Audit Scotland raises concerns over the future of Ferguson Marine shipyard, unacceptable bonus payments and ferries’ costs

Audit Scotland raises concerns over the future of Ferguson Marine shipyard, unacceptable bonus payments and ferries’ costs

Stephen Boyle

Concerns have been raised by Audit Scotland over the final costs and completion dates of two delayed lifeline ferries, Glen Sannox (801) and vessel 802 as well as over the payment of performance bonuses to senior managers at Ferguson Marine Port Glasgow.

In total, the two vessels are currently estimated to cost £293 million, with delivery already five years late. Despite additional Scottish Government funding in 2022/23 and 2023/24, the latest estimates suggest there is around £9.5m of funding required for the ferries beyond the amount already approved – this needs to be considered as part of future budget processes.

There is also doubt about the longer-term viability of the Ferguson Marine Port Glasgow (FMPG) shipyard, despite sustained investment by the Scottish Government.

The Scottish Government has assured FMPG there will be financial support for at least another year, enabling delivery of vessels 801 and 802. Approval for this is needed from the Scottish Parliament. Further investment in the shipyard and workforce are also needed to help secure future contracts. The Scottish Government has commissioned an independent review of future options for the Ferguson Marine shipyard which is due to report shortly.

Auditors have raised concerns over £87,000 of performance bonus payments to senior FMPG managers during 2021/22. It is not clear how their performance was assessed, nor were appropriate frameworks and governance in place. Audit Scotland says FMPG should have sought Scottish Government approval for the payments.

Stephen Boyle, auditor general for Scotland, said: “It is deeply concerning that the costs to complete these ferries have continued to escalate, whilst the island communities these boats are meant to serve remain significantly impacted.

“Despite substantial sums of public money being invested, there is still no certainty over how much the ferries will cost, when they will be ready or whether the shipyard has a viable future.

“It is unacceptable that performance bonuses were awarded to senior managers at the shipyard, without proper governance for such payments. The Scottish Government needs to make sure its rules over pay are followed by this public body.”

David Tydeman, CEO of Ferguson Marine (Port Glasgow), responded to the concerns raised. He said the current board of directors and the Remuneration Committee have accepted the feedback from the Auditor General of Scotland with regard to performance incentives paid to senior managers for the financial year to end March 2022.

Mr Tydeman said: “We have taken on board the remarks from the Auditor General for Scotland. The Ferguson Marine board has already introduced greater transparency and governance in terms of future retention incentives.

“Scottish Ministers appointed a new chair, Andrew Miller, in January 2023 and we now have in place a framework that will improve the governance of future performance-related payments.”

He added: “We appreciate the points Mr Boyle is making regarding the completion of the ferries/funding gap, given that the shipyard is funded by public money. However, it is important to understand that the gap he identifies is largely to cover increased contingency expenditure – recommended by independent experts appointed by the Scottish Government, as well as funding for additional warranty spend that may arise in the 12 months after we hand over the vessels

“I would stress that the construction costs to build both vessels are not a major contributing factor to this funding gap. FMPG is largely holding to the budget submitted in September 2022 to complete construction.

“Looking ahead, post-delivery of the two LNG hulls, we believe there is a strong future for the yard based on two visible pipelines: winning further shipbuilding contracts from CMAL as well as contracts for BAE to support its T26 frigate programme by building modules within the yard ready for assembly at its Govan shipyard. We already have some FMPG staff seconded to Govan and the arrangement is working well.

“We intend to submit a strong bid for CMAL’s small vessel replacement programme (SVRP) and believe we are well placed to win this contract, given our experience of exactly this type of work in the past. Securing this business, alongside completion of the two dual fuel vessels, is now our primary focus and central to the future of the yard.

“The SVRP ferries will be an evolution of three electric hybrids - MV Lochinvar, MV Hallaig and MV Catriona - successfully built by the shipyard in 2012-2015. Drawing on this previous experience and capability means we avoid a steep ‘first-of-class’ learning. Securing this programme of work would allow us to steadily increase efficiency, programme management, labour profiles and outputs, and place the yard in a competitive position for future larger and more complex ships, including those required by the offshore wind farm market over the next 15 years.”

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