 I welcome everyone to this, the 26th meeting of the Public Audit Committee in 2022. The first item on our agenda is for committee members to agree to take agenda item 3 in private. Are we all agreed? We are agreed. Thank you. The principle item on our agenda is consideration of the section 23 report prepared in March this year by the Auditor General for Scotland. newies for the Clyde and Hebrides arrangements to deliver vessels 801 and 802. Can I welcome our witness this morning, the right honourable Nicola Sturgeon, First Minister? We've obviously got a number of questions to put to you, but could you perhaps start us by making a short opening statement? Thank you very much, convener and committee members. I'll be very brief in my opening statement because I'm keen, as I'm sure you are, to leave most of the time for questions, but let me firstly thank you for the opportunity to be here and speak with you this morning. Obviously many of the matters we will discuss today have been covered in previous evidence sessions that the committee has undertaken. Some of the matters will already be in the public domain, including, for example, in the information that has been proactively published by the Scottish Government. So I'm happy to go over any of that, confirm the evidence that you already have, or provide whatever further clarity on the matters that the committee is seeking. I think that it's important to say at the outset that I am acutely aware that the delay in vessels 801 and 802 is having a very significant impact on island communities. That is a matter of considerable regret and I absolutely recognise that the decisions around the procurement of those vessels and the progress or lack of progress on those vessels since and the Scottish Government's broader support for ferry and shipyards are areas of very significant interest and concern. The issues here are obviously complex. I don't need to tell the committee that and they span a period of several years. I would take the opportunity to record my thanks to Audit Scotland for the work that it did in preparing the report that has of course led to the committee's inquiry. That has been, I think, an important part of this scrutiny process. To be clear, the Scottish Government accepts all of the recommendations in the Audit Scotland report. Of course, we also accept unreservedly that the outcome in relation to those vessels is not what anyone, including the Scottish Government, would have expected at the point of contract award. It is, of course, inevitable and I think that it is understandable that decisions taken at different points, contract award and thereafter, are now seen through the prism of what has developed since. I understand that, however, in seeking to make judgments or to set out the basis of decisions taken, it is important to consider what was before ministers at particular points. I will seek to provide as much insight into that as I can. Obviously, I am happy to address concerns around the announcement of FML as the preferred bidder, the subsequent award of the contracts, the issues around the builders refund guarantee, milestone payments dispute resolution process, and I am also happy to address issues around the loan payments made by the Scottish Government and the progress of the vessel since the yard came into public ownership. Obviously, that is still a live project, regrettably so, and the Scottish Government remains absolutely committed to delivering both ferries and supporting our island communities that rely so heavily on vessels of this type on a daily basis. I will stop there, convener, and, as I say, I am happy to get into any of those issues or, indeed, any other issues that the committee wants to explore with me. Thank you very much indeed. Before I bring the committee in, there are just a couple of points of clarification that I would like to seek. First of all, if I take you to the Scottish Ministerial Code, in your foreword to that, you say that it is essential to set and maintain the highest standards of propriety and openness for Government ministers. Do you think that Keith Brown's response to this committee on the 18th of October meets those standards? Yes. Sorry, is it the letter? I understand that there is a typo in that letter in terms of a particular date on which the committee will be getting a written clarification on, but, subject to that, yes, I do think that it meets those standards. Do you think that he answers the questions that the committee put to him? Yes, I do. If there are any points beyond those answers that the committee wants to explore, that is obviously why I am here today. The three questions were responded in answers that constituted 150 words. Last time I wrote to Keith Brown on two subjects, one subject, the fatal accident inquiry and Alan Marshall, he responded in a thousand words. When I wrote to him about the minor strike pardon bill, he responded in 866 words. Do you really think that a reply that is constituted of just 150 words is a satisfactory response to the serious inquiry being carried out by the Parliament? Firstly, I believe and am of the view that Keith Brown answered the questions put to him by the committee. Secondly, and perhaps more substantively for the purposes of today, I am the First Minister. I am here to answer any questions and the committee has me for as long as the committee wants this morning. I am not sure anybody is going to do a word count on either the questions or the answers, but I am here to answer to the best of my ability any questions that the committee has. I do not know if the committee has invited Mr Brown to give evidence in the way that I am doing today if the committee is perfectly free to do so, but I am here today as the head of the Scottish Government to answer any questions that you have put to me. The committee will consider what its next steps are after today, but let me move on to something else. Another response that we got recently—in fact, it was just last week and therefore arrived a week late—was from Transport Scotland. In the covering letter, Michelle Quinn, the chief executive officer of Transport Scotland, said that the organisation had a commitment to absolute transparency, but the correspondence that they shared with us was an incomplete, censored version of Derek Mackay's letter of the 2 February 2015 to Stuart McMillan. It wasn't even redacted, it was cut to mislead, I don't know, but do you think that that's an acceptable way for a Government organisation to act? As it happens, I raised that particular issue last night as I was reading documents in preparation for today. That has been an error, but the letter in full, as I think can be substantiated from this committee's website, is there published in full. The formatting of the letter that was sent by Transport Scotland omitted, in the way that it was formatted, a couple of paragraphs. I noticed that last night, so I'm not surprised that the committee has noticed it as well. I have the full letter here in front of me, the committee has the full letter, and I'm happy to answer questions on the entirety of the letter. I don't believe that there was any intention to mislead, not least because it would have been very obvious to anybody who had any knowledge of this, so I think that taking all of that into account, I am satisfied that that has been an inadvertent formatting error, but it doesn't change the fact that the full information is before the committee. Well, it may be an inadvertent formatting error, but it excluded the two most significant paragraphs in that letter. Let me turn to another point. The fact that you know that underlines the point that I'm making, the full letter is on your committee website, and therefore the idea that somehow that would have pulled the wool over anybody's eyes is, I think, stretching credibility. But we asked Transport Scotland to disclose that letter, that correspondence, and they gave us a version, which wasn't even redacted, but it was severely edited. As I said, I noticed that last night. You have noticed it. I have asked the question of Transport Scotland, how did that happen, and I believe that that was an error. The fact of the matter is that we all have the full letter. I'm very happy, actually, because I think that that letter has been, in many respects, the tone and the tenor and the content of that letter has been misrepresented to be perfectly frank, so I'm happy to, very happy, indeed, to go into as much detail as you want about every single paragraph of that letter. Okay, but we've only got that letter because it was provided to us by Stuart McMillan. Can I ask another question of you, which is around this issue of transparency? When we took evidence from Audit Scotland back in April, Gill Miller said to us, we asked Transport Scotland and the Scottish Government for all documentation relating to the minister's decision, but we did not receive any. Do you think that that is in keeping with the standard that you set out in the forward to the ministerial court? I'm not going to quote directly from the Audit Scotland report. I have it here, but I don't have it open in front of me, but I certainly have read comments, I think, of Audit Scotland before your committee. If not in the report, then certainly around the report that they felt that they had full co-operation from the Scottish Government and hadn't been obstructed or had any relevant information withheld. Obviously, I'm paraphrasing there, I'm not quoting directly. There was the particular issue of the response of the minister at the time, Derek Mackay, to the submission of 8 October 2015, which was the submission that led to the final award of the contract. In Audit Scotland, understandably, it raised concerns about the fact that they had not seen and, in fact, for a period we thought that that didn't exist. It was then uncovered and has been published. If it's not on your website, then it's certainly on the Scottish Government's website. If that is what you're referring to, I think that there has been much said about that and, understandably, so. As you would expect, I have reviewed all the information that the Scottish Government has published. I have reviewed that on more than one occasion now. There is a wealth of material documents in terms of Scottish Government decision making and the wider issues around that that has been provided by the Scottish Government. If there is information that anybody, particularly the committee, believes that it has not been published and should be published, then, if that is put to me today or subsequent to this, I will certainly give best endeavours to making sure that anything further that we can helpfully provide is provided. I will absolutely give an assurance that I'm here today to answer any and all questions put to me. If there are any I can not answer today, I will endeavour and assure you of coming back to you. There is an absolute determination and commitment on the part of me and my Government to be open, to be transparent, to ensure that the issues around this are fully open to scrutiny, but also that we are able to demonstrate the lessons that are being learned from all of the experience around this over the past few years. Thank you and I appreciate your undertaking to listen to any requests that we've got for further information to be put in the public domain. You mentioned the missing documents and so on, but I mean the position of Audit Scotland remains clear. They say that the email that was unearthed that covers the exchange on the 8th and 9th of October 2015 confirms that ministers approved the award of the FML contract, but Audit Scotland's position is that there remains insufficient documentary evidence to explain why the decision was made to proceed with the contract, given the significant risks and concerns raised by CML. I obviously respect that that is Audit Scotland's view further. I understand why Audit Scotland has that view. Respectfully, as a minister of many years now—that's the First Minister now—who regularly takes decisions and communicates those decisions and has those decisions recorded, I take a different view of that. I have reviewed that I wasn't party to the material of the 8th of October 2015 at the time. That doesn't mean that I don't take every decision in the Scottish Government. I am ultimately accountable for every decision that the Scottish Government takes, but I have reviewed all of that, as I say, on several occasions in recent times and asked myself if I think that both the decision was a reasonable one at the time, based on what ministers knew at the time. Of course, if you look through the prism of what we now know, of course, everybody would take a different view of that, but, based on what ministers knew at the time, I have assessed in my own mind whether that decision was reasonable and also the recording of that decision. Very often, when ministers are presented with a submission seeking a decision from minister and it lays out all the basis on which that decision would be taken, the minister will simply approve on the basis of what is in the submission. He will not necessarily repeat all of the reasons and the basis for that decision. Often, the lengthiest responses that a minister will give to a submission are where they are not agreeing with the basis of what they have been asked to do and they are taking a different decision and therefore they will record the reasons for that, or if they are taking a decision but on a different basis to what is set out. The eighth of October submission sets out very clearly the risks of the decision. The basis of the semial concerns has a note from the semial chief executive. It has attached to it an earlier email from the chair at the time of semial, but it also sets out very clearly the mitigations that had been negotiated with FML around the builders refund guarantee in particular and it sets out and, indeed, it attaches to the submission the drafts of the voted loan letter and a separate letter from Government to semial with assurances for semials. It sets out clearly the basis on which that decision could be taken. It also has, within it, references to the fact that this was, in semials opinion, notwithstanding their concern, the best deal that could have been negotiated with FML. It has opinions around the fact, and those are opinions from semial executives that some of those issues they may have encountered with any bidder. Taking all of that into account, there is a basis for that decision and in approving it, the minister approving it, is effectively saying that they are taking that decision on the basis of all the material that has been set out. The view of Audit Scotland is that there is insufficient documentary evidence and paragraph 5.1.9 of the Scottish Public Finance manual spells out the kind of recording that there needs to be of those decisions. My final question to you at this point before I hand over to the deputy convener is that you mentioned there that you had no involvement in the decisions around the 8th and 9th of October 2015, but your senior special adviser, Alexander Anderson, was copied into all of those emails? All special advisers in the Scottish Government are designated as advisers to the First Minister, but they work to individual ministers in individual portfolio areas. Every special adviser is described as an adviser to the First Minister. That does not mean that every adviser who is copied into a submission, because they are an adviser to the First Minister, is coming to me. You can see in all of the submissions that have been published by the Scottish Government very clearly which ones have been copied to me and which ones have not been copied to me. The 8th of October was not copied to me. In order to answer the questions as fully as possible, I will at times say that I was not party to that decision. I was involved or notified of that decision. None of that is me trying to step away from my responsibility as First Minister. I should be pretty obvious to everybody. I could never personally take every decision that the Scottish Government reaches. That does not change the fact that, as First Minister, I am ultimately accountable for every decision that the Scottish Government takes. Are you saying that your senior special adviser did not report back to you about those conversations? That is exactly what I am saying. On the record, you are saying that. That is what I am saying, that I was not involved personally in that decision. Lisa, were you advised about the 20th of August email to Keith Brown about the law of the contract? Not on the 20th of August, as I am sure we will come on to. In advance of the announcement of the 20th of August is the decision on FML being the preferred bidder, which was taken by Keith Brown. I know that you have gone through all of that with Derek Mackay. Derek Mackay was on holiday at the time, which is why Keith Brown took that decision. I was not party to that decision. Some days later, although ahead of the announcement of the preferred bidder, I was briefed as part of the run-up to that. We were told that it would be one day later. I am going to bring in Sharon Dowie, who has some questions on that announcement. Going back to the announcement of the preferred bidder, can you tell us why it was you who personally announced FML as a preferred bidder for the contract and whether that is something that you would normally do? Let me try and break that question down a little bit into is it normal for decisions on preferred bidders and contracts to be publicly announced? Then I will come on to why me and whether it is something that I would normally do. On whether it is normal to announce a preferred bidder, it is certainly not abnormal. Often, at the point at which a preferred bidder has been announced, if you think about it, the successful bidder, the preferred bidder has been notified, the unsuccessful bidders are being notified, there is always a possibility at that point that things will leak into the public domain anyway, so there is often a decision taken to announce preferred bidder. I could find you examples of other Governments doing exactly the same. The UK Government on train contract, the Welsh Government a couple of years ago on a major roads contract. Just as it happens, a few months after this announcement, I announced, and this I suppose takes to your question, is it something I would normally do, I announced that, I think in May 2016 of memory serves me correctly, I announced that CalMac was the preferred bidder for the Clyde and Hebrides ferry services contract, nothing to do with Ferguson's obviously in the broader ferry space, but that was the contract for the operator in the ferry service, so I announced the preferred bidder of that, so that would suggest to you that it is not completely unknown for preferred bidders to be announced or indeed for me to do it. Finally, in terms of why did I do it as opposed to a Minister, in any Government decision leading to an announcement, there will be a consideration within Government, it will involve special advisers, communications officials about should this be something that the First Minister does and that is how the media diary of the First Minister is determined and often I'll get suggestions, there's an announcement coming up and the proposal is that you do it, that's what would have happened here. Who took the decision to make the announcement in August? If you read, as I have now done, the 20th of August submission to Keith Brown seeking approval for the preferred bidder, again if memory serves me correctly, I think you see in that submission that it was always intended that it would be publicly announced, I think the suggestion in that submission is that it would be the transport minister who did it, so at some point after that in the course of that process that will go on literally every day in Government looking at the announcements that are coming up and judgments being made about whether the profile of the announcement, the subject matter of the announcement, the importance of the announcement means that it should be a minister or that it should be a First Ministerial announcement and that will have emerged as a result of a consideration that special advisers, communications officials do that will have come to me to say there's a proposal that you should make this announcement and I'll have said yes, I'll do that. I assume, well ultimately, I don't end up at places making announcements unless I have agreed to do it, so it won't have been if it is the way these things happen, it will have come to me as a proposal that because of the nature of this announcement it would be appropriate for me to do it and I will have agreed, obviously, you know, I think it is common sense to say I must have agreed to that because otherwise I wouldn't have been there making the announcement. So did you instigate that? Did somebody come, did a transport official, a minister? In the normal, so I, I, this is several years ago so I'm not going to say that I can tell you exactly the sequence of events there from memory but in the normal course of events and I have no reason to believe that it would have been different here. It is unlikely that I will have instigated it because I wouldn't necessarily have had knowledge that it was coming up on the date that it was. It will have come to me as a proposal and these kind of proposals come to me regularly. The government makes announcements, if not every day, the government makes announcements regularly several times a week and in all of these there will be a process of judgment about who's the right person to make that announcement and when the judgment is that that should be me, that will come to me in a proposal and I am pretty certain that that's what would have happened here. So I'll just keep this in short but would it normally, an announcement like that would have came through a cabinet secretary, a minister, would it be transport Scotland who would normally come to you and give you the proposal, would it be a special advisor? On a public announcement that would be a media event, that would be a communication special advisor sort of proposal that would come to me in that sense. Again, I'm telling you things here that I guess most people already know. As every government does, I'm pretty sure it's exactly the same process with prime ministerial announcements. You have a look ahead to things that are coming up over the next few weeks and the communications teams with special advisor input will decide, you know, here's an announcement that's coming up, this might be one for the first minister to do so. I don't recall whether this would have been the case on this particular announcement but I'll often have a look ahead with suggestions of media announcements that I will do over the next two or three weeks for example. That's okay. Can you tell us why the decision was made? Just saying you look ahead for things. Was there a reason why it was to be announced in August? That was in line with the timing of the announcement. Again, you'll have read the submissions on 20 August. The timing of the announcement was to do with the tender timescale. In fact, the 20 August submission talks about reaching the point, again I'm paraphrasing, rather than quoting directly from it. It talks about getting close to the point where the tenders would expire. There had already, I think, been a bit of an extension to that, so that was the timing of the announcement. It was driven entirely by the timetable of the tender process. Were you aware at the time that the negotiations were still going on with CML? Firstly, obviously negotiations, that's the nature of preferred bidder status versus final contract award. By definition, that means that the final contract award decision hasn't been taken and there are negotiations still on going. I would have known that in general terms, but I've reviewed the briefing that I got for that event. It rightly says in that briefing, but I would have assumed this anyway, that there were still significant negotiations to be concluded before final contract award. There is a reference, although it is not flagged up in that briefing, is a particular issue of concern, but there is a very clear reference to the on-going negotiations, including issues around the complexities around the level of guarantee that FML would provide. Before I did the announcement of the preferred bidder on 31 August, of course I knew that it wasn't a concluded negotiation because it was still a preferred bidder stage of the process. Were you aware, before you did the announcement, that there were issues with the Bill to Sheep and Guarantee? In the terms, I've just told you that there was a reference, a couple of lines in the briefing, as part of the telling me again, which was a self-evident point that negotiations weren't concluded, that there was a reference to the negotiations that were still under way included complexities around the level of guarantee. To be clear, it didn't say, and this is a matter of really big concern. It just said that that was one of the things that was still being negotiated. When did you first become aware of the issues with the Bill to Sheep and Guarantee visit that week? It would have been in terms of what that briefing told me, but I don't even think the words, the Bill to Sheep and Guarantee, I'd have to go back and double check, but I don't even think that term was used. This is preferred bidder. To be clear, there are still negotiations on going and those negotiations include complexities around the level of guarantee that FML, but it was couched very much as this is one of the things that we're still talking about to finalise, not as a big red flag, this was going to be a big, big problem. Were you aware, Seymal had strong objections to the high-profile announcement of the preferred bidder? Do you think that it was inappropriate given the contract negotiations were still under way that you actually done the announcement? Again, there are two questions in there. Let me separate them. I had no awareness or knowledge that Seymal had concerns about the announcement of that. I've obviously heard the concerns that they have expressed in evidence to this committee, for example, but again, I've reviewed the briefing that I had that day, far from having a knowledge that Seymal was concerned about that. My briefing includes a Q&A that had been prepared by Seymal. The list of people that were due to attend included the then chief executive of Seymal, so there was nothing there that would have given me any sense that Seymal were unhappy about that. Was it an appropriate thing to do? I think that I've probably covered that already. Government announcements of preferred bidders in contracts. I'm not sitting here saying that it happens on every single contract, but nor would it be correct to say that the announcement in this contract was somehow abnormal or unusual. I've referenced it a few months later and it was me that did it. The announcement of CalMac is the preferred bidder for the ferry services contract. As I say, you can very easily find examples of other Governments on these islands doing similar, so it was not in any sense an abnormal thing to do to announce a preferred bidder contract. Were you aware that the Seymal board wanted to stop the procurement process? Not at that point, no. You're obviously moving on now to any point that you didn't tell me what you were referring to there. At that stage, no. Obviously, you are talking then about what came to the Transport Minister in the context of the 8th of October decision about final contract award, that's distinct from preferred bidder. As I've said, I wasn't aware of that at that time. I'm obviously now very aware of that and have reviewed, as I said, in response to the convener's questions earlier on, have fully reviewed all of the paperwork that was before Derek Mackay at that point. Morag McNeill from Seymal said that they became aware that FML could not provide a guarantee in the 21st of August 2015, and the preferred option was to go back to the tendering process. On the 25th of August at the Seymal board meeting, Transport Scotland was clear that the announcement was going ahead. When asked if Seymal was happy to go forward, she said, our preference was to retender. We were authorised by our shareholder to proceed, that was an instruction to proceed. Was there an interest from the Scottish Government to award the contract to AFML? Was it a kind of jobs for the boys? There's obviously been talk of the relationship between the Scottish Government and Jim McAll, so was there an interest from the Scottish Government to award the contract? You've used a rather pejorative term that, just for the avoidance of doubt and for the record, I completely and utterly refute. Is there an interest on the part of any Government? I would imagine what I'm about to say, and I'm talking in general terms here, I'll come on to the specific in a second. I would imagine what I'm about to say is shared by every politician around this table. Is it the case that ministers' politicians generally often were challenged on these points by opposition politicians that, assuming that it's all done by the book, you're quite happy to see contracts go to Scottish companies and therefore support Scottish jobs? I'm pretty sure that every politician around this table would say, yeah, of course that is ideally what we want to see providing, it is all done appropriately. So if that's what you mean by interest, from your later comments, it's obviously not what you mean by interest, if you are saying, was there anything untoward in this procurement process in order to somehow, inappropriately steer this contract towards FML? Absolutely, categorically not. In fact, you don't just have to take my word for that. Kevin Hobbs, the now chief executive of CMAL, I think, I don't think it was an evidence to your committee, I think it was an evidence to the previous WREC committee inquiry himself, and I think I'm using the term used in that committee's report categorically denied that there had been any pressure put on CMAL by the Scottish Government around the award of this contract. The contract was awarded purely on the assessment that CMAL did of the tender, the bid that FML had submitted, so absolutely categorically no is the answer to your question, in the way I think your question is intended. Is the fact that there's so many red flags in advance of the announcement being made and then the contract being issued and they all seem to have been ignored, and I don't know whether it's your... I've not seen your briefings, so I don't know whether you've not been briefed enough, but on it, Derek Mackay said, when I asked whether you're concerned about the lack of a full builders refund guarantee, of course I was concerned because the paper gave reason to be concerned. Eric Wastergard in the 26th of September said, I newly established shipyard with no track record at all of building ferries of this size is an unsecured risk. The board had written a letter, the board feel it is their absolute duty to point out the risks to their shareholder, and that respect would expect approval should Scottish Government wish the project to proceed and to receive direction to that effect. There are lots of red flags up here, but it still seems that the contract went through. What point are you asking me about in terms of my involvement? Just to be specific, because I want to be clear, I answered many questions specifically. How much knowledge did you have? I think a briefings before you've done the announcement, and did that announcement make it harder for you to then go in and stop the contract? Because it would seem that CMA's preference was to stop the tender and process, but you still went ahead with the contract. Well, let me unpack all of that a little bit. I've told you what had been advised to me ahead of the preferred bidder announcement on 31 August, and that was a briefing to the effect. As I said earlier on, that would have been obvious, given the preferred bidder stage that we were at. The negotiations hadn't concluded, there were ongoing negotiations, there were significant negotiations still to be undertaken and concluded, and those included, I think, were wording to the effect of complexities around the level of guarantee that FML can provide. I would absolutely refute the suggestion that the way that was presented to me was in a red flag way. It was information that I would have thought at that time was obvious, because we were at a preferred bidder, not a final contract award stage. In terms of later on, when it came to the final contract award, everything that you've read out there comes from a combination of the 8 October submission to Derek Mackay, the email that was included with that submission from Eric Ostergaard, which I think from memory is dated 26 September, the semial note, and that gets to, and that, as I said, that was not copied to me at the time, that was to Derek Mackay who took the decision, I don't think there's any dubiety from anybody, including Derek Mackay, that that was a decision he took at that time. All of that, so the concerns from semial were set out there and to be absolutely fair to semial, they set those concerns out, they also set out the mitigations that had been achieved to a lay concern. It didn't completely satisfy semial's concerns on their own and I'll come on to the later bit in a moment, but the mitigations, so changing the final payment to 25 per cent of the contract price, the 25 per cent builders refund guarantee, the fact that the semial took ownership of the assets and the vessels as they progressed at each stage of the process, so those were the mitigations that had been agreed in order to lay to some extent the concerns about the lack of a full builders refund guarantee, and then on top of that, and this is seen in the paperwork in the voted loan letter and the separate letter that goes to semial from Scottish ministers about the fact that semial would only have to start repaying the loan when the vessels were complete and should there be additional costs ministers would look favourably on that at the time, that package was what enabled semial to sign the contract and the other point I think it's important to make about the 8th of October documentation is it does talk about the fact that and this is from semial that they felt that with all of that it was the best deal that they could negotiate with FML and that some of these issues, so absolutely Eric Ostergaard's email says that their preference was to cancel the contract but there's also the opinion expressed by semial executives in that paperwork that some of these issues they would possibly encounter with other bidders as well. There's references to the fact that the agreements reached brought the whole tender broadly into line with the tender requirements so that's what a minister is looking at in the entirety and coming to a judgment are the mitigations sufficient because every decision has a balance of risk are they sufficient to allow this decision to be taken and is there a better outcome here that is guaranteed if we go down another route and comes to a balanced decision. The 8th of October is not asking for a ministerial decision to cancel the contract it is asking for a ministerial decision if the minister is content to proceed so all of that was and you've heard this from Derek Mackay himself was considered and when he says yes I had a concern of course there was a concern there wasn't a full builders refund guarantee he's expressed that but the mitigations enabled gave the assurance at that point that sufficient had been done to allow the contract award to proceed. I appreciate what you're saying about the mitigations given the best contract for FMAIL but I think CMAIL would still have preferred to cancel the contract it's been described as a systematic failure in government to record crucial information and there is a lot of lack of accountability so the people suffering here are islanders so what lessons have been learned and what actions have you taken from this what lessons have been learned from this to ensure this kind of fiasco doesn't happen again. In terms of the issue around the recording of that decision I absolutely accept Audit Scotland's view of that and we will reflect on that and look at the views of Audit Scotland there and in terms of any lessons that should be learned about the recording of decisions. I'd make two points about that what has happened with the construction of these vessels didn't happen because a decision was not recorded in a particular format it's happened for a variety of reasons that no doubt we'll come on to talk about but I think it's important to to recognise that secondly had there been a fuller response from Derek Mackay and I'm just saying this from my now fairly lengthy experience of of government what it would have done would have been just to repeat the what was in the submission as the basis for the decision so the shorthand is I approve it and the implication is that it's approved on the basis of all of the mitigations that are set out in there as I say the often the lengthier responses a minister gives are where a minister is going against what is in a submission so yes we will of course reflect on the but I don't think we should I don't think the committee and I'm sure the committee doesn't need me to give it advice on any aspect of its inquiry but I think it would be just fundamentally wrong to say that because a decision was recorded in shorthand as opposed to repeating verbatim what had been in the submission that that is somehow the cause of what has happened since. In terms of lessons learned I mean this will obviously be an ongoing process as we complete the vessels and I am absolutely determined that the government properly and fully learns all lessons that are appropriate here and let me say the report of the committee out of this investigation whenever I don't know what stage the committee's at in its considerations or when we might get a report but we will properly feed that into the lessons learned process as well but in terms of and I can write to the committee in more detail in the interest of time if you want but SEMAL have already made changes to its procurement processes confirming that they will out require a full builders refund guarantee in future for major vessel contracts enhancing the financial due diligence that they do on all contracts over £500,000 using a ship broker to provide assurances on the the yards that are bidding for vessels having an independent panel member on vessel procurements using naval architects to work alongside their in-house team on technical assessments. Transport Scotland have already made considerable changes to governance around vessel procurement changes to the accountable officer template for example changes to the scrutiny and sign-off of vessel and port projects so for example Transport Scotland's investment decision making board is now involved in that process which wasn't the case when these contracts were awarded. Scottish Government has also strengthened our approach in general terms to any strategic interventions we are making in commercial assets back in I think March this year we published the business investment framework as part of the Scottish public finance manual so that's just a summary of some of the lessons and changes that have already been made I'm sure that that is not the end of that process not least because we will reflect on any recommendations that this committee makes in the fullness of time. Sorry we are we are up against the clock a little bit so and I'm going to bring in Willie Coffey but just to reflect on those exchanges First Minister are you prepared to put on the record that communications briefing which she received regarding the 31st of august announcement and any related emails or correspondence regarding that I'm yeah I see no reason why not just as not to go back on the commitment I gave earlier on but just for the record since you're asking me what everything I say here is on the record so that's understood but you know as you know there is a requirement for the government to assess anything it puts in the public domain to make sure that legally privileged information or commercially confidential information is being treated appropriately so with that caveat about the process we need to go through there I see no reason certainly I've been paraphrasing although paraphrasing I think pretty closely to what was in the briefing in terms of that advice that was given to me about the on-going negotiations I'd certainly see no reason why I can't provide that to the committee thank you I'm now going to bring in Willie Coffey Willie thank you very much good morning First Minister it was maybe a little bit early to come in on lessons learned but I was hoping to pick up on a point that was raised there and you gave some information on them one of the early messages we got on this project was about the lack of technical rigor being applied at the outset to determine the yards capabilities in terms of its facilities and so on to build the ships and also the workforces skills and expertise to build the designs that were presented to them for example they've got clamshell door designs and we heard from the workers that they'd never built ships to that design before now I realise you can possibly be aware of the details of that at that stage but can you say something about the importance of technical design rigor and thorough assessment of technical capabilities at the outset of a project like this and is that one of those key lessons that we're learning from this? I mean I'll preface my answer here by stating an obvious point I am not a shipbuilder I am not qualified in any way to talk here about the technical requirements of ferries or any other vessels that is the task of SEMALE I think you know remember that SEMALE these are not the first or only ferries that SEMALE have procured SEMALE is a very well established and experienced organisation when it comes to procuring vessels and you know the experience here is exceptional so I think you know I would certainly say that I don't think there's any suggestion and obviously I'm talking in general somebody terms here to suggest that SEMALE did not do a proper technical process in this procurement as it would do in any procurement I think the other point to make is that Ferguson's while it was under new ownership and perhaps there is a lesson there in terms of the the the confidence in the shipyard based on previous contracts and you know many of the CalMac fleet were constructed at Ferguson's versus the experience of the new ownership of of Ferguson's so I don't think I don't think SEMALE you know SEMALE did a process here and the contract that was used was a standard industry contract and an FML signed that contract and you know the management and ownership of FML were experienced business people they signed that contract and full knowledge of what they were signing up to they would have taken their own advice on that but to go to your question is there lessons to be learned here of course there is and some of what I said in previous questions there I think are captured by some of the the changes that SEMALE has already already made you know the having a a ship broker to provide assurances on on yards that are bidding having independent panel member on vessel procurements and using naval architects alongside their own in-house team on the technical assessment so I think those changes would certainly suggest that SEMALE are very serious about learning lessons and strengthening the process around technical aspects of bids for the future and following just following on from that one of the other messages we heard first minister was that the design seemed to chop in change from time to time during and after the build had started and that presented the workforce with significant problems and probably still is to be honest is that something that on reflection we would also consider that we really need to insist and strengthen agreement about design before we start building mean that can apply to anything to a ship to a house to a bridge even that we mustn't engage in a redesign process as we're actually building the thing we're trying to build I'm again caveat this by I am not a technical expert on how you design and build ferries I'm I'm not sure maybe it feels as if all of you have become technical experts on this but none of us are but what was used here was a standard ship building contract so there was not a different take aside the builders refund guarantee issue this was a standard approach that can't that seem I'll sorry has used in other procurements that organizations or governments procuring vessels across the world will use this bimco standard contract and a key point here is that that standard contract puts the obligation for design and construction firmly on the shipbuilder and the contract contains provisions within it in relation to modification and change to the contract specification the standard in shipbuilding contracts is that the tender design requirements set out by the client is then developed by the bidder into a concept design as part of its tender and then following contract award it's developed into a basic design and finally the detailed design all of that was accepted by fml when it tendered for and then entered into these contracts so so that is as I understand it now absolutely standard in the approach to to building ferries it is the responsibility of the shipbuilder to satisfy itself that design is at an appropriate stage to then commence work and you've heard directly from cmal on this point that it was the decision of fml not a decision of cmal to not wait until the design was finalized before they started the construction in fact i think cmal used the term that they opted instead to build at risk so that you know that the putting in the tender the agreeing the contract on the basis of the tender and all those standard provisions you know fml did that knowingly that they were taking on that responsibility um they didn't raise these issues that have since been raised retrospectively certainly not to my knowledge did they raise these issues at the time of the contract process so you know i are there lessons to be learned of course but i don't i've not seen anything that would suggest that what was done here in terms of the procurement and the design arrangements was different to what it would have been in the contracts that don't run into these problems fml took on contracted to do a job that that job has not yet been done it did that presumably i can't speak to what advice fml took but presumably it took its own technical and legal and other advice before before signing that contract with all of the obligations that came with the contract thanks for that for the moment thanks willy and i'll endeavor to bring you back in again at some point but i'm going to now turn to craig hoy who's got some questions to put craig thank you good morning first minister thanks for coming before we get into the detail i just want to seek some reassurance about the nature of the evidence you're going to give today you are intending to answer transparently and truthfully your memory won't fail you and you won't need to come back under the cover of darkness and correct the official report you might want to expand on what you mean if all evidence i give before a committee is as transparent as i can be i'm trying to be very clear with the committee about the decisions that i'm speaking about that i had knowledge of at the time versus those that i now have knowledge of it wasn't parent so i'm being as open and transparent with the committee as possible it's for the committee to decide after i give evidence if there are points of clarification that it wants to address so you know i think it's i can't determine what questions the committee asks me that's for you i will answer to the best of my ability on all of them and i think i would hope that that has been your experience so far in this evidence session okay just not just on that question of transparency and on the government's engagement you said that the eighth of october submission was very clearly set setting out the issues highlighted by seamal but when that was then released the email thread that was attached to it some fundamental elements were redacted including the likelihood of the threat of a legal challenge that decision is that the kind of transparency that your government believes in look the committee particularly this committee i think public audit committee knows full well the i've referred to issues that any government not just this government will have with the release of information that is legally privileged or information that is commercially confidential and that process will have been applied has been applied to the information that has been released if there is any piece of information document that you feel exists that you don't have and you want to put that to me i will endeavour to consider whether that is able to be made available but these these processes apply and you know any government does that and that is i think well known okay let's sort of take a helicopter review just this whole issue at the moment um we have a dodgy procurement process described by seamal that's a with the greatest of respect i think that is uh a pejorative term that i would say we have a contract that hasn't been delivered the way it should have been done that is a very different thing to using the term in a previous just as i have a duty to be open and transparent i also think the committee probably is a duty not to indulge in in shorthand like that it's not been evidenced i had tidied up a bit previous i used the word fishy but when i put that to seamal they said that they wouldn't comment on that word but they said it was not normal so let's let's use the word not normal the contract was then awarded to a well known supporter of independence a close friend of your party there was the lack of the standard borders refund guarantee that key tender documents were were resubmitted after the submission deadline there was the presence of this cheat sheet that the bbc identified there was a decision to award the contract sorry what did you say that a cheat sheet i don't i don't recognize that i don't know what you're referring to okay well it was it was it was a guide as to how to meet the the submission criteria and it was it was referred to the bbc documentary there was obviously the decision taken to proceed against the advice of seamal there was then the risky and very risky and uncosted nationalisation and now we have two ferries which are half a decade overdue and a half 150 million pounds over budget and all the while as you identified at the opening our island communities are paying the price this is a monumental scandal first minister and it happened on your watch so what do you say to those islanders today it surely has to be more than sorry well i've addressed that point in my opening remarks i've said it before i deeply regret the impact on island communities the seriousness with which we take issues of connectivity to our islands and ferries are the critical part of that is reflected in our overall ferries plan it's reflected in recent decisions we've taken about the procurement of of additional vessels and it is reflected on in our determination notwithstanding the deep regret we feel to complete these ferries and ensure that all lessons are learned and you know that is a very very clear in my mind and i hope it is clear from the government overall look you've made a number of of comments in your question to me and you know i would refute many of them i don't refute at all i'm not clearly not able to nor would i try to refute the the fact that this contract was not delivered in the way that we would have expected and wanted nor was did it come has it come close to that and there are a number of issues we can get into the the issues of why that is the case that does not lead inevitably to a conclusion that the procurement process was in any of the the ways you've chosen to describe it at that that way there have been allegations made about the procurement process you mentioned the the bbc and just to be clear ministers are i am not aware of impropriety in the the procurement process but the allegations in the bbc disclosure programme are serious allegations and they need to be properly investigated when those allegations were reported i asked the permanent secretary to proactively contact the auditor general and of course the auditor general has since himself said that he is looking at these allegations in terms of the i can go through my understanding of each of these allegations but what was the term you used cheat sheet and that relates i think to the statement of operational and technical requirements that has been alleged that fergusons had seem i have been very clear that to the best of its knowledge that did not come from them in fact the bbc i don't even think alleged that the bbc was clear in its programme that some design consultant that fergusons had commissioned was probably the source of that so there are serious issues here but i would hope that because i know how serious this committee is that it doesn't pre prejudge its outcomes here and it looks at all of these things the experience with the contract is clearly not acceptable but it is important if we are to genuinely learn lessons that we don't come to summary judgments in the way your question would suggest and instead go through all of these things rigorously and systematically and as best as we can try to get to where the failings actually were in order that we can learn the right lessons okay well let's go back to the very very beginning when were you first made aware that Jim McCall was interested in buying the ferguson yard buying the yard buying the yard yeah so when the yard went into administration obviously the government i wasn't first minister at the time i knew there were my predecessor was rightly i should say doing everything he could to see if we could find a buyer for that and i understand and would have understood at the time i can't give you precise dates for that but would have understood at the time that Jim McCall was somebody that he was speaking to about that so i wasn't involved directly in that at the time but i'm not sitting here telling you i didn't have an awareness of it okay but you could see that alex salmon encouraged Jim McCall to buy the yard look my differences with alex salmon's on other matters are well known but he was the first minister ferguson's the last remaining commercial shipbuilder on the the upper Clyde was facing a threat of extinction and closure he was right to seek to find a way to save the shipyard and any first minister would have been right to do that so of many differences i may now have with them i would not criticise him for making every effort to find a future for that shipyard and when you became first minister how were your relations with mr mccall i didn't really to this day i wouldn't i had a professional relationship i would have jim mccall had been on the council of economic advisers i think he would he had done other pieces of work for and around the government i can't remember the exact timing of this but he did made a contribution to skills policy of the Scottish government i would have come across jim in what i would describe as a more political context but i wouldn't say that i had or have had at any time what i would describe as a personal relationship with jim mccall it's a professional relationship jim mccall is a a businessman of renown and standing in scotland a public figure in in that sense you know his relationship to my party he's to the best of my knowledge he's not a member of my party he's never been a financial contributor to my party i'm not even sure it would be correct to describe him as a full throated supporter of of independence he has certainly made comments around the constitutional politics but you know my relationship has and when i became first minister my relationship with jim mccall was principally through his continued membership of the council of economic advisers okay um when it all started to go badly wrong at the yard mr mccall reached out to you to request a meeting and you met on may the 31st he said he raised with you a red flag can you tell the committee what that red flag was and can you also let us know who else was at that meeting because he says that at least one official was present at that meeting so who was the official of what was discussed i think from and i'm being as open as i can these are obviously i deal with you know several things on a daily basis it's a pretty key pretty key meeting in relation to this meeting from my memory i think it was a special advisor that was with me and i then asked for some work to be done out of of that meeting what that meeting so that meeting was the 31st of may 2017 now by that point you know there were already concerns about slippage in the contract there were already concerns about the what i would describe as the kind of cash flow and financial position of fml so when jim mccall asked to to see me then you know it was reasonable that i spoke to him given the importance as we're reflecting on now of the contract at that meeting and given the time and you've seen all the material that would sort of tell you the issues that were of concern to him and it was at the time it was around the finances that there had already been discussion around the changing to the milestone payment so the the reduction of the final 25 payment which eventually came 10 so the you know the was it 17 million pounds at that then freed up to help with cash flow and he was as jim was and has been publicly not since then was of the view that he had money unfairly tied up in the surity bond just cutting the first notice if i can so it's a pretty big deal this meeting and there's no official present there's no civil servant present there's a special advisor how can it be an official meeting if there's no civil servant present the special advisors are civil servants are temporary civil servants so that's not not an issue in that respect you see it was a big deal well he sees he's coming to tell you that in nature public procurement is going on in my mind i'm trying to think in my mind i knew that there were issues that he was expressing concern about i by that point you know ministers were aware there were issues around slippage in in the contract clearly you know seamal were reporting regularly to what was called the project stealing group so so it was it was a conversation that i thought it was a clearly thought it was appropriate to have did i go into that thinking it was a a great crisis meeting nor did i think i came out of it thinking that it was he had concerns about cash flow and that the he'd had concerns about the structure of the milestone payments and he had which continued to be a concern that he expressed about the amount of money that in his view it's not a view i would share it's not a view seamal would share was unfairly caught up in what i think by that point had become the surety bond that replaced the builders refund the partial builders refund guarantee so these were the kind of concerns that he was expressing to me i think not long after that of course he made the first claim to seamal for additional cost over and above the contract so clearly there were there was already at that point tensions appearing in the relationship between fml and seamal so that was the the nature of that discussion so where's the minute of that meeting i'm happy to go and look at what came out of that meeting my from what i remember i would have then asked officials to do certain things but there was no minute no recorded minute of that meeting so i'm trying to be honest i don't know the answer to that question sitting here you must have a lot of research before you came here today i looked at so i have seen the actions that i that i asked officials to take forward coming out of that meeting so i will put that into the the category of things if the committee hasn't seen that if that's not in the bundle of documents that's already published i will certainly look to see whether that can be made available okay i think paragraph 422 of the ministerial code says that i'm very familiar with it yes it says that yes okay it says that minutes should be taken and it should be recorded i will so i have seen the outcome of what i asked officials to do so i will certainly there is a i will certainly look to see whether that can be provided to the committee i don't see why it couldn't okay that's not for me a huge amount of assurance to be honest with you but um regardless of what mr mccall was ultimately asking for either he didn't get it or it didn't work because the yard fell into administration with some rancor i think well sometime sometime later there's an awful lot happens between that meeting and the yard going into administration mr hoi which i'm very happy to go into with you in detail but clearly the red flag that was raised continued and persisted mr mccall's good a view that at a certain point for your government it became nationalisation at any cost and you went on to write what is probably one of the biggest blank checks in history was that the case was it nationalisation at any cost as you fallen out of favour with him no and i believe that the information that is published there will show you because it shows you in a lot of detail the different options that the Scottish government very rigorously the project called on in that looked at the the different contingency options that would have been there and the lengthy period of time i mean i do think it is completely wrong to jump from may 2017 to nationalisation and and not take proper account of all of what happened in between not least the the the loan provisions that the Scottish government made which i'm sure you want to come on to others later on and all of the different so that the government looked at different contingency options and that's all there in the documents that you you have seen by the time we got to the point it was in our view public ownership became the best option given that we were in a process here that would have a no ideal option that became the best option to meet the objectives that the Scottish government had always been driven by completing the ferries protecting if we could the future of the shipyard and protecting employment at the shipyard and that's why public ownership became the option that we pursued it is no secret that that was not the preferred option of Jim McCall in the latter stages before we got to public ownership. Clyde Blores the parent company put an alternative proposal to the Scottish government and again i think you can see from all of the documentation that was rigorously assessed and considered by the government and for a range of state aid procurement legal issues we could not accept the proposal that that was made and of course Jim McCall has views on this and you know some of his views will have more credence than others i'm sure as he was on your council of economic advisers absolutely i've referenced that several times but in this context he is not a disinterested observer so clearly he will have views and some of those views i may have more sympathy with than other views but the idea that the Scottish government did not throughout that whole period largely the Scottish government was was looking at how we could help deal with the cash flow financial issues because without that we couldn't make progress on the vessels and we rigorously looked to all options you know this was for CML but the Scottish government gave the budget recover for CML to change the the milestone payments and accelerate that that final payment we looked and delivered loan provision for CML i later on after that second loan i certainly had concerns about Jim McCall's adherence to some of the agreements that we had had reached there and we looked at the the different option that cbc put to us but there was clearly a point where nationalisation became your preferred option i would i would go further than that actually it became probably and certainly at the point we got to nationalisation had we not nationalised the yard in my view the yard would have closed the vessels would never have been completed so every decision a government takes on any issue is a balance of risk by the time we got to and clearly there was a period before the december 2019 taking public ownership there was a whole process of exploring and considering all of the issues around that and and alternatives to that but by the time we got to that i would say that was not just our preferred option that was the only viable option that was available well there was another option which was not not to proceed but sure but but but to be clear that would have meant that we would have seen the yard undoubtedly in my view close and there would have been no route to completing the vessels however difficult and unsatisfactory the route has proved to be to completing the vessels at that point at that point there would have been no route to completing the vessels and those employed at the yard would have been without that employment okay i think i'm obviously my colleagues becoming inshallah just two two final questions you've said repeatedly and tv studios and and in parliament and the buck stops with you but what does this actually mean in your government what are the consequences of a quarter of a billion pounds being spent on two ferries that are five years late and might possibly possibly launch into obsolescence our fundamental responsibility in my responsibility is to ensure that we deliver the contract and that the vessels are completed and that we properly learn the lessons that need to be learned and i am very serious about that responsibility obviously you'll be aware that we visited the yard this week and the management made clear as a result of the issues surrounding the yard the order book isn't as healthy as it could be and that a fresh injection of working capital will be needed to avoid redundancies that means more taxpayers money so the question is is this how can it be that painters welders and cleaners might lose their jobs as a result of this fiasco and you keep yours mr hoy as i think has been reflected in the exchanges we've just had a key driver for the scourge government all along has been protecting employment at the shipyard and you have rightly probed me about the decision around nationalisation and clearly which is understandable in the circumstances have questions and skepticism about whether that was the right decision but again you know let me repeat without that decision people would have lost their jobs so a key driver of the scourge government has been to protect employment and i make no apology for that in terms of obviously not party to your discussions at the yard earlier this week i think it was but we have made no commitment to additional funding for the vessels since the march 2022 the chief executive of what is now fmpg has i know written to the committees with not this committee the portfolio committee with an assessment of the cost to complete the vessels and the latest update on delivery timescales that is still under scrutiny by the scourge government with input from legal shipbuilding technical advisors and we'll come to a view of that in due course beyond these vessels of course we want to support the shipyard to reach a position which i think the shipyard is is closer to now than it has been in recent history to being a viable proposition that can successfully bid for and win contracts and and that goes beyond the particular issues around this vessel okay these vessels sorry thank you one thing which you mentioned there was about your government's decisions and one of the things that's a matter of interest to this committee is what was brought to cabinet was the preferred bidder announcement taken to cabinet was the unconditional financial guarantee of 106 million pounds to seamal was that taken to cabinet the 45 million pound bailout of fml was that taken to cabinet the financial collapse of fml was that taken to cabinet the nationalisation decision was that taken to cabinet so again the cabinet or the submissions to ministers are i understand and i've seen many of the submissions to ministers in the published documents i'm happy to provide to the committee again forgive me if i sound as if i'm explaining some basic things here there is a provision on cabinet agendas which i think was there in previous administrations as well which is called scants which is a ministers can report things to cabinet without full papers requiring decisions issues around these will have been reported usually after the event to cabinet as decisions taken procurement decisions will not you know if you take the queensford crossing for example you know we decide the policy we decide the budget but the actual award of a contract is not something that cabinet would decide so there will not have been full papers and cabinet decisions on all of these matters these are which ones did go to cabinet i think is my question let me come back to you on that in terms of exactly the the cabinet decisions but i don't i don't in terms of preferred but these issues would have been reported to cabinet by ministers as we're doing these things these things so on rather than full cabinet papers where cabinet took the decision so there wasn't a paper submitted to cabinet on the decision to take public ownership of the furguson marine shipyard the submissions on that will have been circulated and provided to the relevant ministers and the the minister at the time would have updated cabinet periodically i think on the the progress of that but what is the point of the cabinet if it doesn't take those kind of decisions this is where the cabinet takes decisions on policy cabinet will take decisions obviously on budgets and that the budget cover for certain things ministers are tasked to get on with the jobs within their portfolios and they will report back to cabinet they'll update cabinet colleagues can ask questions that does not always take the form of papers that then is asking cabinet to substitute for the minister in terms of the decision but you will get back to us with a reflection on the items i listed in which of those were considered at the cabinet level and in what form they took can i bring in Colin Beattie Colin thank you very much first minister i'd like to start the couple questions about money i'd refer you to the author general's report pages 35 and 36 specifically paragraph 72 this is in relation to the 45 million pounds that the Scottish Government loaned to ffmell now there were some problems in ffmell carrying or cvc carrying out their side of the bargain in this they only paid part of the investment that they said they would make into ffmell and there was some disagreement with the Scottish Government over the structure of the loans would you be able to give a bit more background on that can i just ask Mr Beattie what paragraph in 72 yeah so the in terms of this i think that is referring more to the second loan rather than the first loan correct i certainly when we were considering the issue of the second loan obviously all considerations of government investment in whatever form that investment takes to private companies has to satisfy state aids procurement rules the meip rules so often there will be a judgment of you know the government can only invest more if the company itself is investing in order to you know be able to satisfy these various tests and there was an issue at the outset of consideration or in early stages of the consideration around the 30 million loan about it if the government was able to do more it would require clade blowers also to invest more and i certainly recollect being quite clear on that point that that had to be made clear to clade blowers that that was the position fast forward to after we had made the decision on the the second loan and reached the agreement with clade blowers to be frank pretty soon after that i and i was involved at this time i became concerned that it felt as if the ink wasn't even really dry on that agreement and there was the situation where clade blowers were not fulfilling the requirements on them as part of that agreement and in summary that was to invest their own equity as well as as draw down on the Scottish government loan and i think towards the end of 2018 that was a significant concern in my mind it was raising issues of of lack of good faith in the process and i at that point gave an instruction to officials that there should be no further draw down by clade blowers of that loan until we had resolved the issues of what i think were breach of the the loan conditions there was in a process of of doing that and there was a resolution of that and and the loan was then drawn down but what lies behind that was a concern which i certainly had at that point that we were entering into or had entered into an agreement in good faith and that good faith was not necessarily at at that point being honoured and still continuing on the on the same question of good faith most probably i'm looking at the rural economy and connectivity committee report of 9 December 2020 where they make it very clear that in connection with the stage payments that have been made and i'll quote there is strong evidence that the contractor deliberately proceeded to construct specific sections of the vessel either out of sequence or not according to the proper specification purely as a means of triggering milestone payments on the contract now that that's quite a strong statement and you know that the auditor general has also highlighted these payments that were made um subsequently as i understand CML took legal advice and the legal advice was that they had to make these payments was there any discussion between ministers yourself cabinet or anything about about this particular issue in terms of the so again there's probably different aspects to to this issue in terms of the original decision around what the how many milestones there should be and what percentage of the contract price should be attached to each of those that would was a negotiation between CML and FML and that would be a in fact i think kevin hobs made this point to you when he was here that that is standard and there's nothing untoward or unusual about that in fact i think he made the point that you know there is often flexibility on that you know it's being commented that usually that would be five milestones it was more in in this contract but as kevin hobs said you know he's been involved in in different things where it's been you know a range of of different numbers so there's nothing untoward in that and that is standard in as i understand it in how these contracts are are structured and then that that necessitates and puts an obligation on the the contractor in this case CML to make payments when a particular milestone is reached and that would be the reference to the legal advice CML didn't you know when got a point where steel was being cut that triggered a milestone payment that CML had no option but to pay and as i understand it that is not peculiar to this contract that is a standard part of of shipbuilding contracts of the type that was used where i think there is an issue which i i believe is one of the lessons that we need to reflect on although again as i understand it this is not unique to to this contract is on what what is the substance that has to be evidenced about the actual progress on the contract before payments are made so you know should it be enough that the steel's been cut should it not be that that has actually led to a progress in the the construction of the vessel and i think that's something we need to reflect on although changes to that of course if that takes the approach that CML would use out of what is standard in shipbuilding generally would would have implications in terms of contracts so that would have to be considered as well but i do think that part of it is is one of the the lessons that we at least need to and CML as part of that needs to reflect on the issue that the significant issue that ministers would what were involved in consideration of because not least because we then had to give CML the the budgetary approval to do this was to change the final milestone payment from 25 percent to 10 percent to allow the the acceleration effectively of of some of the the contract price and again as you are familiar with from previous evidence and and other published documentations CML then attached particular conditions to that but government gave the approval because we effectively had to make funding available on a different schedule in a different financial year than would have been originally anticipated when Mr McCall appeared in front of this committee he did make a comment that this the way the milestone payments were carried out were in accordance with with normal shipbuilding practice obviously we don't have the expert opinion here to be able to to guide us as to whether that is indeed the case but it does seem extraordinary that things can be done out of sequence and still qualify for payment and the bits between have not been done so there's maybe another point that is worth making here which I'll come on to in a second as I understand it and like you and the committee I am I'm not an expert on shipbuilding contracts I know more about shipbuilding contracts than perhaps I would ever have wanted to unfortunately because of this but I my understanding is that the the milestone payments both in the approach and the negotiation around the particular structure and the sort of process of then triggering those payments is not unique to to this contract that that is standard in shipbuilding contracts if I am wrong in any aspect of that then others can you know give you a more expert opinion but that is my understanding there may be a legitimate argument that says that should change and as I've said I think in a scottish context given our experience around these vessels we should look at whether that should change but if that took the the scottish approach to shipbuilding contracts which is a global industry out of the standard then I guess there would be issues there that would have to be considered as well. The point that it's important to make here is that as those milestones were reached part of the go back to the 8th of October 2015 one of the mitigations that was put in place against the lack of a full builder's refund guarantee was that CMAW took ownership of the vessel and the assets at each stage of the the construction process so as CMAW were making payments they were taking ownership of assets equivalent to those those payments so that again as I understand it in in these kind of contracts is is how that would work but it was the case that they were getting value for those payments what was not happening and you know while we've all got responsibility and lessons to learn here this is where I don't think I have heard to be frank those who owned FMAW talk about the lessons they should be learning about this that they clearly the project management the process of you know putting these vessels together was not happening in the way that it should have done and just continuing about the one of the things that exacerbated the issues around these staged payments was of course the relationship between CMAW and FMAW which seemed to have deteriorated at a very very early point in the in the relationship to the extent that we understand that CMAW couldn't get access to the yard now it never it that although there was discussion about the possibility of some sort of dispute resolution mechanism it never actually happened and CMAW having taken legal advice that they must continue making these staged payments despite the fact that they had no sight over what was happening that obviously got escalated up the line from CMAW to what extent are you aware that this was discussed with ministers and whether you yourself had any sighting of these issues and what was what did ministers talk about in terms of resolving this dispute because it's a major issue well we were certainly aware and ministers principally the the minister portfolio ministers at the time it would have been involved periodically in in discussions and updates around this we were aware that that relationship was progressively becoming more strained and difficult that said there was a lot of effort by both sides I think and I know particularly by CMAW to keep that relationship where it needed to be to to see progress with the vessels and if you go through you know the the various updates that CMAW were given to the project programme steering group for example some of the updates that came through the expert that the Scottish Government commissioned there are lots of references to you know at times improvements you know things working better they're being more confidence and the relationship being okay but overall broadly speaking that relationship was in a downward downward spiral from CMAW's perspective you know it is not hard to understand the frustration it felt at having you know signed a contract of this nature with you know the the responsibility for design and build a standard practice passing to the the shipbuilder and yet all of the issues that were being raised that hadn't been raised at the time so I understand the frustration similarly you know Jim McCall and FML clearly had concerns that they voiced as well so ministers were aware of that and they were involved there was definitely and again I think this is all reflected in the documents that have been published there was certainly a view on the part of the government that we wanted to encourage mediation there was a period where mediation was agreed to by both parties it didn't happen you know the chosen mediator wasn't available in the timescales that were necessary expert determination was deemed by CMAW you know the contract had mediation expert determination and then court proceedings as the dispute resolution steps there was a view by CMAW I think rightly the expert determination was not appropriate here because of the scale of the claim that FML was making outside the contract which ultimately became £66 million and therefore the right way to resolve that was for FML to go through the court process which FML chose as is the right never to do so ministers were seeking to try to keep the relationship where it needed to be to improve the relationship to use our best offices where we could to resolve issues that were between the parties and you know all along you will see the evidence in the published documents of of government seeking to do that that was in terms of the contract issues between FML and CMAW beyond that as evidence then you know the loan agreements the consideration of the the proposal Jim McCall put previous to public ownership and then public ownership we were also at all stages seeking to have discharge that wider responsibility to try to keep the yard open and operational to try to protect employment as well as as get the vessels finished looking at the original report and I'm specifically looking at paragraphs 81, 82, 83 the sequence of events leading to FML entering administration in august 2019 seems almost like a progression of this dispute to the extent that the Scottish Government and I quote the general report here concluded there was no legal basis for CMAW to pay more than the fixed price for the contract which seems to imply the trigger for FML entering into administration when the Scottish Government took that decision was there any thought that the results of that might be FML going into administration I think it would be fair to say that certainly in the months leading up to the decision around public ownership you know whether it's always expressed as explicitly is this of course there would have been concerned that that was a possibility there had been someone's previous FML had had a redundancy programme at the yard there were clearly very significant financial and cash flow problems there so that of course would have been a concern in terms of the you know within the contract for these vessels just as FML signed up to the terms of the contract so did CMAW so CMAW was always understandably restricted in what it could do by the terms of the contract so just you know paying a lot more to FML at that time in line with the claim FML had made at CMAW's views that that would not have been within the terms of the contract because there weren't the unforeseen problems the contract had within it terms for modifications and FML weren't seeking to use those so if they had acceded to those claims they would have opened themselves to legal challenge from unsuccessful bidders so your CMAW was rightly at all times seeking to operate within the terms of the contract and of course the Scottish Government as you know asked an independent QC to look at the claim and that's what led to the the conclusion that there was no legal basis for CMAW to make the additional payment that FML was requesting and the view of CMAW was that FML if it felt that that claim was justified should take it through the court process and you know let me see again FML always had that option and chose not to to do that the government of course was looking at ways in which we could help get the vessels completed protect the yard protect the employment if it was appropriate and possible to do you know over and above the contract terms that's where the the loans came in that's where the the options around project called on and how do we get the vessels completed but also protect the longer term economic interest and of course keeping the yard open was pretty essential to getting the the vessels completed so these were the considerations we had that led to the decisions that the government took. The auditor general's report does say that by May 2019 the relationship between the CMAW and FML had broken down completely and FML said that we're going to have significant redundancies and CMAW notified Scottish ministers of its intention to cancel the contract for vessel 801 and make a call on the surety bond now I don't know was that ever done did they ever do that that's the point if memory serves me correctly that we commissioned the independent QC to look at whether because at that point we were all trying to see was there a way through this and the the concern that CMAW had at that point is in addition to the concern about the lack of progress on the vessels was that the surety bond was due to expire so obviously things were coming to a head in that sense for CMAW but the discussions from that led to the independent QC and the view there that was that there was no legal basis within the contract for CMAW to make these payments and then the process that ultimately concludes with nationalisation continued after that thank you thank you very much indeed i'm now going to turn to willy coffee to who's got i think a couple more questions he wants to put before i bring in Graham Simpson willy thanks very much convener first minister looking ahead from this point on i think all the committee members that visited the yard on Monday were impressed with the current management and the dedication of the workforce to complete the work and we were told they were a wee bit apprehensive about our visit to now given the level of attention that the project is attracting is attracting can you give the committee and the public an assurance that sufficient technical oversight and management is in place now to see the project through and that the workforce's expertise is part of that process taken as to completion can i before i answer that question can i say something actually that i think is really important in fact no kevin hoppe said this to the committee there's no issue here about the quality of the work being done by the workforce in that yard you know there are many organisations and people that have to bear including the Scottish Government obviously and we're ultimately accountable in a public sector contract but there's lots of different organisations that bear responsibility and have lessons to learn here i'd exempt the workforce at fergusons from that they have all along tried to build these ships with the the quality and the the expertise and the dedication what has gone wrong is the overall management of that and as i say different people have to bear different shares of the responsibility for that so i would put on record my my thanks to the workforce because this has been a really difficult time for them with lots of you know aspersions cast on on the quality of their work along the way and i think you're right to have a degree of confidence in the the current management and the chief executive these are you know they have inherited the situation with the vessels there are significant challenges have been significant challenges and there remain challenges around the completion of these vessels but i certainly believe that the chief executive and his team have a grip of this you can see that reflected in the reports regular reports that are being given to the relevant committee here in the way in which issues are being identified and raised obviously i've referred to this earlier on one of the recent reports has made updated assessments on the costs of completing both vessels and has given updates around the the delivery dates and government is currently scrutinising that before we reach a decision and last week obviously they have given an update around the issue with the the lng sensors and you know we've asked for all options to resolve that as quickly as possible to be to be considered so i think that the current management is doing a very good job i think they have a grip of this does that mean we're definitely not going to encounter further challenges between now and the completion of these vessels i don't think i would be sensible to sit here and and say that categorically but i do believe that the current team are working in the way that would be expected to get these vessels to completion and finally that i mean the workers were saying to us in one day that they were getting kind of fed up with the whole issue being used as a political football and there's an inevitability about that i'm sure we all know that but they were getting a bit fed up with this so can you just finally first minister from from my perspective offer some words of comfort and support to the workforce that we value the world that they're doing and that they're playing a crucial role in helping us to complete these projects for the public that will ultimately benefit when the ships go into service the first thing i would say i think the political scrutiny around this is absolutely 100 percent justified this is a contract that is the understatement of the decade for me to say has not gone as the government would have expected or hoped so i don't complain about the scrutiny and the pressure of the fact that i'm sitting here right now having these discussions that is entirely legitimate and understood but i would repeat what i said earlier on you know whoever deserves to be under that scrutiny to you know take responsibility for this or or a share of the responsibility for this that is not the workforce there there is no question that kevin hobb said this to you as well there's no question about the quality of the work you have been into ferguson shipyard shipyard on many occasions obviously the the workforce will change and the people working in there will come and go and change and there'll be a core workforce that's been there for a long time they are skilled shipbuilders and they do a fantastic job and they do not deserve and should not get any of the the criticism that is rightly directly directed at others including on some aspects of this the Scottish Government and i've got confidence in their ability assuming they get the right support and the right project management and you know everybody else does their job in the way that we would want and expect i've got every confidence in their ability to build these vessels and hopefully many vessels long into the future at that shipyard good thank you for that thanks well if the workforce aren't culpable and i agree with you who do you think is culpable well firstly i and the Scottish Government are ultimately accountable this is a public sector contract and you know the fact i you know first ministers don't regularly sit before individual committees of of this parliament the fact that i am here not saying i had any choice over the matter but i welcome being here because i do recognise the unreservedly that ultimate accountability i think the Scottish Government Seymal to a lesser extent to be fair but nevertheless i'll include them CalMac Transport Scotland which is an agency of the Scottish Government we all have to reflect on all aspects of this recognise where decisions that we have taken if it is the case that they could have and should have been taken differently to to recognise that and to learn lessons out of that and i don't shy away from that but nor do i think it can it be escaped that this was a contract that a private company signed up to contracted to do a job that hasn't been done and therefore there is also a significant degree of responsibility in my view that has to rest with FML and the management of FML at the time not so responsibility and i'm not saying none of their concerns are legitimate but they have to be part of this too and while i'm sitting here readily accepting that there are lessons for the Scottish Government and for our agencies i'm not sure i have heard that from from FML i've heard lots about why it's all somebody else's fault and you know absolutely there is a degree of responsibility that lies elsewhere but i think it's also important that they recognise that this was they contracted to do a job that then wasn't done and that has to be a significant part of it too okay so you share some responsibility for the position we are now in of me or yes i'm the first minister you know you can so is that a yes of course i'm the first minister i'm accountable and responsible for everything that happens i said to you earlier on i don't take every decision in the Scottish Government contrary to some of the things that are said about me by my critics but i'm accountable and responsible for everything that happens in the Scottish Government's name and you know whatever whatever people think about me or the the political or other disagreements i never shy away from that and nor will i ever shy away from that so that's not the hardest question that you have asked me today or will ask me in the future i'm sure okay well i'm going to turn to graham simpson maybe he's got some hard questions to ask in the final few minutes that we've got left graham well i don't know about that but we'll see so following on from the convenience questions what mistakes have you made first minister i will review so i take the eighth of october submission and decision as i say i've gone over that many times actually and tried to put myself in the shoes of the minister and think well based on all of that information would i have taken the same decision and you know i think based on all of that information i think that was at the time based on what was known with a reasonable decision to have to have taken based on what we know now of course we wish we'd taken a different decision and so one of the things i will reflect on i reflect on this regularly is the the expectation and requirement that the the organisation of the scourge government has about when things should be brought to my attention perhaps although let me be clear here to be fair to Derek Mackay had that eighth of october been brought to my attention based on everything that was in that i am not saying i would have reached a different decision i don't think i would have done but perhaps with hindsight it should have been more it should have been brought to my attention so i will reflect on all of these things looking at the and i have again looked at this many many times and again it's all with the benefit of hindsight but that's not you know that's sometimes important it did we in the decisions we took that ultimately led to nationalisation should we have taken some of those decisions more quickly than we did so you know i will always look very very critically with hindsight at the process of decision making and try to learn from it not just on this but on everything do you wish you'd actually listened to the advice of cmal and retended so i think this is a really important point and and believe me i have i've agonised over that having as i said and i think i've i think i've maybe need to put it more clearly but i think i did answer that to you if at the time on the eighth of the at the eighth of october 2015 if we had known probably a fraction of what we know now then clearly you would wish you'd taken a different decision but we didn't know that at the time so all i can do is assess the information that we did have at the time and come to a view as to whether the minister took a reasonable decision or not and i think based on what was before the minister every decision is a balance of risk the risk was clearly set out but so too were the mitigations and also the fact that taking another approach wouldn't necessarily avoid all of these problems i think at based on what was known at the time that was a reasonable decision but based on what we know now of course i wish i could turn the clock back and take a different decision what decision would you what decision would you take now look i take a decision i don't know what that would have been but a decision that didn't lead to the delays in the the vessels but that you asked me that question demonstrates the inherent weakness of trying to take decisions with the benefit of hindsight we can only take decisions on the basis of what is before us at the time and that is what i have tried to look at have looked at it very very closely and i'm trying to be as frank with you as i possibly can we take decisions on all sorts of matters every day based on what we know at the time and yeah there will be times when things happen in a way that makes you wish you could take a different decision but that's not how life works do you wish with hindsight that you had re-tended and you know the job could have gone to a different yard so i cannot say sitting here and this again is just the inherent limitation of trying to take decisions with or you decide what decisions you would have taken with hindsight what i couldn't be sure about okay is and i don't think anybody could be sure about and actually there is commentary in the eighth of october paperwork that kind of underlines this point i can't sit here and give you a guarantee that re-tendering would have resulted in in a situation where we didn't have any problems that submission says that seamal's view some of these problems around the the guarantee would have would have been encountered with with any bidder so you know it's really impossible to to answer categorically from the hindsight perspective what you would have done and what the consequences of that would have been okay craig hoi mentioned earlier the the recent bbc programme craig hoi i think he used the the term cheat sheet you've addressed that but there was also another allegation in that programme and that was that Ferguson's were allowed to revise their bid whereas other bidders were not allowed to do so why was that i think you've had that answer from i think you've heard seamal respond to that that seamal took procurement advice and they would not say that that was out of the the ordinary in terms of the procurement process but these i think it is important that these issues are now properly and fully investigated by the auditor general rather than me coming to you know summary conclusions without allowing that process because that is entirely a decision for the auditor general whether whether he does that but i'm asking you why were Ferguson's allowed to revise their bid and nobody else well as i understand it seamal and i think we're talking here about a meeting that was on the fourth of june that that was part of the ordinary process of obtaining technical clarifications from bidders seamal took you know proper in-house procurement advice around that and that there was nothing inappropriate in a meeting like that now that is i understand it is seamals response to that but it is right that that is subjected to you know proper scrutiny by the auditor general you're absolutely right that's entirely for the auditor general but i think it is important that it's not just my word that is taken on that that that is properly scrutinised as should be the case with all aspects of the the bbc documentary okay well that's that's up to the auditor general indeed you can do that work whether if he wants to or he doesn't have to do anything can i can ask you something that we haven't covered yet is when you attended what has been described as the fake ferry launch with that this committee i'm not i'm not a member of the committee but the committee has heard evidence from seamal that that very act of launching at that point added to the cost of the project do you now regret that again this is one of these questions that if i know if i knew then what i know now of course i wouldn't have wanted to do that but i didn't know then what i know now it is not and again i'm not telling the committee anything they don't know it is not unusual in fact it is entirely usual for vessels i've been at other ship launches in my political career vessels are launched often well in advance of them being completed so you know that is that is known that at the point of a launch of a vessel it is not completed there was nothing unusual in that i certainly was not aware at the time of the launch so i was aware that there was a slippage in the contract delivery date parliament i think was aware at that point because i think Derek Mackay by that point had already advised parliament of the initial slippage in the delivery dates but i was not aware that there were seamal concerns about doing the launch at that point in fact again having reviewed my briefings briefing for that there were certainly plenty of seamal execs non execs on the the attendance list for that event so i had no certainly was not aware that there was concerns about launching the vessel at that point and you'll provide the briefing to the committee everything i'm referring to today subject to the caveats i've said about the processes in government about legal privilege commercial confidentiality i am happy to make available to the committee okay do you know what the total cost of this has been so far and i'm going to include nationalisation including things like tim hares exorbitant salary what's been the total cost so far and what do you envisage being the end cost well in terms of the the last part of your question that i've referenced a couple of times today the latest cost assessment that the the current management of fergusons have made which is currently being scrutinised by the government so i'm not able to give you the outcome of that process because it isn't concluded yet the the estimates though the current scottish government endorsed estimate from march 2022 in terms of completing the vessels is is known if there are any increases on that as a result of the latest assessment that will be properly notified to parliament in the normal way but that process is under way and is not complete in terms of i'm certainly i will undertake to go away and come back to you with the costs around this of you know things like tim hares but obviously we want to not just complete these vessels that is the immediate priority here is to complete these vessels but we then want the shipyard to have a good sustainable successful future and i make no apology for the government continuing to behave and act in a way that supports that objective i don't know how long i've got convener 30 seconds 30 seconds okay okay so is it your intent to keep the yard in public ownership i think our position with all of the assets commercial assets that the government has taken ownership of is that ultimately we want them to be back in the private sector but we will have to take decisions about you know the point at which that becomes and the the viability of that but we haven't reached the point of decision on fergusons okay okay thanks well on that note first minister can i thank you for your time this morning and the interaction that you've had with the committee it's greatly appreciated we've identified a number of areas where it would be useful to follow up to try to seek further particulars and i'm sure that the clerks and your office will be able to coordinate that and we hope that they will then also add to the scrutiny record that we've got as a committee and inform any report that we produce but um as i say thank you once again first minister and i will now draw the public part of this morning's meetings to a close thank you