Ferry procurement a ‘catastrophic failure’

11 December 2020

MSPs have called for a “root and branch overhaul” of ferry procurement processes after costs for the delivery of two vessels more than doubled, soaring from £97m to almost £200m. 

An inquiry, carried out by Scottish Parliament’s Rural Economy and Connectivity Committee, branded the procurement of two ferries for the Clyde and Hebrides network a “catastrophic failure” after the project was plagued by overrunning costs and delays. 

The committee said there had been a “lack of robust due diligence” on the part of procurement agency Caledonian Maritime Assets Ltd (CMAL) in assessing the financial stability of the vessel delivery contractor, Ferguson Marine Engineering Limited (FMEL).

It also criticised the Scottish government for its “apparent willingness” to proceed with awarding the contract to FMEL despite the “significant risks” including the company's wholly new management team.

Cost for the completion of vessels 801 and 802 rose from an initial fixed price of £97m to between £192.8m and £196.8m, with the delivery of the ships delayed from 2018 to 2022 and 2023.

“Following the contract award, insufficient work was undertaken by the contractor to develop and secure sign-off on the basic design before commencing construction of the vessels, and thereafter it failed to manage the design iteration process effectively – resulting in delays and cost overruns,” the report said. 

The committee added it was “appalled” to learn that CMAL was legally bound to continue making milestone payments on the ferries contract “despite ongoing concerns about the performance of the contractor”. 

It said: “Furthermore, there is strong evidence that the contractor deliberately proceeded to construct specific sections of the vessel either out of sequence or not according to the proper specification purely as a means of triggering milestone payments on the contract.”

Procurement processes used to award the ferry contract were deemed “no longer fit for purpose” and a complete overhaul is needed, the report said.

“That could include merging or even abolishing certain bodies currently involved in decision-making on ferry procurement.”

In August 2019, ministers took the shipyard into public ownership after it had entered into administration.  

Edward Mountain MSP, committee convener, said: “A lack of due diligence, poor project management and a failure by all parties to take the necessary action to resolve problems as they emerged, means that cost of the contract has increased from £97m to almost £200m while the island communities who are relying on these ferries to be delivered continue to suffer.

“Our report calls on the Scottish government to commission an independent external review of the processes for public procurement of ferries to ensure appropriate lessons are learned for the future. 

 “This review should consider the robustness of financial due diligence, the processes for assessing the technical capabilities of bidders, and the design development and sign-off procedures, investigating precisely how such a situation could have arisen and to ensure such errors are never repeated.”

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