Official Report 854KB pdf
Our second item of business is an evidence session with representatives of Ferguson Marine (Port Glasgow) Ltd. I welcome Andrew Miller, chairman; John Petticrew, interim chief executive officer; Simon Cunningham, member of the board; and David Dishon, chief financial officer, all of Ferguson Marine.
We tried to ascertain whether you wanted to make an opening statement, but you did not respond to our query so we will go straight to questions. My first question is for Andrew Miller. At this vital time, when Ferguson Marine is discussing its future and finishing off its vessels, it does not have a permanent CEO. What is happening regarding the appointment of a permanent CEO?
We started looking for a permanent CEO some 12 months ago, but we have been unsuccessful in securing a candidate via the usual routes. We had one candidate who signed their contract but withdrew about 10 days ago. We asked the learned fellow to my left, John Petticrew, to extend his interim contract under certain conditions, and he has agreed to do so.
Could you enlighten the committee as to how long John Petticrew’s interim contract will remain interim?
He has not signed it yet—the ink is not quite on the paper. His contract will run until next Easter—another three and a half months.
Will you continue to look for people during that period?
Yes. Somehow, we do not seem to be the most attractive opportunity in the Scottish economy.
Okay. You can—
Why do you think that is, Mr Miller?
It is because of the background and the history of the yard—10 years of negative publicity surrounding the enterprise, the administrations, the delays to the ferries, and so on. That makes it less attractive than some other opportunities, especially given the financial package that is on offer.
How are you going to overcome that, in order to get the right person?
Personality, drive and determination—every other way that we do.
I remind committee members wishing to speak to catch my eye and not to jump in when I am about to open my mouth, Mr Stewart.
Deputy convener, do you want to come in as well?
Yes. Mr Miller, you mentioned the process that you have used over the past 12 months to try to secure a chief executive. What will you do differently this time to help you to attract the right type of candidate?
That is a good question. In the short term, some opportunities have appeared in the market. Specifically, there is a large, commercial shipbuilder based in Belfast that is in the process of going into administration or liquidation and that is looking for another partner as an owner. That will release some people into the market who do not have future jobs.
Are you intending to target individuals who you think might be suitable candidates?
Yes, there is a search organisation that is doing that for us as we speak. There is also another company—I do not want to mention the company names—that is a bit closer to us, which has decided to restructure and has let go of about 50 senior managers and staff, because of its financial outlook.
Monica Lennon, did you put your hand up?
I did, thank you.
Andrew Miller, I am sorry to hear that you have been unable to appoint a new CEO. Does the way in which David Tydeman, the previous official, was sacked have any bearing on your ability to recruit?
It does not help, but it is not the core of the issue. The core of the issue, as I mentioned, is that we are looking for someone who is exceptional and who has a background and experience that can add significant value to the enterprise. They must be able to steer the enterprise in the correct and proper long-term direction, so that it uses some state funds but is not, in the longer term, subsidised or supported by the Scottish ministers, who are currently its owners.
Are you able to explain what project domino is?
No.
You are not familiar with it. Okay. I may come back to that point. Are any of your colleagues familiar with project domino?
There are blank-looking faces—
I cannot hear the answer, convener.
There were blank faces from all the witnesses. Perhaps you could develop that point later in the meeting.
Yes.
In that case, I have one final question for Andrew Miller. Are you able to explain for what reasons the board was unhappy with David Tydeman’s previous evidence to this committee? There are board papers that seem to suggest that the board was unhappy with unsubstantiated opinions that he had given to the committee. I want to understand what is behind that.
Generally, Mr Tydeman had lost the confidence of the board in his ability to forecast both timetabling and financially. At one of the evidence sessions he made some statements that the board and I believed were not exactly accurate. Some of the statements overexcited some of our partners; some letters of apology had to be written to those parties after the evidence was given.
It would be interesting to see those papers.
I know that you probably see a lot of paperwork, but I am looking at the annex of information released following a freedom of information request. On page 4, it talks about project domino and a submission to the Scottish Government. Do you not recall project domino?
I do not know what document you are referring to. If you can help trigger my memory by way of a date for when the FOI request was made, I might be able to help.
It was in March of this year.
I will hand back to the convener. If I can pull out the relevant dates to help to jog your memory, I will send a note to the convener.
I have some questions for John Petticrew. I am sorry, John, that we have been talking about you while you have been in the room, but here is your chance to come in.
In February, on behalf of the committee, Jackie Dunbar and I visited the yard. We had a look around and saw what was going on. We were then somewhat taken aback by the change and your moving into post.
You gave some dates—four dates, in fact—for the delivery of the Glen Sannox, all of which were missed. I am trying to understand why those delivery dates were missed, because the reason given to the Parliament for David Tydeman’s departure was that he was continually missing dates. You then went on to miss four. Could you enlighten us as to why that happened?
The complexity of the ship became more apparent the deeper we got into the project. I think that we gave too much credence to the sea trials on the date that you mentioned in February, which were just a way of demonstrating the operation of one fuel system. The other system had not even been installed yet, and as we know, there were complexities with that.
I do not think that any of our partners—including Caledonian Maritime Assets Ltd and Caledonian MacBrayne—had experience with liquefied natural gas or with installing and operating such systems. The installation was far more complex than people thought. In the end, we had to hire private contractors to help us with watchkeeping. People who have experience in this area are very thin on the ground. They are still very thin on the ground. That means that once the ship is in operation there will be a need to get more people trained in the area. We have helped our partners to get people trained so that they can take fuel on.
The last delay was caused by the anchor not passing the relevant examination by the Maritime and Coastguard Agency. It was noted that it had been done in the February trials, but it turned out that it had not been done: the anchors had been lowered, but they had not been signed off. That promulgated us having to get new parts and pieces to do it.
Sorry, I am unclear what you mean when you say that the anchors had been lowered but not signed off. Did they hit the bottom of the sea? Did they work? Is it because somebody had not been in there to say that they had seen it? I do not understand that point. Could you explain that?
Yes, I sometimes forget that not everybody is in shipbuilding.
Well, I have been involved with the ferries for eight years, so I know most of the ferry jargon but not quite all of it.
There is a thing called a gypsy, which is basically a mechanism that connects with the anchor as it is lowered so that the anchor does not just freefall. Just so the committee is aware, the anchors in this case are slightly different from the ones that you might recognise—they are actually a safety mechanism; they are not put down simply to harbour the boat in the far end of the Clyde. Without that safety mechanism the ship cannot sail. One of the anchors was slipping, and although we could get it down, we were not sure that we could get it back up a second time. CMAL and the governing body were concerned, so we made modifications to the apparatus to make it work. A permanent solution is on its way in the form of new gypsies, and that should be in place in the coming weeks.
Does that mean that the ferry is being handed over without a permanent solution?
Yes, it is without a permanent solution—but with a safe solution. It has been signed off by the MCA and by Lloyd’s Register, and it has been agreed to by CMAL.
So, I understand that there were two reasons for delay: LNG and the anchor. However, there were four delays.
The LNG goes through all of them; it took us a considerable amount of time to get the LNG passed. The last issue took about three or four weeks to resolve; it was a minute little bubble in one of the welds from the previous subcontractor that had not been looked at—we thought that it had, but it had not. The piping used is double-walled piping, where—and I will use my hands to show you—the liquid goes through the inside wall and there is vapour around that to keep the liquid cold. If you have a fault with the piping, you have to take the wall off and start again. That is what promulgated the issue. LNG was therefore the thread running through three of the delays.
Would it be right to say that your life would have been made easier if your predecessor’s offer of making the vessels available without LNG had been accepted?
Or if we had installed the LNG at the proper time.
I will ask further questions afterwards, as Kevin Stewart would like to speak.
Again, there is an understanding about LNG being a new technology, and I have heard what you just said about getting it right to begin with. However, anchors are not new technology, so why is it that the anchor mechanisms have to be looked at once again?
09:30
They were bought seven years ago, and I was not at Ferguson Marine seven years ago. At the time, the proper quality control and quality assurance procedures had not been put in place.
When did you become aware that it was not the right kit?
When it was sitting across from the esplanade in Greenock, and they lowered it, and I got a report back that it had not passed.
Why did none of your predecessors recognise that it was not the right kit?
I cannot speak for my predecessors; I can speak only about the things that happened on my watch.
Maybe Mr Miller, as the chair, can talk about some of your predecessors.
We are the shipbuilder, but there is a regulator—the MCA—that has oversight of the process of clearing something, and Lloyd’s has oversight as well.
Clearly, some things are tried and tested, and some things are tried and tested in front of the regulator but do not work. Therefore, we have to go back a little bit and make corrections. As John Petticrew said, most of the issues surrounded LNG.
We have dealt with LNG. I am asking about a very simple and basic thing: the anchor system. That is not a new technology. Why was it wrong?
The point that I am making is that the anchor was used and there were no issues. Then, when the anchor was used in the sea trials, which were overseen by the MCA, there was a problem with that piece of kit.
You say that the item was used and there were no issues, yet it had not been signed off at that particular point in time for whatever reason, as Mr Petticrew has just said. Why did it take reaching another point in time to recognise that the anchor equipment was not the right stuff?
Although I am the grandson of a shipbuilder, I would not claim to know a huge amount about shipbuilding, but I would say that anchoring technology is pretty old. How can you get that wrong?
The kit was shown to have been signed off in the February sea trials. When I went to speak to my counterpart at CMAL, he said, “Yes, it has been dropped, but it has not been signed off,” and so he wanted to see it dropped again. When it was dropped again, the coupling did not function the way it was supposed to.
We checked the drawings and all the technical data that we had received, and those suggested that it should have worked. When we went down and did some measurements on vital parts, the measurements did not match the drawings that were provided.
We have the LNG complication, but we also have the complication of not getting a simplistic system right. Is that correct?
If that is your opinion, yes.
Would you say that an anchoring system is quite a simplistic technology?
Yes. I was as surprised as anybody that we had the issues that we had. It was very disappointing that in February, it had not been signed off, nor had it been indicated that we had that issue.
In that case, do you share my opinion?
I partially share it, yes.
Okay, thank you.
Regarding delays, is completion of the Glen Rosa still on target? What is the target date for that?
September 2025.
We have heard about the parts that you have taken off the Glen Rosa to build the Glen Sannox. Is that going to delay the target date?
No. We have ordered four gypsies. As Kevin Stewart indicated, we now know that the gypsy in question will not work on the Glen Rosa, so it will be fixed at the same time—or around the same time—as the Glen Sannox will be fixed. Any issues similar to that will also be fixed.
Were there control panels taken off the Glen Rosa as well, or was it just the anchor bits that were taken off?
Various pieces have been taken off. For the long-lead items, it was easier to take something off the Glen Rosa, but I believe that what we took off has been documented. If I can take a step forward, I can say that, in the coming weeks, we will be doing lessons-learned sessions. I do not mean for an hour or two hours; I mean over days. Our sponsor has offered a facilitator to sit down with us and to look at objectives and what we were trying to achieve. Everybody, not just Ferguson employees, will be involved in those sessions—we will have Lloyd’s there, as well as CMAL and CalMac. They will be able to give their input on the lessons that have been learned over the past seven years.
Douglas Lumsden wants in to follow up on the anchor issue, and then I will go to the deputy convener.
Was the anchor issue a warranty issue or a design issue?
It was a design issue.
So there was nobody to go back to on it.
No—it was a design issue.
Thank you.
For the 802, what is your degree of confidence in the timeline of September 2025 that you provided?
If I am being completely frank, about 90 per cent. There has been some impact with people being seconded to ship 1. I do not mean the workforce; I mean in relation to engineering. We do not have a vast engineering department; for instance, on the electrical side, we have two people. Therefore, we must really put our shoulders to the grindstone.
One thing that we have not done in Ferguson is to utilise other shifts—putting people on full shifts, full second shifts and back shifts. That will be done shortly. We have just appointed a night shift manager, which we have never had before, and we will be putting people on night shifts. That will allow us to do work such as electrical cable pulling, for which people need to be out of the way. That is what the plan sets out to do.
On that 90 per cent confidence, you have mentioned that part of the issue is around skills, but what are the other principal risks to the September 2025 date?
It is about getting people to believe that they can do it in a certain timeframe. One of the things that we have not been good at, including during my tenure, is keeping to the dates that we have given. We are trying to get a plan that everybody buys into, so that we do not have passive resistance, whereby people agree to dates and then go off and do their own thing. It will be more structured.
We will also be breaking the ship into smaller zones, and having managers of zones. We did not do that before; we had a manager for the whole ship. We will have senior people who will look after small parts of the ship.
We have said that shipbuilding is not new—it is just a matter of getting a plan and a design. We have the design now, which we did not have before, and we have the model to look at. We can install LNG in the proper time so it does not impact on installation. We can get that signed off long before we ever got it signed off here. With the Glen Sannox, we were finding things out as we went along, such as with the anchor. If we had found out about the anchor in the February trials, it would not have been an issue. Does that make sense?
It does, and it is helpful. During the remaining 10 months for 802, are there key points at which you will have to make a decision on whether September 2025 is a go or not?
Yes. Previously, we did not have those gates, when we reflect on the progress or the non-progress that we have made to that point. They will enable us to make informed decisions and provide informed updates to this committee quarterly, or on an interim basis if we think that something is going wrong.
The chair has set up various committees, one of which is an operations committee. We have an ops committee meeting every two to three weeks, which is called by the chair of the ops committee, and we report to it as well. We have a monitoring group, even in the shipyard, so it is not just about life according to the CEO or the CFO. There are various groups that we report to on the board, as opposed to just the board. That is where we will be monitored.
In short, there will be major gates, such as switchboards being switched on, engines being started, basin trials and so on. Those types of things are common, but we did not previously have some of those milestones to recognise where we were going.
I was asked whether we should put LNG on the second ship. I definitely think that we should put LNG on the second ship, because it is working fabulously, as we hoped. When LNG is on, it is like an electric car. If one of the systems is not working properly, it gives CalMac the opportunity to switch to the other so that it does not have to go into dry dock to get fixed. It is like a hybrid car because we can switch from one to the other.
Are there any external factors that worry you about achieving that September 2025 date?
Whether it is internal or external, it is about the retention of people. We might be having a bit of difficulty getting a replacement or a permanent person in this position for the same reasons, and it is about retaining people for the future of the company. We are all drawing from the same gene pool. There will be a bigger employer up the road or across the river, or there might be people in Saudi Arabia who are going to build a big shipyard there and they can fling money at people just like they do for the football. That is definitely an external factor: bringing people in and keeping them.
Before I go to Douglas Lumsden, can you just clarify something? I am confused—maybe it is because I have been looking at this for too long. I was told that LNG was an easy fuel to use, that it had been used before, that there was nothing wrong with the design of LNG ships, and that that is why it was chosen for the design of the Glen Sannox and Glen Rosa. That came from CMAL and the owners of the yard at that stage. Everything seems to be turned around now and we are told that it is a very new technology. I think that LNG technology was being used before the ships were being built. It is not new technology, it is just that we have had problems installing it; surely that is the right way to say it.
I will answer that, if I may. It is not new technology globally, but most of the installations are not in the United Kingdom. In fact, this is the first time any ship has been registered in the UK with dual fuel—gas and diesel. The regulator, quite correctly, takes a cautious approach to regulation of that.
The skill set in the UK around that fuel is also wanting. We had great difficulty getting people with expertise to come from overseas to the yard to help with what the business was trying to do. It is not new technology, but it is new technology in terms of the certification process in the UK. That is the issue, or it was the issue.
Okay, but it seems to be the build technology that we have had the problem with, if I remember rightly.
What technology?
The build technology. We had couplings all over the place, and pipes everywhere.
Absolutely. It was the planning. The yard has gone through major restructuring issues with the different owners and so on, which has not helped with having a consistent planning document all the way through.
It is a question always of building to your strengths.
Douglas Lumsden, you have some questions.
I was going to ask about the £14.2 million investment that the Scottish Government announced in July. I am just wondering where we are with that. I think that I heard that some of the trade unions had concerns that that investment might not be in place quickly enough for some work that you have been tendering for. I am just looking for an update on that, please.
The £14.2 million figure is in the public domain, and we work closely with the unions. Obviously, there is a sales hopper that is large and wide and our ability to bid for 100 per cent of that work is somewhat limited, given our background and experience. We will release the capital expenditure over time, as and when, to fill the order books and to put the yard into a more efficient mode of operation so that we can bid for the work and achieve the price points that prevail in the marketplace.
09:45
Is there a plan to commit and spend the capital investment? That might be for David Dishon to answer.
Yes, there is a plan. We have broken down the £14.2 million into different areas. First, there is a pot of money for capital expenditure. That is for equipment that is obsolete, is not working and needs to be upgraded. That is a result of the fact that there has not been a capital pot for the past five years. Usually, you would expect there to be £1 million or £2 million a year to keep upgrading equipment. That pot is for catch-up purposes.
That first pot of money is for things that really should happen straight away. There is a separate pot that will be used to accelerate work on 802, to make sure that it is delivered as quickly as possible. The third pot is for the development and the future of the yard and more significant upgrades.
There is a specific set of pots. Each piece of equipment has a different lead time. We will be going through Public Contracts Scotland to start getting quotes.
I remember David Tydeman, when he was before us, talking about a new plating line. How much of the £14.2 million would be for that sort of improvement? I remember that the lead time for that was very long.
Yes—I think that it was 12 to 18 months. We are up against other shipyards across the world that have more money to accelerate those lead times. We have changed the business plan that David Tydeman put in last year; it is completely different.
How much of the £14.2 million will be used to make upgrades in order to try to win work?
There is probably about £4 million for obsolete equipment, so the rest of the £10 million is a combination of what we could do now and what we need for future bidding. I would say that probably around £8 million—probably half of the £14.2 million—is for future work.
Okay.
This might be a question for John Petticrew or Andrew Miller. How many full-time employees do you have in the yard?
We have 435.
Okay, I am looking at—
That includes subcontractors, too—everybody who clocks in.
There are about 290 Ferguson Marine employees. We have probably got about 430-odd people in the yard, including subcontractors.
Given your plans for the next two years, how will the workforce fluctuate? One vessel has been completed and handed over. That is great. Some of that workforce will now work on the Glen Rosa. What are your workforce plans for the next two to three years?
At present, we are negotiating for a major subcontract—I cannot mention the people to whom we are talking. We have two other potential customers that are a little bit further to the right.
Earlier, Michael Matheson asked me about how we are going to go from a confidence level of 90 per cent to one of 100 per cent. We are going to achieve that extra 10 per cent by keeping a lot of those members of our workforce around and putting them on second shifts and by putting more people to the task. If anybody was not required, it would be subcontractors; it would not be out of the 290 staff.
That is the model that most shipyards are using now. They have a core group and, if they have to increase those numbers, they do so by subcontracting. If they have to let people go, the subcontractors get let go. For example, say that we have a core group of 300, that we go up to 400 or 430 and that we stay there consistently. It is incumbent on us to try to bring in permanent people to bring the workforce up to that level.
I worked for J D Irving Ltd—the Irving group. It is currently building frigates in Halifax, Nova Scotia. Prior to that, it was in Saint John. In Saint John, the company hired too many people. When there was a downturn in its work, it had to let local people go. When it moved the business to Halifax, it came up with a workforce figure that it was confident that it could go five or 10 years with and increased that with subcontractors. When that 1,700 went to 2,000 and it stayed consistently at 2,000, it brought 300 people back in. I believe that we would want to continue with that model.
I will explain why I ask. I am looking at a social media post from David Tydeman from last week. He wrote:
“And now the challenge of how the government pays for all the yard overheads and management costs now that the costs cannot be charged 100% to two ferries and only Glen Rosa is occupying the yard”.
I am trying to work out how, as a yard, you are budgeting for getting less income from the Scottish Government for those two vessels.
We have what are known as underrecoveries. That refers to anything that is not charged to 801 or 802, or any commercial activities. That covers temporary downtime or cleaning up the yard, which is not charged to a build cost of 801 or 802. Those are underrecoveries: they are a separate pot that we charge the Government for every month, and that pot of money is expected to go up, because 801 has been delivered.
We have to consider different ways to reduce the underrecoveries pot, and one of them is to second staff to other shipyards that have the demand. We have a flexibility arrangement, whereby we have been doing that for several years, and that can temporarily allow us to reduce the underrecoveries while still having the flexibility to bring back the workforce if we win additional work.
We will have to consider the whole structure and the overheads. There are certain things that we can do that we have already started looking at. I am looking into the full overheads of the yards to see what we can utilise and where we can bring down the underrecoveries.
What sort of things are you looking at? How much are the underrecovery charges per month—the amount that get charged to the Scottish Government?
It varies; it depends. For the first seven or eight months of the year, they have probably been in the region of £1.5 million for the year. Some months, it is £200,000 or £300,000. They were next to nothing the previous month, because we had so much work, and everyone was fully engaged and employed on 801 and 802.
Vessel 801 is now delivered. As we now look to the commercial opportunities, the charges can go past £500,000 a month. We have to consider all our overheads and all our contracts to see where we can get better value for money. We have just put out to tender to Public Contracts Scotland for a piece of work for 802. If we used the incumbent, it would have come to a significant amount more, so we put it out to tender. We have now awarded that contract, which has saved a significant amount of money. We do that across the board as we look at our contracts and overheads.
What are you forecasting your underrecoveries to be for the end of next year?
For the end of this financial year?
No—for the end of 2025. Once Glen Rosa is handed over, basically.
We are in the middle of doing the forecast for next year’s budget, so I do not have a figure for it yet. We originally forecast somewhere between £8 million and £10 million overall for underrecoveries this year, but we will not be anywhere near that. The significant amount of work on 801 and 802 has allowed us to be gainfully employed, so that we do not have to use underrecoveries. We have also had commercial opportunities, which have allowed us to reduce that amount. We will not be anywhere near that forecast this year.
I have just looked at the company accounts from last year. Employee salaries came to £23 million, roughly. That works out at about £50,000 a head for the employees that you have, including your subbies. If you have only one boat, and you had 400-odd people working on two boats, what is going to happen? I do not understand how much it costs to keep the lights on in the shipyard if you are working on only one boat, or how you will balance the underrecoveries at less than £10 million, given that your wages alone are £23 million. Perhaps you can explain that to me.
The original sum for underrecoveries of £10 million included anything that we thought would not be charged if we did nothing. That is the amount that would have been involved if we did not charge for 802 or any commercial opportunities. That would be our delivering only 801—we would not have any commercial work to charge for. Clearly, then, at such a point, we would have to do something to reduce that amount. Wages and salaries is probably one of the biggest cost bases in the company, as it is in most companies, so if nothing was happening we would look at that.
We have already reduced that £10 million: the sum will probably be half of that, this year. It will start off at £200,000 or £300,000 a month then, for the back end of the financial year, it will be higher than that. As I said, we have to look at all our overheads and wages and salaries, and we have to renegotiate contracts.
So, what is the total money that is required, currently, to keep the lights on? Salaries and all the other costs for the yard are how much, a year?
I do not have that exact figure to hand because—for example—we have 27 vacancies at the moment, so our salary bill will naturally go down, but we have additional costs because of wage inflation and the increase in national insurance contributions. National insurance alone will probably cost a quarter of a million pounds, based on our current wages and salaries bill. We are currently in the process of doing a forecast—a reforecast—that I will have to put to the board, and we will make decisions on the back of that.
So, £40 million is not an unreasonable figure if salaries are £23 million—which, you have said, is roughly your biggest cost.
That is not an unreasonable figure.
Will you get £40 million from the Government for the Glen Rosa next year?
Do you mean in underrecoveries?
No. Will you be paid £40 million next year for the work that you are doing on the Glen Rosa? I think that we have paid a lot for the ferries already.
We have currently billed about £96 million for the Glen Rosa. We have about £54 million left to go, of the £150 million that we have currently forecast. At the moment, we are going through a replanning forecast. I will have to go through the whole forecast, to look at where we can save money and at the risks.
To go back to the Glen Sannox, I note that I did a forecast in February. I did not like the first forecast, so I put in a lot of risk and delays and looked at the overheads, and I gave the view that it would cost £145 million to £149 million, on the basis that we would deliver in May 2024. I had risk built in for a delay of up to three months, so as it got to August, that £149 million was at risk. As time went past August, I was using up the majority of the risk and we were looking at other ways in which we could save costs and bring the amount down.
I will have to go through that whole process with the Glen Rosa, as well. However, it is about not just the Glen Rosa but what else is out there. We are currently bidding for the small vessel replacement programme and, as the chair said, we have other potential partners. That is a full exercise that we are going through at the moment.
I want to ask about the role of subcontracting—in particular, the type 26 frigate work for BAE Systems, and future subcontracting work.
What is the question?
10:00
Where are things at?
We are negotiating contracts. That is all that I can say just now.
Do you have a likely end point for that?
Yes.
The Government said in July that discussions between you and BAE about the frigate programme were in their final stages, but it is now almost December.
There have been hurdles between us. We are at BAE’s beck and call and have to wait for it to have units ready. I cannot go into too much detail because we have been asked not to, but we are very encouraged by the results that we have had in the past week.
What are the themes of barriers? Are they caused by sign-offs or technical specifications?
The need to get units that fit our facility is probably the biggest barrier. BAE wants to build the units inside, not outside, so we have to look at what we can build using the methodology that BAE wants to use. Mr Lumsden asked about improvements in the yard; we have to start those improvements, which means balancing both those issues. We must keep people employed and bring work to the yard while improving the yard at the same time, so we have three balls in the air at once. We are encouraged by the progress that we have made—in particular, in the past week.
Does that come back to what David Tydeman told the committee about the need for a plating line and a grand block? Will the £14 million investment gear you up to take on more subcontracting work?
We are trying to model the yard and buy equipment in the way that will give us the best bang for our buck. We have partners in the area that have overcapacity on certain pieces of machinery, so we must ensure that we have the same information technology as them and can transfer information.
It did not take a genius to figure out that the shipyard was stuck in the 1980s and that we needed to take it into the 21st century. Any half-decent shipbuilder would have walked in and seen the need for improvement, but we need to spend the money wisely. We are a small shipyard—and the only commercial shipyard left on the Clyde—but we are trying to be the best in this area and then in Britain. I have heard people talking about our being the best in the world, but if we can be the best in Britain, we will be doing very well.
Our first objective should be to get confidence back. One board member said that our reputation has been damaged. It has. We have to get confidence back in the yard, but we have to accept that we did not do things right. It is easy for me to be the last person sitting here and to blame everyone else, but I am not going to do that because we have to look to the future.
We have to learn that you cannot start building a vessel before the design is finished and you have a plan, and that you cannot start building two vessels at the same time. We have to learn not to bring all the equipment in at the same time, such that we have to rent another warehouse. We should work in the way that the rest of the world works, using just-in-time delivery. We do not have an area where we can store plates, so we need a partnership with a supplier that knows the plates that we need and brings them in in a timely fashion. I have worked in Vancouver in a yard that was not much bigger than ours. That yard partnered with a company that brought in plates if and when they were needed. You need a plan to be able to do that.
Are uncertainties about the pace and scale of investment holding back a decision on the BAE contract, or are you certain that you will have what you need in place at the right time to fulfil that subcontract?
That is a good question. A lot has been happening in commercial and military shipyards in the UK. I mentioned—although not by name—the Belfast situation. The Westminster Government is working with another party to try to secure a future for that business. That deal has not gone through, but it is clear that there is destabilisation of that business, which was heavily involved in marine and other matters to do with the Falkland Islands. The businesses are swimming in the same pool as some more established players, especially in the military arena. Some of the players—I do not like to mention names—are considering what the risks are, given the contracts that are currently in that yard that they may or may not acquire, especially if that shipyard group is going to be reheadquartered in another jurisdiction in the European Union. All those things bring about a reforecasting assessment of risk in terms of how those players will move forward.
The positive news is that the naval shipbuilding business is the most buoyant it has been in the past 50 years. However, that is not to say that there is a separation between the military part of the market and our part, because some of the big players require a supply chain for subcontracted work. There is a bigger picture with regard to the sustainability of commercial shipbuilding in the UK as a supplier to some of the bigger military contracts. A lot of people sometimes forget, or ignore, that. It is all about joined-up thinking with regard to what is actually going on just now.
It is obviously a challenging context in which to operate.
It is.
I appreciate that, and I think that every member of the committee wishes you well. We want to see the business expand and grow in the future.
We appreciate that.
I want to ask about subcontracting more generally. David Tydeman said at the time that 801 and 802 were more complex than a type-26 frigate; I do not know whether you agree or disagree with that.
Is there something about the size of yard and the expertise that you have, and your place in the market, that points towards subcontracting or building smaller vessels being more of an opportunity for the business in the future than very complex bespoke engineering contracts like 801 and 802?
John Petticrew will give you more on that.
I might be a bit controversial here, but I do not find the vessel to be particularly complex. I just think that it was not planned and designed properly. I think that Ferguson’s was, and is, well capable of producing the vessel.
Obviously, a yard wants to get a series of ships to build. If we take on the small vessels replacement programme, for example, we will take on building of seven ships. In general, a shipyard would say that it will be at ship 3 before it starts to make money, and there will be a gap between ship 1 and ship 3 so that it can find out what all the snafus are and they can be fixed for ship 4.
I was involved in building nine frigates, and we were on the fourth frigate before we really knew what we were doing. I am not trying to compare anything that we are building with building a frigate—the vessel is not as complex as a frigate, as an ex-colleague of mine, Andrew Hamilton, commented when that came out. It is a dual-fuel vessel, however, which brings its own particular difficulties.
We have to find a niche market. We—as the board—feel that we need two or three income streams, or three strategies, so that when one is not doing quite so well and there is not as much to do on it, we can lean on the others.
There are various parts to the yard—there is the big shop, the slipway and the shop at the top. You can have a ship in one part of the yard getting ready to sail, and a couple of ships in the shed being built. You could be building pipework for offshore or wind farms or whatever, and you might also be doing some naval work in the yard. That is the mixture—those are the three or four balls that we are trying to keep up in the air. We are trying to get people to think differently about that.
Ferguson’s was previously about building one-offs—or two-offs—but, as a yard, we really want to be building a series of ships. A lot of people now want a series of ships, and they give contracts for two plus two plus two, so that they have an opportunity to pull out after two if you are not doing well, and to give the next two ships to somebody else. I think that that is something that we will have to venture into.
I will also make the point now that one thing that we will try is a joint venture with an established shipbuilder. We have not chosen anybody, but we have been speaking to different people.
We need to get out of the business of designing ships. We need to go to somebody who has a catalogue of ship designs and say to CMAL, for example, “Here are six ships similar to what you’re looking for. Pick one.” It would be a design that is already proven, so all the trials and tribulations that we went through in the design process would be gone—that risk would be gone. We would bring the design in, similar to what happened at the Belfast yard. I was there when we signed such a contract with Navantia. The reason for doing that was to bring in its expertise for project management and get advice on how to lay out the yard and so forth.
We have to be humble enough to realise that we need to do the same thing. We need to take that leap in order to take ourselves into the arena and be competitive in the commercial market. As, I believe, the committee knows and appreciates, being competitive in the commercial market is totally different from being competitive in naval yards. They are two different animals.
We need to get the bang for the buck for our sponsor, and to get ourselves to the point of being an established business. For me, the first thing that we need to do is break even, so that we are not costing anybody any money. Then we can look at trying to make money. Does that make sense?
Yes. Thanks.
We have quite a few follow-up questions.
I am interested in what Mr Petticrew said about design—or lack of design. Is the fact that the design was not there the major failure of the project?
We started before the design was finished. We should have finished the design first.
It is not unusual to start a ship before the design is completely finished. However, if I look at the history of the matter—I can comment only on stuff that I have read about the business and enterprise—based on my experience, I think that we started too early. We also started both ships at the same time, if the history that I have been told is correct.
You said that your ambition was to take the yard from the 1980s to the 21st century. Has that lack-of-design scenario held that back, or are you now on the way to bringing the yard into the 21st century?
If we spend the monies that have been allocated to us wisely and on the right equipment and technology, and if we partner with and take advice from other people, I think that we can get there. In fact, I do not just think it—we will get there.
You also mentioned a difficulty earlier on, which was—to use your phrase—“passive resistance”. Did you mean passive resistance to change, or was it that people have been driven from pillar to post during the course of all that has been going on?
I think that you just answered your own question, to be frank. The two points that you made are very valid, given the change in, and instability of, the management. We are not talking about personalities here, but just about people moving and leaving the company, or the enterprise. That must be distressing for people. We have a lot of people who have worked there for 20 or 30 years. Some people like change and some people struggle with change, but we have to change. There is no doubt about that.
Does everyone who is working at the yard at the moment recognise that change is required?
I believe so. They want to see the change.
David Dishon has a person who reports to him who has been working there for six years. When it was announced that we were going to get monies to improve the yard, she was nearly crying, because it was a relief to her.
It was also a relief to our partners. You are asking why things have maybe stalled a little bit, with getting additional work. They were looking and asking whether we were going to be around in a year or two years. That is what the chairman was alluding to.
A lot of pelters have been thrown—
Really? [Laughter.]
—for good reason, in some regards.
From what you are saying, a lot of that is down to the fact that the design was not there.
You talked about that lass crying about the investment money. What is morale like among the workforce? Are they positive for the future? Are they up for it, basically?
10:15
Yes, the ones who have stayed are up for it. A young person with a mortgage has to think differently from someone whose mortgage is paid and who does not have such bills coming in.
We have some good young talent. When the Deputy First Minister came to visit, the three people who showed her round were under 30. She took a picture of people with her on the gangway. I think that their average age was 31.
Are you using those young folk as part of your sales pitch for other work, to show that they are up for it?
Yes—100 per cent.
I have listened to all of this with great interest. Potential partners of Ferguson Marine will be listening to your evidence, as will competitors. Therefore, these evidence sessions, which the convener has been so diligent in scheduling, are important to the future wellbeing and prosperity of Ferguson Marine.
I will pick up on something that was said in answer to an earlier question right at the start. There was a senior manager in charge of completion of the entire vessel, but the vessel had not been broken down into sections. That meant that there seemed to be a lack of accountability on the shop floor—for want of a better description—to ensure that individual sections of the ship were nailed, and that, if a section was not, you could identify who was responsible for the slippage. Is that quite unusual in the shipbuilding industry? It seems to be crazy that one person would be directly responsible for the completion of an entire vessel. I am pleased to hear that the management and accountability structure has been changed. Mr Petticrew, was it a surprise to you when you found that was not already in place?
It was somewhat a surprise—yes. You said that it is not the case in other shipyards, but yards further up the Clyde have a delivery director. However, we are not a naval shipbuilder. We are a commercial shipbuilder, so we have to do things differently.
The point that I am making is about whether it was self-evident that there should always have been a senior manager who was responsible for each particular section of the ship.
The introduction of proper project management procedures was required. We did not have project managers, but now we have project managers who are a singular voice, away from operations. If someone goes to operations and asks it for an end date, it is always going to give the optimistic view. However, if they go to somebody who has skin in the game and has to report to me on where we will be, they will get a different answer. Both answers have to be compared in order to know where we actually lie.
If the current system had been in place years ago, do you think that we would be in the same situation now, or would performance have been better?
I have to say no—we would not be in the same position.
The reason for asking that is that we want all of you to turn Ferguson Marine around. We want you to win more orders and we want you to diversify. I am trying to get you to put on the record where Ferguson Marine is now, so that we can give confidence to people—not to the parliamentary committee that is scrutinising the matter, but to future investors and future partners, because we want you to win those contracts. Could the troubles that you have been through make you better prepared, and fitter and leaner in order to win contracts? How can you assure us that you are now getting it right?
We know some of the mistakes of the past. John alluded to the key elements of the shipbuilding business that we would like to work on with other parties. I call it the intellectual property end of the scale—new propulsions, new designs, for which we can rely heavily on the intellectual property of partners. There is discussion with some of those partners about how we can work together with them, whether through a management contract or some form of equity situation.
Obviously, we have to prepare the business for the future—not only by giving value to the current shareholder, but by finding opportunities with other shareholders to deliver what is required for the Scottish economy. I am not wedded to state investment in assets. Clearly, we want to improve how we acquire new capital for the business and how we hit the necessary returns.
As everybody knows, Ferguson Marine is the last commercial shipyard on the Clyde, but we have some friends in the marketplace that we have been talking to about how we could work closely together to achieve a better outcome for the business—one that would, I hope, prepare the business for other investors involving themselves with the enterprise.
As well as the structural need to modernise the yard, reputation and confidence have come up time and again as the biggest barriers. Clearly, the best way to rebuild reputation and confidence is to meet the new deadlines that have been set, within the cost envelopes that are forecast. Bluntly, that has been the challenge for years. On the basis that, given a fair wind, you nail this, what can others do—not Ferguson Marine—to help to rebuild reputation and confidence and to be a good friend to Ferguson Marine? We want the yard to be a success. The question is not about all the things that we know you need to do internally and that you have to be accountable for as an organisation. What can others do to assist?
Nobody will give you an argument with some of the statements that you have made, but I will mention one green shoot. David Dishon has been in the business as finance director for about 12 months. He gave the committee a financial number on 801 in May, which was seven months ago. Although we have not washed up completely, that forecast number is still the number that we are working to. Two or three years ago, we could not have said that we would be confident about that, but we have been building up the skills and expertise of people in management, and we have the help of John Petticrew and other key people who have joined the senior management team and, indeed, the board—Simon Cunningham joined the enterprise about 12 months ago. We have got those key people into the business to help us to plan.
Many of the people whom we deal with are former Ferguson Marine employees, whether they are now in CMAL, CalMac or other enterprises up the Clyde. We have friends, and a lot of people are willing us to succeed. We definitely have to prove ourselves. We have to deliver on time and on schedule and show the market that we can pitch for new work. We have quite a lot of projects in the sales hopper that we are working on, and some are more short term than medium term.
We have received subcontracting work from one of the biggest naval shipyards in the UK, so we have been working closely with it. That is providing engagement, even between me and the very senior principal there—there is dialogue and we have been getting advice on securing more subcontracted work. Some people in the Scottish Government have been very good at helping us to establish communication channels, to ensure that others understand our strategy and where we are going in the future.
Thank you.
Is that you finished, Bob?
Yes. I will leave it at that.
Perfect. Douglas Lumsden has a question, and then I will come to Monica Lennon.
My question is for John Petticrew. We heard that you have been offered a contract extension until spring next year, and that you are not sure whether you are going to take it yet. Do you not fancy doing the role full time?
I am doing it.
Oh, you are doing it. All right.
I am doing it. We are just ironing out the details—Andrew Miller just takes too long getting the stuff.
I have other masters.
I am going to do it.
Just so you know, my dad used to run Inchgreen. I am from Greenock—I am from the Port Glasgow area, and I am proud to say that. I live somewhere else and, honestly, I do not fly back and forth every weekend, contrary to popular belief. I am here because I want the yard to succeed. The £14.2 million is about the 30 and 35-year-olds; it is not about me. It is about building a future for the young people.
I am not trying to sound like a politician here, but that is what we are all about. That is why David Dishon has joined the company on a full-time basis. That is why this gentleman—Andrew Miller—has taken over as chairman of the board. We want it to succeed, so I am going to stay.
Do you not fancy doing it long term?
I would do it full time, but my family situation does not allow that.
You mentioned travel, so this is probably your chance to put on record what your travel arrangements are.
I have seen my family three and a half weeks out of eight and a half months.
You are living almost full time in Scotland?
Yes.
I promise that I want to talk about the future as well, but first I want to go back to a couple of points. It was fascinating to hear you say that the process that was being asked for in terms of the ferries was not particularly complex. Will you explain a bit more what you mean by that? Lots of people across the country see ferries that were massively overdue and over budget, and to them, it feels quite complex and quite messy. Will you explain what you mean by the process not being particularly complex?
What was the word that was used? It is very congested rather than complex, because of the size of the tank. Monica, have you been to the shipyard?
I have not, unfortunately—not yet. Is that an invitation?
It is an open invitation to everybody here. If you come down with me, I will take you on the Glen Rosa and show you the size of the LNG tank and the space that it takes up. The Loch Seaforth, which is in the CalMac fleet, has a very similar-sized engine room. It is better laid out, because it does not have a huge, big tank that takes up so much space. It is not complex, but it is very congested. There is a difference between complex and congested. It is a very congested engine room space.
Douglas Lumsden asked about the design and planning. The chairman talked about the key events that we could have done better. The design and planning is absolutely paramount. It does not matter whether it is a frigate, a trawler, a patrol boat or a landing craft. If you do not have a plan and a design, you are doomed to failure.
To pursue that a bit more, do you believe that the specification for 801 and 802 was right? Was it appropriate, or was it overambitious?
I cannot really answer that, because I was not here for the discussions on the exact overall end use of the vessel. I know that it took too long, and I know that we let the community down by taking that long, but all I know is that, if you go on the Glen Sannox now, you will see that it is a fantastic vessel. I have been on lots of vessels. If you go and look at the passenger areas and the engine room now, you will see that it is a fantastic vessel.
That is all I can say. I cannot comment on the specifications, because I was not there during the negotiations on the specifications. All I know is that, when I came here, there was a vessel that needed to get finished.
Thank you. I appreciate the limitations of your knowledge on that. I will put the question to Andrew Miller as chairman, because it is really important that we are confident that all lessons that can possibly be learned have been learned. Are you able to say whether the board is satisfied that the specifications were appropriate and correct? Were they over the top or overambitious?
At Ferguson Marine, we build ships, and we build them to the specification and design that are given to us.
10:30
You are up for any challenge. I will ask a different question, then. Has every aspect of the specification to which you were asked to build been fully achieved?
Clearly, with a timetable and a budget that were not met over a protracted period of time, there are lessons learned, so it is about absolutely making sure that we learn the lessons and apply them on the second vessel.
Okay, but, in terms of the Glen Sannox, has everything been completed that was in the original design and specification?
I reiterate what John Petticrew said. At the handover, there were people in tears on the bridge—people from our company and other agencies. It was an emotional time.
That ship is an exceptional piece of kit; it is of very high quality and it performs well in excess of expectations. It is the first vessel to be registered in the UK under the hybrid fuel system. Those are phenomenal achievements, but they are drowned out by the negativity of the past. I can understand that. However, we are looking to the future, and we are fixing a lot of things—including the people at this end of the table—when it comes to the quality and skills that we need. We look to the future with enthusiasm.
The final sign-off is by CMAL. As you know, we did a two-stage handover. We did a sign-off by the ship classification societies—MCA and Lloyd’s—and, a few days later, by CMAL. They had a perfect opportunity if they thought that something was definitively wrong or they were not happy with the vessel—much as that would have been a disappointment to us—but they were happy. The captain of the vessel was on a handover, but he stayed a day and a half late to be the person who put up the ensign at quarter past six that evening. That is how proud they were of the vessel.
You will understand why I just want to double-check that everything has been completed. It sounds as though there are no snagging issues, which is good news.
Look, we are here for the long haul and, if something happens, we are here. We are not going anywhere. That is why it is good to buy at home: you do not have to go to a foreign country to get somebody to come and fix something that is wrong. We are partners with CalMac and CMAL. We are not adversaries; we are partners.
I said that we will talk about the future, and I come to the small vessels replacement programme. It was mentioned earlier by David Dishon, I think, and we have heard a lot about potential partnership working. At this stage, are you able to say more about Ferguson Marine’s ability to submit a competitive tender and about how important securing the contract is for the yard? You have talked a lot about the workforce and young workers coming through, which is great to hear about. I am interested to hear your thoughts on that.
We are still in the running in the procurement process. We are one firm of six that is still in with a chance. The timetable is not controlled by us but by another entity. As John Petticrew said three months ago, we are bidding vigorously.
The big issue for us is the fact that there is one point of governance for the whole enterprise in terms of looking at the communities on the west coast of Scotland. If you think of them and focus clearly on that, there are three parts to the troika, as I call it. There is CalMac, which operates the ship, and CMAL, which specifies on behalf of the Scottish Government. That one point of contact and governance for the communities in the west coast of Scotland is probably underplayed because it splits into different ministerial responsibilities.
We have one asset—Ferguson Marine—that was bought to save jobs for the future, which was a great motivator, but we have another contracting authority that chases, in some regards, 40 per cent of the points and the lowest possible price.
Given that 40 per cent of the marks are awarded on price, it is very difficult for commercial shipbuilders in the UK, which operate at half the margins of military shipyards, to compete when the three assets are owned by the same principal. The fact that the objectives play against one another makes it difficult for commercial shipyards in the UK—not only Ferguson’s, but other yards—to achieve the winning points to secure that work, which is very important for the future of Ferguson Marine. Dealing with that is problematic.
I do not want to seem as though I am anti-global competition, but there is a reason why some jurisdictions win contracts that are based on the cheapest price. When we are talking about a country that has 46 per cent domestic inflation and that can fix contracts in any currency that it wants, one must presume that there is a level of subsidy playing in its organisations, which are competing with our enterprise on the Clyde. I am not for subsidy, but we want to have competition that is fair when it comes to how we pitch for the new work. We also want to ensure that some joined-up thinking takes place so that, in owning various assets, we understand the overall objective—the one point of governance—which is to supply reliable and consistent ferry services to support communities on the west coast of Scotland in relation to both social access and economic access, which is required for the development of some of the industries there, in order that they can export.
This question is for John Petticrew. I believe that one of the requirements for vessels that are procured under the small vessel replacement programme is that they have to be electric. We know that there have been issues with the Glen Sannox and the Glen Rosa as a result of the LNG fuel system. Do you have any concerns about that, or have lessons been learned that make you confident that you can handle that specification?
We are talking about two entirely different beasts. With a battery electric vessel, you would go to a systems expert, who would guide you on what systems to put in, and you would have a systems integrator that would integrate the ship. That is another key element that we might have been missing on the two vessels that we currently have in the yard.
Why do you think that that was missing?
We are talking about the intellectual property end of the scale. We have working relationships with partners who are well ahead on the new technologies globally, who can advise us on how to make sure that we do not repeat the mistakes of the past. That is what we are undertaking.
I promise that this will be my final question, convener. I cannot see you, but you are probably waving your pen.
I declare an interest as a member of the GMB union and a member of the National Union of Rail, Maritime and Transport Workers parliamentary group; I do so because we are talking about workforce issues.
You have given us a lot of anecdotes about how people across the organisation are feeling. Will you say a few words about how you engage regularly with the workforce and what those discussions look like, especially in relation to the future of the yard?
Are you addressing that question to me?
If you can answer it, yes.
As chief financial officer, David Dishon does not sit in his office; he regularly comes on the vessel with me. I would challenge the committee to find anyone at the yard who does not know me or who has not spoken to me regularly. I was on the Glen Sannox for four to five hours every day. I do not wear a suit. The one that I am wearing came out of the cupboard. I wear a pair of jeans, a T-shirt and a boiler suit, like the principal up at BAE Systems. When Andrew and I met him, he came into his office in a boiler suit. You have to engage with people and tell them what is happening. You have to have town hall meetings. You have to allow people to come to your office, if they want to do so, to have five words. You have to be approachable.
Monica Lennon mentioned that she is a member of the GMB. She can speak to the union members who were in Belfast when I was there, who will say that I behaved in exactly the same way in Belfast.
We also have a regular slot for the GMB at the board meeting. That time used to be for Alex Logan and John McMunagle, but we see just one of them now. We take 15 minutes for the board to directly answer their questions and deal with their reservations about the enterprise.
There is also informal contact around the yard. I do not get on to the ship as frequently as John Petticrew, because I have great difficulty in fitting into my boiler suit, but we are very approachable. People can ask us anything they want to and, because we are approachable, that happens. If people have a grouse about something or want to raise an issue with the board, they can raise that directly with the board of directors, in John’s presence. That is what we do.
I have a meeting with the union rep every Tuesday—although I am here today so I will do that tomorrow instead.
I am sure that they will forgive you for missing today.
Thank you for those answers. Before I hand back to the convener, I asked Andrew Miller about project domino. Just to clarify, the paperwork released by the Scottish Government suggests that that was a code name used by the Government in March this year, and that it may have been used only internally. We might be able to ask the Scottish Government about that separately.
I am sure that we can ask separately about project domino.
Before we leave the issue of small vessels, I have a question about David Tydeman’s evidence. He said that building small vessels would cost 25 to 30 per cent more in Scotland than it would anywhere else in the world. Was he right or wrong?
That depends on the comparison.
You know that there are five other shipyards around the world. Was David Tydeman right or wrong?
He was right: we would be increased in price. I cannot give you an exact figure.
Thank you. We move to questions from the deputy convener.
I am interested to hear your views on something that you have touched on to some degree. What are your thoughts on the future shape of the company? Do you see Ferguson Marine being a stand-alone company, as it is at present, or do you think that it will be part of a joint venture in which another partner deals with the intellectual side of the business and you offer some specialisms? Mr Miller, you spoke about the potential for external partners to take an equity share in Ferguson Marine as a way of shaping the business.
We are trying all those options to see which will be best at giving the yard a sustainable future. Nothing is out of the arena at the moment. We have had some discussions with interested parties—which I cannot name—about possible future working relationships. On the current list, under the SVRP programme, there is an organisation that has a Vietnamese subsidiary company that is one of the six bidding parties.
It is clear to us that organisational structures that give the customer the best possible price, while blending that with an intellectual property component, are part and parcel of the way forward. We know that having a soup to nuts model for Ferguson Marine, starting with metal and rivets and going all the way to creating a whole ship, is not the modern way and is not how the world market now builds ships. It is how naval shipbuilding works, but the average margin for naval ships is twice the percentage margin for commercial operations.
We have to be smart about what we do. The political jargon would be to say that nothing is off the table. We are pursuing a lot of the relationships that we have alluded to in the past. That is the way forward; it is the way that the industry is going.
Would it be fair to interpret from that that the existing structure is not sustainable in the current international shipbuilding market?
10:45
Not to be obtuse, but I would say that the whole focus, when building 801 and 802, was on what would serve the communities in the west coast of Scotland—quite rightly. What was really underdeveloped was the longer-term strategy both on acquisition as a state-owned enterprise, and probably for about five years after that. There was very little regard in the board papers to setting the strategy for the future, and the whole intellectual groundwork behind that was missing. It has taken us about 12 months to get up to speed on what we will do with the asset in the future, with the support of the ministers who are involved.
As a board, do you feel that you have a better grip on the future strategy?
One of the distressing things is the fact that, in the first 12 months that I was at Ferguson Marine, I was responsible to four ministers, as they kept changing. The current DFM has said that I was being unfair, because she was the first one, so I could not count her twice. We have good on-going support from the sponsoring department and indeed the DFM, who is willing to help us and have meetings, and talk to people to advance our cause, which is a great credit to the lady who occupies that position. I very much enjoy working with her, in the same way that I did when I was the chairman of Prestwick airport for seven years. In fact, Mr Matheson was one of the ministers whom I reported to in years three, four and five of my tenure, before the DFM took up the position.
I am pleased about the working relationship, but it is a tough assignment. It is probably one of the toughest assignments that I have had in my career of turning around organisations and state assets such as Prestwick airport. That enterprise has been profitable every year for the past five years under the auspices of state ownership. It is possible with the right amount of application, drive and energy.
If there are no other questions, I will come in with a few, as well as a comment. Having first visited 801, as it was then, when it had wooden windows and dummy stanchions on the back to secure it to the harbour, which had to be taken off, and a bulbous nose and all the rest of it, it is interesting to see the vessel coming into service six years after it was first launched. I have also seen Jim McColl, Tim Hair, David Tydeman and now John Petticrew in the chair all saying the same thing, but slightly differently. Tim Hair swore that taking on a new warehouse next to the yard would save the day and that he would know what inventory he had taken over. I am still as confused, having been looking at the matter for six years, about where all the issues lie.
One issue that concerns me is that we have ended up paying £82.5 million against a £96 million contract for 18 stage payments on the two boats, where 15 of those payments had been made when one of the boats had not even been built. I am slightly confused about where we are going with this, and I am slightly confused about who is learning the lessons. There are a lot of lessons to learn.
I have a quick question for David Dishon. When the Glen Sannox was recently undergoing its sea trials, I am assuming that the vessel was insured. Could you tell me how much it had been insured for?
Under the Scottish Government contract, we have to insure the vessel for the full build price. We regularly have to top up the insurance, which eats into my risk. We have had to ensure it for the £150 million build price.
David Tydeman told us that it would cost £48 million, or nearly £50 million, to replace it. Overinsuring or underinsuring? What would it cost to build the ship today, if it had been done properly?
I honestly could not say what that would cost, but, obviously, it would not be £150 million. When I first looked at insurance, the replacement value was something in the region of £70 million; however, as I said, under the contract with the Scottish Government, you have to insure for the full build price. Until last Tuesday, it was insured for £150 million.
If I was a marine broker, I probably would not have taken on the risk for a build at maybe three times the value that it would cost to replace the vessel, so well done on finding somebody to do that.
Andrew Miller, you made a comment about David Tydeman’s evidence being inaccurate at certain stages, which you would have to write and apologise for. Will you please provide the committee with information relating to that? It would be helpful for us to see whether the reports that were given to the committee by David Tydeman were factually correct.
Sure. On one occasion—
I am happy to take that information in writing.
I was just trying to give you an example, but that is okay. To answer the question—yes, I can provide that information.
Thank you. We all hope for a successful outcome; however, I am not sure that I can see it. Unless there are any other questions, I will leave it there.
Thank you for giving evidence. In future, when it comes to giving the committee reports on problems, it is helpful for those to be as detailed as possible. I do not think that we were aware of the anchor chain incident from any of the reports that we have been given. Perhaps I am mistaken—perhaps I did not read it properly.
I will send it again.
Thank you very much.
That concludes the evidence session. I ask members to be back at 11 o’clock for the next evidence session. I suspend the meeting until then.
10:51 Meeting suspended.