Chamber and committees

Before I answer that question, I want to say something that I think is really important. I know that Kevin Hobbs said this to the committee. There is no issue about the quality of the work that is being done by the workforce in the yard. There are many different organisations and people—including the Scottish Government, which, ultimately, is accountable for public sector contracts—that bear responsibility and have lessons to learn here, but I would exempt the workers at Ferguson’s from that. All along, they have tried to build the ships with the quality, the expertise and the dedication that are required. What has gone wrong is the overall management of the process. As I said, different people have to bear different shares of the responsibility for that. I put on record my thanks to the members of the workforce, because it has been a really difficult time for them, as lots of aspersions have been cast on the quality of their work along the way.

I think that you are right to have a degree of confidence in the current management and the chief executive. They have inherited the situation with the vessels. There have been significant challenges, and there remain challenges around the completion of the vessels, but I believe that the chief executive and his team have a grip of the situation. We can see that reflected in the regular reports that are given to the relevant committee here and the way in which issues are being identified and raised.

As I mentioned earlier, one of the recent reports has made updated assessments on the cost of completing both vessels and has given updates around the delivery dates. The Government is currently scrutinising that information before we reach a decision. Last week, the company gave an update on the issue with the liquefied natural gas sensors. We have asked for all options to resolve that to be considered as quickly as possible.

The current management are doing a very good job. I think that they have a grip of the situation. Does that mean that we will definitely not encounter further challenges between now and the completion of the vessels? I do not think that it would be sensible of me to say that categorically, but I believe that the current team is working in the way that would be expected in order to get the vessels to completion.

I am the First Minister. I am accountable and responsible for everything that happens. Earlier, I said to you that I do not take every decision in the Scottish Government—contrary to some of the things that are said about me by my critics—but I am accountable and responsible for everything that happens in the Scottish Government’s name. Whatever people think about me, and whatever the political or other disagreements, I never shy away from that—nor will I ever shy away from that. That is not the hardest question that you have asked me today, or will ask me in the future, I am sure.

Exactly.

Not at that point, no. You are obviously moving on—maybe you can tell me what you are referring to.

Let me unpack all of that a little bit. I have told you what had been advised to me ahead of the preferred bidder announcement on 31 August. That was a briefing to the effect—as I said earlier, this would have been obvious, given that we were at the preferred bidder stage—that negotiations had not concluded and were on-going, and that significant negotiations were still to be undertaken and concluded. I think that there was wording to the effect that those negotiations included complexities around the level of guarantee that FMEL could provide.

I would absolutely refute the suggestion that that was presented to me in a red flag way. It was information that I would have thought at that time was obvious, because we were at the preferred bidder stage, not the final contract award stage.

Later on, when it came to the final contract award, everything that you read out comes from a combination of the 8 October submission to Derek Mackay, the email from Erik Østergaard that was included with that submission, which I think, from memory, is dated 26 September, and the CMAL note. As I said, that was not copied to me at the time. That was provided to Derek Mackay, who took the decision. I do not think that there is any dubiety from anybody, including Derek Mackay, that that was a decision that he took at that time.

CMAL’s concerns were set out there. To be absolutely fair to CMAL, as well as setting out those concerns, it set out the mitigations that had been achieved to allay concern. On their own, those mitigations did not completely satisfy CMAL with regard to its concerns. I will come on to the later bit in a moment. The mitigations were: changing the final payment to 25 per cent of the contract price, the 25 per cent builders refund guarantee and the fact that CMAL would take ownership of the assets and the vessels as they progressed at each stage of the process. Those were the mitigations that had been agreed in order to allay, to some extent, the concerns about the lack of a full builders refund guarantee.

On top of that—this is seen in the paperwork in the voted loan letter and the separate letter to CMAL from the Scottish ministers—there was the fact that CMAL would have to start repaying the loan only when the vessels were complete and, in the event that there were additional costs, ministers would look favourably on that at the time. That package was what enabled CMAL to sign the contract.

The other point that it is important to make about the 8 October documentation is that it talks about the fact that, with all of that, CMAL felt that the deal was the best one that it could negotiate with FMEL. It is absolutely the case that, in his email, Erik Østergaard said that CMAL’s preference was to cancel the contract, but that paperwork also includes the opinion expressed by CMAL executives that it was possible that some of the issues could be encountered with other bidders as well. There are references to the fact that the agreements reached brought the whole tender broadly into line with the tender requirement.

A minister looks at that in its entirety. In coming to a judgment, a minister must consider whether the mitigations are sufficient—every decision involves a balance of risk—to allow the decision to be taken and whether there is a better outcome that would be guaranteed if they went down another route. They will come to a balanced decision.

The 8 October submission was not asking for a ministerial decision to cancel the contract; it was asking whether the minister was content to proceed. All of that—you heard this from Derek Mackay himself—was considered. He says that he had a concern and of course there was a concern that there was not a full builders refund guarantee—he expressed that—but the mitigations gave the assurance at that point that sufficient had been done to allow the contract award to proceed.

I obviously respect that that is Audit Scotland’s view. Further, I understand why Audit Scotland has that view. Respectfully, though, as a minister of many years and now as a First Minister who regularly takes and communicates decisions and has those decisions recorded, I take a different view of that.

I was not party to the material of 8 October 2015 at the time. I do not take every decision in the Scottish Government, although I am ultimately accountable for every decision that the Scottish Government takes. As I said, I have now reviewed all of that on several occasions in recent times and have asked myself whether the decision was a reasonable one at the time, based on what ministers knew at the time. If you look through the prism of what we know now, everybody would, of course, take a different view. However, based on what ministers knew at the time, I have assessed whether, in my own mind, the decision and the recording of that decision were reasonable.

Very often, when ministers are presented with a submission that seeks a decision from them that lays out all of the basis on which that decision would be taken, the minister will simply approve on the basis of what is in the submission; they will not necessarily repeat all the reasons and the basis for that decision. Often, a minister will give the lengthiest response to a submission when they do not agree with what they are being asked to do and they are taking a different decision. They will therefore record the reasons for that or say why they have taken a decision on a different basis to what is set out.

The 8 October submission sets out very clearly the risks of the decision and the basis of the CMAL concerns. Attached to it is a note from the CMAL chief executive and an earlier email from the chair, at the time, of CMAL. It also sets out very clearly the mitigations that had been negotiated with FMEL, around the builders refund guarantee, in particular, and it sets out—and, indeed, this was attached to the submission—the drafts of the voted loan letter and a separate letter from the Government to CMAL with assurances for CMAL. It sets out clearly the basis on which that decision could be taken, and it also has within it references to the fact that this was—in CMAL’s opinion, notwithstanding its concern—the best deal that could have been negotiated with FMEL. It has opinions from CMAL executives that say they may have encountered some of the issues with any bidder.

Taking all of that into account, there is a basis for that decision, and, in approving it, the minister was effectively saying that they were taking that decision on the basis of all the material that had been set out.

Buying the yard?

I absolutely accept Audit Scotland’s view of the issue around the recording of that decision. We will reflect on that and look at Audit Scotland’s views about any lessons that should be learned on the recording of decisions.

I will make two points about that. First, what happened with the construction of the vessels did not happen because a decision was not recorded in a particular format. It happened for a variety of reasons that, no doubt, we will come on to talk about. It is important to recognise that.

Secondly, had there been a fuller response from Derek Mackay—I say this from my now fairly lengthy experience of government—it would just have repeated what was in the submission as the basis for the decision. The shorthand is, “I approve it,” and the implication is that it is approved on the basis of all the mitigations that are set out. Often, the lengthier responses that a minister gives are given when they go against what is in a submission.

Yes, of course we will reflect on the matter. I am sure that the committee does not need me to give it advice on any aspect of its inquiry, but it would be fundamentally wrong to say that, because a decision was recorded in shorthand as opposed to repeating verbatim what was in the submission, it is somehow the cause of what happened since.

Reflecting on lessons learned will, obviously, be an on-going process as we complete the vessels. I am absolutely determined that the Government properly and fully learns all lessons that are appropriate. I do not know what stage the committee is at in its considerations or when we might get a report out of its deliberations, but we will properly feed that into the lessons learned process as well.

I can write to the committee in more detail about this in the interests of time if you want, but CMAL has already made changes to its procurement processes. It will require a full builders refund guarantee in future for major vessel contracts, has enhanced the financial due diligence that it does on all contracts over £500,000, will use a ship broker to provide assurances on the yards that are bidding for vessels, will have an independent panel member on vessel procurements and will use naval architects to work alongside its in-house team on technical assessments.

Transport Scotland has already made considerable changes to governance on vessel procurement. For example, it has made changes to the accountable officer template and to the scrutiny and sign-off of vessel and port projects. Its investment decision-making board is now involved in that process, which was not the case when the contracts were awarded.

The Scottish Government has also strengthened its approach in general terms to any strategic interventions that it makes in commercial assets. Back in, I think, March this year, we published the business investment framework as part of the Scottish public finance manual.

That is a summary of some of the lessons and changes that have already been learned and made. I am sure that that is not the end of the process, not least because we will reflect on any recommendations that the committee makes in the fullness of time.

I preface my answer by stating an obvious point: I am not a shipbuilder, so I am not qualified in any way to talk about the technical requirements of ferries or any other vessels. That is the task of CMAL.

We should remember that these vessels are not the first, or the only, ferries that CMAL has procured. CMAL is a very well-established and experienced organisation when it comes to procuring vessels, and the experience there is exceptional. I certainly do not think that there is any suggestion—obviously, I am talking in general summary terms here—that CMAL did not do the sort of proper technical process for this procurement that it would do for any procurement.

The other point to make concerns Ferguson’s. It was under new ownership; perhaps there is a lesson there in terms of the confidence in the shipyard based on previous contracts—many vessels in the CalMac fleet were constructed at Ferguson’s—versus the experience under new ownership. CMAL went through a process, the contract was a standard industry contract and FMEL signed that contract. The management and ownership of FMEL were experienced businesspeople, and they signed the contract in full knowledge of what they were signing up to. They would have taken their own advice on that.

To go back to your question about whether there are lessons to be learned here, of course there are. In some of what I said in response to previous questions, I captured some of the changes that CMAL has already made: having a ship broker to provide assurances on yards that are bidding; having an independent panel member on vessel procurements; and using naval architects alongside its own in-house team on the technical assessment. Those changes certainly suggest that CMAL is very serious about learning lessons and strengthening the process around technical aspects of bids for the future.

I am sorry—what did you say there?