that procurement, liquidation and administration are aspects of company law that are reserved to Westminster? On that basis, is he prepared to meet me to discuss the concerns that I and many others—not simply in Inverclyde, but in Scotland—have about the process that has taken place? The responsibility for ordering the services and the payment for the ships might be Scotland’s, but, as I mentioned with regard to the Institute of Chartered Accountants in England and Wales, the law under which procurement and administration is carried out is reserved to Westminster.
Iain Stewart
Indeed, the framing of company law is a reserved matter. I would need to take advice from officials, if the hon. Gentleman will allow me, as to whether a breach of that law was a reserved matter or, as I suspect, more a devolved one.
Douglas Ross (Moray) (Con)
We have been discussing reserved issues and devolved issues tonight. That is something that pupils at Logie Primary School will be looking at this week through UK Parliament Week. Will the Minister congratulate the young people at Logie Primary School, and the staff, on their interest in UK Parliament Week? I will be seeing them on Friday and I am sure one of the questions I might get asked is, “How do you get a mention of Logie Primary School in UK Parliament Week into an Adjournment debate about shipbuilding?”
Iain Stewart
I am happy to say that my hon. Friend has given them a masterclass in how to do that. Referring back to the subject of this debate, I very much hope that among the pupils at Logie Primary School we will see future mariners, shipbuilders, engineers and technicians. I wish them all very well in their future endeavours.
I was surprised to see that the procurement of these new ferries to Islay did not include Ferguson Marine in the tendering process. The delays of the two ships currently under construction may well have played a part in that, but again, it is not for me to comment at this stage. It is very disappointing, given the maritime history on the Clyde in Scotland, and its shipbuilding history more generally, that these ships could not be included and are being lost to overseas orders. But, as I say, these are matters primarily for the Scottish Government to answer, and the hon. Member for East Lothian should pose them to his former colleagues in Holyrood and the Scottish Government. From the UK Government’s perspective, we are investing in the future of Scottish shipbuilding. That demonstrates the strength of our Union, and I hope to see many more ships built on the Clyde.
Question put and agreed to.