Chamber and committees

We considered the issue of the second loan. Obviously, all Government investment in private companies, whatever form that takes, has to satisfy state aid procurement rules and the national ethics and integrity policy rules, and there will often be a judgment that the Government can invest more only if the company is investing, in order to satisfy those various tests. There was an issue at the outset or in the early stages of consideration around the £30 million loan that, if the Government was able to do more, it would require Clyde Blowers to also invest more. I certainly recollect being clear that that position had to be made clear to Clyde Blowers.

If I fast forward to after we had made the decision on the second loan and reached the agreement with Clyde Blowers, to be frank, soon after that—I was involved at that time—I became concerned that it felt as if the ink was not even dry on the agreement and Clyde Blowers was not fulfilling the requirement on it as part of the agreement. In summary, that was to invest its own equity as well as drawing down the Scottish Government loan.

Towards the end of 2018, that was a significant concern. In my mind, it raised issues of a lack of good faith in the process, and at that point I gave officials an instruction that there should be no further drawdown by Clyde Blowers of that loan until we had resolved the issue of what I think was a breach of the loan conditions. There was then a process of doing that. There was a resolution of that issue and the loan was then drawn down, but behind that lay a concern, which I certainly had at that point, that we had entered an agreement in good faith but that that good faith was not necessarily being honoured at that point.

There is another point that may be worth making, which I will come on to in a second.

Like you and the committee, I am not an expert on shipbuilding contracts—although I know more about them than I might ever have wanted to, unfortunately, because of the situation—but my understanding is that the approach to the milestone payments, the negotiation about the particular structure and the process of triggering those payments are not unique to the contract. They are standard in shipbuilding contracts. If I am wrong on any aspect of that, others can give you a more expert opinion, but that is my understanding.

There might be a legitimate argument that that should change. As I have said, in a Scottish context, given our experience with the vessels in question, we should look at whether it should change. However, if that took the Scottish approach to contracts for shipbuilding, which is a global industry, out of the standard, I guess that there would be issues with that that would have to be considered as well.

The other point that it is important to make is about what happened as the milestones were reached. Going back to 8 October 2015, one of the mitigations that was put in place against the lack of a full builders refund guarantee was that CMAL took ownership of the vessel and the assets at each stage of the construction process. Therefore, as CMAL made payments, it took ownership of assets that were equivalent to those payments. As I understand it, that is how it works in such contracts, but it was the case that CMAL was getting value for those payments.

We all have responsibility and lessons to learn but, to be frank, I do not think that I have heard the people who owned FMEL talk about the lessons that they should be learning about this point. Clearly, the project management—the process of putting the vessels together—was not happening in the way that it should have done.

I will review matters. For example, as I have said, I have gone over the submission of 8 October, and the decision—many times, actually. I have tried to put myself in the shoes of the minister and to think whether, based on all the information, I would have taken the same decision. Based on all that information, I think that the decision—based on what was known—was, at the time, a reasonable decision to have taken. Based on what we know now, we of course wish that we had taken a different decision.

One of the things that I will reflect on, as I do regularly, is the expectation of and requirement on the organisation of the Scottish Government about when things should be brought to my attention.

To be fair to Derek Mackay, let me be clear that, had that submission of 8 October been brought to my attention, and based on everything that was in it, I am not saying that I would have reached a different decision. I do not think that I would have done. However, with hindsight, perhaps it should have been brought to my attention.

I will reflect on all those things. Again, I have looked at this many times—and again, it is all with the benefit of hindsight, but that is important, sometimes: should we have taken more quickly some of the decisions that ultimately led to nationalisation?

I will always look very critically, with hindsight, at the process of decision making and try to learn from it—not just in this case, but in every case.

I think that you have heard CMAL respond to that. It took procurement advice and it would not say that that was out of the ordinary as regards the procurement process. However, it is important that such issues are now properly and fully investigated by the Auditor General rather than by my coming to summary conclusions without allowing that process to be undertaken.

You will have read the 20 August 2015 submission. The timing of the announcement was to do with the tender timescale. In fact, the 20 August submission talks about—I am paraphrasing rather than quoting directly from it—getting close to the point where the tenders would expire. I think that there had already been a bit of an extension. The timing of the announcement was driven entirely by the timetable of the tender process.

There are two questions in there, and I will separate them. I had no awareness or knowledge that CMAL had concerns about the announcement. Obviously, I have heard the concerns that it has expressed in evidence to this committee, for example. However, I have reviewed the briefing that I had that day and, far from having a knowledge that CMAL was concerned about that, my briefing included a set of questions and answers that had been prepared by CMAL, and the list of people who were due to attend included the then chief executive of CMAL, so nothing would have given me any sense that CMAL was unhappy with any of that.

On whether that was an appropriate thing to do, I have probably covered that already. On Government announcements of preferred bidders and contracts, I am not sitting here saying that that happens with every single contract, but nor would it be correct that the announcement on this contract was somehow abnormal or unusual. I have referred to how, a few months later—it was me who did this—CalMac was announced as the preferred bidder for the ferry services contract. As I said, you can very easily find examples of other Governments on these islands doing similar things. It was not in any sense abnormal to announce a preferred bidder contract.

At that stage, no.

You are obviously talking about what came to the transport minister in the context of the 8 October decision about the final contract award, which is distinct from preferred bidder. As I said, I was not aware of that at that time. I am obviously now very aware of that and, as I said in my response to the convener’s questions earlier, have fully reviewed all the paperwork that was before Derek Mackay at that point.

I am very familiar with it, Mr Hoy.

I have seen the outcome of what I asked officials to do. I will certainly look to see whether that can be provided to the committee; I do not see why it could not.

I addressed that point in my opening remarks. As I have said before, I deeply regret the impact on island communities. The seriousness with which we take issues of connectivity to our islands, of which ferries are the critical part, is reflected in our overall ferries plan, in recent decisions that we have taken on the procurement of additional vessels and in our determination, notwithstanding the deep regret that we feel, to complete those ferries and ensure that all lessons are learned. That is very clear in my mind and I hope that it is clear from the Government overall.

Craig Hoy made a number of comments in his question to me. I would refute many of them, but clearly I am not able—and nor would I try—to refute the fact that this contract was not delivered in the way that we would have expected and wanted, nor has it come close to that. We can get into the issues of why that is the case. However, that does not lead inevitably to a conclusion that the procurement process was any of the ways that Craig Hoy has chosen to describe it.

Allegations have been made about the procurement process. Craig Hoy mentioned the BBC documentary. To be clear, ministers and I are not aware of impropriety in the procurement process. However, the allegations in the BBC “Disclosure” programme are serious and need to be properly investigated. When those allegations were reported, I asked the permanent secretary to proactively contact the Auditor General. Of course, the Auditor General has since said that he is looking at those allegations.

I can go through my understanding of each of them. The term “cheat sheet” that Craig Hoy used relates, I think, to the statement of operational and technical requirements that it has been alleged that Ferguson’s had. CMAL has been very clear that, to the best of its knowledge, it did not come from CMAL. In fact, I do not even think that the BBC alleged that; the BBC was clear in its programme that some design consultant that Ferguson’s commissioned was probably the source of it.

There are serious issues here. However, knowing how serious this committee is, I hope that it will not prejudge its outcome and that it looks at all of those things. The experience with the contract is clearly not acceptable, but it is important, if we are to genuinely learn lessons, that we do not come to summary judgments in the way that Craig Hoy’s question would suggest. Instead, we need to go through all these things rigorously and systematically and try, as best we can, to get to where the failings actually were, in order that we can learn the right lessons.