 I welcome everyone to this, the 16th meeting of the Public Audit Committee in 2022. The first item of business that we have is for members of the committee to consider whether or not to take agenda items 3, 4 and 5 in private. Are we all agreed? We are agreed. The principal item of business that we have on our agenda this morning is to take evidence from representatives of the civil service in the Scottish Government about the procurement and arrangements around the delivery of vessels 801 and 802, which has been the subject of a detailed section 23 report by the Auditor General. I welcome our witnesses this morning. I want to begin by welcoming Mo Runi, who joins us online. Mo is the Deputy Director of Strategic Commercial Interventions at the Scottish Government. Mo, if at points you want to come in, if you indicate in the chat function, that would be helpful and we'll try and do our best to bring you in, but you may be given delegated responsibility by members of the panel to answer questions as well. I would also like to welcome Roy Brannan, who is the Interim Director General of the Net Zero Department of the Scottish Government. Colin Cook, who is the Director of Economic Development. We are also joined by Dermot Rattigan, who is the Deputy of the Manufacturing and Industries section. Hugh Gillis is the Interim Chief Executive of Transport Scotland. Fran Pechiti is the Director of Aviation, Maritime, Freight and Canals at Transport Scotland and Chris Wilcock, who is the Head of the Ferries Unit at Transport Scotland. You are all welcome. What I'd like to do to begin with is to ask Roy Brannan to give us an opening statement and then members of the committee have got questions that we'd like to put to you, but Roy Brannan, first of all. Good morning, committee members. Thank you for the invitation to provide evidence this morning. I recognise that the decisions around vessels 801 and 802 and Scottish Government support for Ferguson's are areas of significant interest. My colleagues and I welcome the opportunity to support the committee by answering any questions that you may have. As is clear from the scope and the detail in the Auditor General's report, the issues here are complex and cover a period of several years. I'd like to begin by recording my thanks to staff at Audit Scotland for the very measured and professional way in which they engaged in the preparation of their report and by acknowledging and the significant effort of my colleagues across Transport Scotland and the Scottish Government in seeking to engage openly and constructively throughout the Audit Scotland's work. We are hearing number today that reflects the range of issues addressed in the Audit Scotland report and our desire to ensure that you have access to the right people and the information that you need. It goes without saying that people have moved on in their careers since the project began in 2014, some to other roles in Government and some having left the Scottish Government entirely. We have brought witnesses to the inquiry to have the best knowledge of events, either through their direct experience in current or previous roles or where that has not been possible through an understanding of issues in their current roles. We were in touch with the clerks in advance of the session to map out our respective areas of involvement. Alongside me today, I have Colin Coog, Mo Rooney and Dermot Radigan from DG Economy, who will be able to speak to issues around nationalisation of the yard, on-going progress with the vessels and loan funding to FML. I, along with Hugh Gillis, Fran and Chris Wilcock from Transport Scotland, will be able to cover the other matters relating to initial delivery of the vessels and contract issues. I will try to direct questions across the panel of witnesses accordingly. We have accepted all of the recommendations in Audit Scotland report and we do of course accept that the outcome in relation to vessels 801 and 802 is not that for which we had hoped at the point of contract award. We do not take that lightly. This is still a live project with much work to be done, but, as ever, we will endeavour to answer as many questions as we can to the best of our ability. Thank you very much indeed, Mr Brannan. I want to begin by putting a question to you and to Hugh Gillis as well, but I will take you first, Mr Brannan. You mentioned about current and previous roles. You have both held the post of designated accountable officer for Transport Scotland. Can you outline to the committee what is required in this role? First of all, in providing formal advice to ministers, but secondly, recording decisions, particularly where significant concerns or significant risks are involved? I took up role as accountable officer of TS as CEO in November 2015. It is fair to say that, as an executive agency, there is a fairly well-defined structure of accountability within the agency and SPFM and the Public Finance Act sets out what that responsibility is for an accountable officer. First and foremost, signing the accounts for expenditure and income. Secondly, overseeing the regulatory and proprietary issues of the finance that is at your disposal. Then, using the resources economically, efficiently and effectively as possible and undertaking all the work of the agency. The agency's work encompasses both policy, operations and delivery. In respect of how we engage with ministers on that, ministers set strategic direction, policy, budget and then the job of the CEO and accountable officer is to set the governance structure and the arrangements internally within the organisation to deliver on ministers' wishes. That is how we go about the business. On the issues of investment decisions, we have an investment decision committee, chaired by the chief executive of TS. That committee looks at the business cases for investments prior to that decision going forward to ministers. In 2015, the IDM approach was principally concerned with major projects, so Queensferry crossing, A9, M8, S3 and S4. However, one of the changes that have been made since the report has come out is that all ferry infrastructure, port, harbour infrastructure and ferries also now go through the IDM approach. I will pause there because that is quite a long answer. Hugh Gillis, do you want to add anything to that? I came into post on November last year, and as Roy has set out there, I inherited the responsibilities for TS accountable officer and all the responsibilities that I got with that in terms of SPFM and the civil service code. One of the first things across my desk that Roy has been intimating was an IDM in relation to the Islay ferries contract, and I was obviously very much aware of the history of 801 and 802. One of the first things that I did when that came across my desk was to work and turn to Fran as my director for AMFC and Chris as head of ferries. Obviously, when that IDM paper came to me to have discussions with Fran and Chris going into that particular process and to discuss that, we made sure that all the requirements were priority, value for money, etc. We are all part of that overall process of the IDM that brought forward the Islay ferries, but we can maybe talk about that at length maybe later if you wish. I take you back to some evidence that we took from the Auditor General, which is about correspondence at the time of 8 and 9 October, which took place between your predecessor as the chief executive of Transport Scotland and Government ministers. There was an email from Transport Scotland reflecting CMAL's concerns about the award of the contract to FMEL. The board went so far to say that they felt that it was their absolute duty to point out the risk to their shareholder and, in that respect, would expect approval should the Scottish Government wish this project to proceed and to receive direction to that effect. The next day, the reply is submitted to Eric Ostergaard from the Director of Aviation, Maritime, Freight and Canals, your predecessor, Fran Petitie, where Transport Scotland uses the word authorised. It says that they are authorised to enter into the contracts and any associated documentations. At the bottom of that letter, it says, I can confirm that the Scottish ministers have considered and approved the contents of that letter. One of the issues that is at stake here is whether written authority from ministers was sought, was secured but not recorded, or whether it does not constitute that at all. I wonder whether, Mr Brannan, you can address that point. I have reviewed the correspondence that has come forward. For what I can see is that the Director of Aviation, Maritime, Freight and Canals at that point has presented all the evidence, all the risks, all the consideration to ministers in seeking ministers' approval to allow CMAL to award the contract. I do not know, and I know that you have written out to Mr Middleton to seek his view, what consideration he had as the AO on whether or not any written authority was required. Having looked at it and referring back to those earlier points that I made on the SPFM, the last part on the SPFM talks about if you are asked to do something that is not in the normal circumstances related to the proper performance of the duties above, then you should seek written authority. In that case, there was no need to do that. As the Auditor General said in his report, there was no authority sought and no direction given. In the light of the view of CMAL, which also reports directly to the ministerial team, why do you not think that what they were asking for was written authority? The first part of that sentence was that they were looking for approval to award the contract. I do not know whether the language that they used was specific. It could have been clear, but they were certainly looking for approval from ministers to award the contract. In normal course of events, that would be the case. If we were investing in a major project, once it had passed our IDM processes, we would be seeking ministerial approval to continue on with whatever the next stage of that process would be. Who would they be seeking ministerial approval from? Depending on the issue in hand, so if it is a transport project, that would be the minister for transport. If it is entirely within their portfolio and that was the decision entirely for the minister, that would be for the minister. If it is a wider issue, i.e. bringing Scotland to public ownership, that might be something that is considered much wider than a single minister, because it has a wider Scotland approach. When you say that it is entirely for the minister, then the cabinet secretary for finance does not have a role in that? No, so the cabinet secretary for finance would agree the budget, which he did, and he does not have a role in signing off on the decision to sign off on CMAL awarding the contract rested with the minister for transport at the time. That would not, for example, go to a cabinet meeting, for example? No, not necessarily. There is no necessity, depending on scale or influence, for a particular issue to go forward to cabinet. If it can be dealt with by a ministerial portfolio issue, then it is dealt with by the minister. As I said, the example that I can give where a decision was taken at cabinet would have been ScotRail into public ownership, because of the gravity and the size of that decision and the need for cabinet secretaries to be aware of that. Ferry contract, given all that we were procuring at that time, bearing in mind that we had probably over £2 billion or £3 billion worth of work under way with Queen's Ferry crossing, M87374, Aberdeen West of Peripheral. Ferry's contract would have been entirely a decision for the minister for transport. Even though the First Minister had been to the yard to announce that the contract had been awarded before the negotiations had been concluded? The contract was announced as a preferred bidder. It was not awarded as the successful contractor. That is an important distinction. There is a period of time beyond preferred bidder announcement to the contract signing. The contract was signed in the middle of October in the end. When the First Minister stands up in Parliament and says that she is responsible, she was not involved in that decision, is that what you are saying? Correct. The paper trail demonstrates that it was taken directly by the information provided by the director at the time, up to the transport minister, and the transport minister considered it and responded accordingly. The First Minister in Parliament said that they have collective responsibility for all decisions, and that is correct. If the decision is taken by the minister for transport, then collectively everybody is locked into that. You mentioned paper trails. One of the big concerns expressed in the report that the Auditor General produced was the lack of paper trails, the lack of paperwork to cover the implications of the decision being awarded, the decision to award the contract under the circumstances that it was awarded and the risks that that entailed. What is your reflection on that? It was regrettable that we could not identify that exchange back. It was covered in the exchange that Mr Nicholl put back to CMAL, but, with a bit further investigation by FRAN and their records team, it turned up. That confirmed that the minister had indeed made that decision. He had considered the evidence in front of him, had made the decision and responded accordingly. There are over 210 documents publicly available and have been since 2015. Those documents cover a wide range of exchanges with cab sex ministers on various issues as we went through the whole process of trying to get those vessels into the water and into the community's hands. I accept that, on this occasion, this one bit of paper was not easy to find, but we did find it. Our focus is on record keeping more generally going forward. I know that the PIRMSEC has recently written to the Finance and Public Administration Committee on the new strategy that we have in place to improve on our records management. I will come to the recent correspondence between the PIRMNAT Secretary and the Finance and Public Administration Committee of this Parliament. You said that the piece of paper had been found. That is not the view of Audit Scotland. The piece of paper that was found and presented to Parliament a couple of weeks ago represented more information on who. You said that it was entirely the Minister for Transport. That seemed to suggest that the Cabinet Secretary for Finance was involved in that process. The piece of paper that was presented does not fill the gap that has been identified by the Auditor General, which is that there is no substantial recording of the consideration of ministers and their response to the risks that were clearly identified by CMAL in presenting the contract to Ferguson Marine. I do not accept that. The information that was put forward by Transport Scotland, as referenced by the Auditor General in the report, is that we put forward the entire case of what the risks were associated with the contract award. The consideration that is for the Minister—how he chooses to respond to that—is entirely up to the Minister. In this case, he responded saying—I cannot remember the exact words—that he was confident for the contract to be awarded. However, he had in front of him everything that he needed to make that decision. In other occasions, as we put advice up to ministers, he potentially will respond and ask further questions on a particular issue. In this case, there was no exchange of that nature, as far as I can see from the paperwork. In terms of the DFM's involvement in that exchange, again, with responsibility for finance and budget, it is right that there is a final check done on whether there are any other finance and budget requirements. That is what the exchange is between the chief financial officer, as far as I understand it, Gordon Wales and the DFM was. You are saying that it is the responsibility of the minister, but it is the responsibility of the civil service to give the minister advice on issues around the value for money, the proprietary and the regularity of the contract that is about to be entered into. Under some circumstances, if it is believed that the deal runs contrary to those values, then written authority would be expected. Correct. However, as I say in this case, I suspect that you could have argued that it could have been laid out differently, but all the key considerations were included in that exchange that went up from the director. What you will no doubt wish to ask Mr Middleton is what consideration he had on the basis of that information as to whether or not that departed from the duties of the EU. As I say, there is nothing in there that suggests to me that that was something that he considered to be required. Okay, thanks. We are limited for time, so I have just got one other question to put in before I bring Willie Coffey in. However, you alluded to the permanent secretary who has recently been in correspondence with the Finance and Public Administration Committee where he said that there is no overarching statutory duty to record all decisions in a particular way. Do you consider that this lack of a statutory duty contributed to the failure to record this important decision that was made by Scottish ministers to award the contract on 9 October 2015? No, there is not a statutory duty, but there is a duty under the civil service code, so under the civil service code there is a requirement for us as officers to use evidence in our deliberations to record advice that goes to ministers. Again, as I say in this case, I believe that John Nicholls, as the director, has done that and recorded that exchange. I know that we have got the bit of paper that explains that the minister did accept that, then that is the totality of that exchange. We may well return to that, but Willie Coffey wants to come in. That is a supplementary follow-up on that line of questioning there by the convener, Mr Brann. Do you think that the extent to which some parties are placing particular emphasis on paper trails and recording of decisions is a fair reflection of how the Government actually works in practice? Are we dealing with unexpected expectations here by some, or are we dealing with failures to deliver on requirements? What side of that line would you say that we are in with that particular issue? It has been a recurring issue for the committee and others for quite some time now. If it would be helpful, you could see the exchange that has occurred on Islay vessels, for instance, to demonstrate that process of both approvals, clearing through IDM and then for ministers to accept and deliberate on what those decisions are. Although any investments are done in that particular way, with a paper trail, with that advice going up and with recommendations seeking ministerial approval, there are also good examples within the audit trail paperwork that is available online in relation to the latter part of 2019, when CBC had suggested a different approach to nationalisation. You will see in there a fairly detailed piece of response from the director-general at the time, Liz Ditchburn and myself on the AO considerations of that proposition. It quite clearly sets out in terms of propriety, regulatory and value for money that the recommendation could not be taken forward. I think that there is good evidence that decisions are recorded properly by the civil service. Admittedly, you could argue that in this case you could have demonstrated that differently with the way that was presented, but all the right evidence was there. Everything that was in front of Mr Nicholls was presented to the minister for him to consider. Can I go back to something that you said in your opening remarks, Mr Brandon, which is that you accept in full all the recommendations of the Audit Scotland report, but you do not seem to accept that recommendation, which says that there was a huge gap in the supporting paperwork that was required to be logged that lay behind the decision that was taken to award the contract to FML? I need to check what the recommendation was, but I think that the recommendation would have been on the basis that concluding piece of information was not available at that time, now subsequent to the production of the report, that piece of information is available. Maybe it was a conclusion or more than a recommendation, but look, I want to invite in Sharon Dowie, who has some questions to put to you. Thank you, good morning. Just again some additional ones and things that the convener has already asked. The Public Records Scotland Act 2011, you have to keep records and someone is responsible for keeping records, so why was this not complied with? Because this seems to be the biggest issue we've got is the fact that we don't have enough records to show decisions that were made. As I say, I repeat myself that the record is there and it is kept and it is public. In the evidence session that we had with Auditor General for Scotland, he confirmed that, in the absence of formal written authority under the terms of the Scottish Public Finance Man on Scotland, if an accountable officer does not request such written authority, the accountability for the decision raised with the accountable officer, so why would the accountable officer not have obtained this and why would it not have been stored safely, due to the number of issues that have been raised throughout? So, if I come back to what I said originally in terms of SPFM and the Public Finance Act, so the consideration for an AO is on those three points of signing accounts for expenditure income for the proprietary and regulatory issues around finance and for the efficient, effective and economic use of finance, the next part of that says that if the accountable officer is asked to do something that he considers would not be in the normal performance of those duties above, then he should seek written authority. All I can say is that the accountable officer at the time, Mr Middleton, must have had that consideration, so it's entirely appropriate for individual accountable officers to make that consideration, whether or not to seek a written authority. In this case, no written authority was sought or given as the auditor general has reported in his report. Can I ask how long Mr Middleton was in the role for? So, he left at the end of October and I took up post in the beginning of November. I think that David was in post longer than me heading towards seven years, I suspect, so I was six years. I think that he was still the longest serving CEO of TS. He experienced in his role then. Was there a reason, was it another job he left for, what was the reason for him leaving so soon after the contract was signed? So he was moving on to become chief executive of Historic Environment Scotland at the time and then subsequently to that he retired, he was off that age. So he moved on to another government position. Right, okay. So, just talking about the accountabilities, some of the ones are ensures risks are managed effectively, make sure procurement guidelines are met, seek written authority from ministers if any action is inconsistent with proper performance of the accountable officers functions. I know one of the comments you made earlier was that the job is to deliver on ministers wishes, so why would somebody with seven years experience not going to put all that into place because there's been numerous concerns raised with the contracts? Why would somebody with that amount of experience not get confirmation from a minister, written confirmation on the decisions that were made? Well, again, I think that they did. John put forward, the director of aviation put forward all the considerations in relation to the contract award and sought ministerial approval on the back of that. That's the paperwork that I've got in front of me, so I'm reviewing the same paperwork as the committee has. I haven't spoken to John or to Mr Middleton, I know that you have written to both or at least one to get written evidence, but I'm not sure I can add anything further to that. I just find it hard to believe that he's not got that. In the letter dated 20 August 2015 to the cabinet secretary for infrastructure, investment and cities, various issues were raised. Ministerial approval was sought by the 27th of August, just seven days after receiving the letter, and that was due to the minister being in holiday. It states that the date had already been extended for two months, as was for sign in the contract. Paragraph eight states, CalMac will not be in a position to fully endorse the shipbuilding documentation by the required deadline. Further efforts will be undertaken during the detailed design of the vessel by FMAIL to address any outstanding points. It also highlights issues concerning the access of the vessels to various ports that they may serve, requirement for modifications at some ports, the vessels are dual fuel, LNG brings some logistic challenges and may require some additional fueling infrastructure. There were lots of issues being raised, other than just the ferries, infrastructure as well. Why was there such a last minute rush to get that signed off? It had already been extended for two months, the minister goes in holiday and it was then given to the cabinet secretary to sign off, so why was there such a last minute rush? Is it because of the number of issues in the contract? No, I'll bring in Fran here, but I don't think there was a rush to sign off. I think FMAIL, in negotiating with the bidder, tried to get to a point where they could sign the contract, took a period of what, over two months, to get those final issues resolved from preferred bidder to contract award. I don't think that's a rush procedure in terms of FMAIL. As the procuring authority, bearing in mind that Transport Scotland don't have a role in the contract, this is between FMAIL as the buyer and FMAIL as the builder, had to satisfy themselves that they were able to enter that contract and resolve whatever issues that were apparent, but Fran, is there anything else you want to add? I don't think that there's anything to add to that, Roy. I wouldn't categorise it as being a rushed process. FMAIL may be able to offer more in terms of their direct experience of that procurement process. It is typical from the period from preferred bidder to the conclusion of the contract for there to be refinement of the contract terms. It would have been recorded in the advice to minister just in line with the very obligations that you've set out in the desire to make sure that there is a full record of risks and issues that are there, but I'm not aware of there having been any particular rush nor for ministers' holiday arrangements to have influenced the timing of decisions in any way. Was there a communication issue then? I'm just thinking that the minister that you're saying is responsible for signing it off, and you're saying that it would only have been then to Mackay who was a minister at the time, so there wouldn't have been any other involvement here, the authority to go and sign that off, but would there not have been communication between him, Transport Scotland, CMAL etc. to get this contract signed and he just goes on holiday, and it's then passed to Keith Brown to sign it off, who, as you're saying, wouldn't have had any knowledge of it in advance because it would only have been then to Mackay that was signing it off? Mr Mackay, as transport minister, we've been reporting to the CAPSEC under that portfolio, so any advice would have been the same to either CAPSEC or minister, so if a minister isn't available then I am assuming that between the minister and the CAPSEC they have agreed who will take decisions in their absence, but I'm in an area that is, you know, I wasn't party to these discussions or these exchanges at that time, and as I say, I know that you have written to former colleagues to seek their evidence. Just for the record, we haven't written to them yet, we have indicated that we are going to write to them, but the letter hasn't dropped through their letter boxes yet. My apologies. That's fine. I'm going to bring in Craig Hoy at this point and I can come back to Sharon Dally shortly. Thank you, convener, just for a point of clarification. In your view, which minister took the final decision to proceed with the contract? Minister for Transport. So that would be Derek Mackay. Correct. So he took the final decision. Correct. And which minister signed the contract? Ah, go on. Yeah, sorry, the procuring authority was between CMAL as the buyer and FML as the builder, so no minister signed the contract. So no minister signed the contract, so CMAL that had significant concerns that they raised them with ministers then signed the contract, so was CMAL overruled or were their views ignored? No, so their views were put entirely to the minister, minister considered those views, responded accordingly to the officials who were engaged as the sponsor body of CMAL and reported back to CMAL. And as I understand it, and I know that you'll be speaking to CMAL, the CMAL board were comfortable with that and then subsequently awarded the contract. But if I advise you not to do something in pretty strong terms and then you proceed to do it, I mean there being no other overruled, am I not? So you're referring to the letter from the chair at the end of September and the subsequent exchanges that went into the minister, so there was a, from the moment that the chair had expressed concern to the point at which the advice went up to minister, quite a bit of negotiation had happened, as I understand it, between CMAL and FML on getting the contract to a place where both parties were content. So at that point CMAL were content to award the contract and were seeking approval from the minister to do so. That approval was sought, given, and responded to CMAL and the board, accepted that and then signed the contract on, I think, the 19th of October, or what they're about? Well, I'm just looking back at the exhibit 1 in the Auditor General's report. September, CMAL advises Transport Scotland of the significant risks for awarding the contract to FML and states its preference to start the procurement process again. October, Transport Scotland advises CMAL that Scottish ministers are aware of the risks and are content for CMAL to award the contract to FML. It's quite clear either their wishes were ignored or they were overruled. Again, it comes back to my answer that the information that CMAL had raised in terms of their concerns were presented to ministers in totality with advice that had gone forward from the director. Ministers considered that advice and then responded accordingly to approve CMAL to award the contract, of which they did. We've touched on quite clearly who took the decision, although I still have real concerns about that, but we don't understand why. When are we going to get to the why and what change materially to allow CMAL to set aside all those very significant concerns, so much so that they want to reopen the procurement process? Where is the documentary evidence that the Auditor General requested to say why it was the final decision taken? If there are significant concerns in September, we don't know what changed between September and October. Surely all the research that you must have done for coming forward today, you must have a greater understanding of what changed. Again, it comes back to the documentation that went forward from John Nicholls, director of aviation, to the minister. That had all the considerations contained in it, including the mitigations that CMAL had managed to negotiate with the builder at that time to get themselves comfortable that they were able to award the contract. If you read the exchanges, it explains that at the initial stage that no refund guarantee was too far adrift from where they needed to be, and at the point where the advice had gone up to ministers, CMAL had managed to negotiate a position where they had both a refund guarantee for 25 per cent and a final payment of 25 per cent, so reduced the risk. That risk, in their view, was manageable. Again, I am speaking probably on behalf of others who you are about to see, including CMAL, so they will wish to present their own evidence on that, but that is from my reading of the paperwork. That is where it got to in terms of the ministerial decision. So you are absolutely certain that nobody was overruled or that there was no threat to overall anyone? No. Completely certain? Yes. So you can be certain about that, but you are not certain about what those discussions were because you weren't that? I am certain on the basis of the information that is being presented to the minister and what I am able to review. The advice that Mr Nicholl has put up to the minister included both the exchange from the chairman of CMAL to John Nicholls at the time in September, the further consideration that CMAL executives had on the negotiation with the contract, the draft voted loan letter that was to go back out from officials to CMAL, and set out very clearly what the risks were and for the minister to consider all that evidence and then to pine on whether or not he was content to approve the award of the contract. That is what I have got in front of me. Okay, fine. I just want to ask a little bit about the culture of the way that Government works, because obviously there are formal channels and there are back channels. For example, when did you last speak to the First Minister? When did I speak to the First Minister? I can't recall. It's not any time recently. I suspect that it might have been. In fact, it was probably a month ago when she came out to speak to the ET in an informal environment. Did she discuss ferries? No. Okay. So you would accept, however, the principle that when you're in discussion with ministers, there can be minute discussions, but there can also be discussions that can be had, the kind of water cooler moments. Are you certain that everything that needed to be recorded around that time, principally those critical 24 hours in October, are you certain that everything that needed to be recorded was recorded? So I think that there's always regular dialogue with ministers. I think that's what you're alluding to. On daily business, that's the case. I think that when it comes to important decisions, decisions of investment, decisions of policy, then those are recorded. I think that that's the distinction. In that case, what I've got in front of me is the paperwork trail that records that particular decision around the award. The Auditor General doesn't think that that paper trail is sufficient. Well again, it depends on what the Auditor General feels should be the response that comes back from private office and ministers, and that can vary. So you can have a response that comes back on a particular issue that sets out, verbatim what the recommendations are on the advice that goes up. So if the policy officials put a piece of advice up that says, we recommend you do A, B, C and D, then on occasions private office will come back and say the minister has considered the advice that's gone forward and reflecting back those recommendations. On other occasions, it can be as simple as one line that says that the minister has fully considered advice and is content. On other occasions, it could be that the minister has further questions to ask in response to this advice and we welcome a meeting or we welcome further exchanges on the advice itself. In this case, the response that came back is as documented in the information that you've got. So you're saying the Auditor General got it wrong? I'm not saying you got it wrong, I'm saying is that that's the interpretation of my interpretation of the documentation that I have, that the information that went forward was full, that the response that came back was the minister's view, his own view, there's no set template on how the minister comes back and in that response he has, he has opined that he has considered and is content for the contract to be awarded. Okay, and just I'll come back in later, just one final question. Do you mention the Investment Decision Committee? Did the Investment Decision Committee consider the ferries in 2015? If not, who did? No, so IDM, I'll bring Franan and Hugh here, IDM at that point was principally concerned with major investment, major projects of the scale of Queensferry crossing for instance. It didn't look at port infrastructure or vessels or other investment across TS, that's subsequently changed and as we move forward those big decisions, smaller amounts of money but still unique in their nature comes forward through the IDM process. So formal business cases, different stages, gateway reviews and then cleared by the IDM challenge session and at that point the advice would go forward to minister to say we've concluded the IDM, we have the business case, we have the gateway review findings and our recommendation is to do A, B or C but Fran or Hugh? So the investment decision making board of Transport Scotland is a piece of governance within the agency which is designed to support the chief executive in his role as accountable officer and it is designed to be a challenge function before any significant decisions are taken. So strategic business case stage or subsequent stages in a project and it supplements the gateway review processes and other assurance and governance arrangements that you would expect to see in place. Vessels 801 and 802 were not taken to the investment decision board, I can't speak to the reasons for that at that time. The threshold and the range of projects which come forward to investment decision board has changed over time as that piece, as that governance has evolved and continues to evolve but I have found it beneficial in my period and post to take significant projects to IDM to benefit from that challenge and to assist with the assurance process and in supporting the chief executive in their 80 function. Obviously it's my responsibility now to chair these IDMs and as Fran has said I'm very much of the view when I have run them into be fair when Roy was chief executive, he did the same. So obviously when it comes to that it's very much for the directors of Transport Scotland they get the papers in advance, they're expected to read them thoroughly. If need be we get a project team to come in and they'll do a presentation on it and then I will open up the discussion and invite every director to offer comment and we will reach a view. Sometimes we will send the project team away because we're not satisfied with the responses we've had to some of the challenges so it's certainly not a tip box exercise I can assure you of that. It can be quite uncomfortable for some directors and they get quite heated and disappointed when they're sent away but the serious point is that the challenge function is there and rightly so because my responsibility obviously under the SPFM and the civil service code is very much at the heart of that. Just a final question Mr Manning you said you were aware that we'd written out to future potential witnesses but you said you hadn't spoken to Mr Middleton so how were you aware that we'd written out if you hadn't spoken to anybody? I think it was through the clerk that suggested that in fact it was social media that you tweeted out that you were going to seek evidence from Mr Middleton and other employees so that's where I saw it. Okay I'm going to now bring Willie Coffey in because he's been itching to come in. Thanks again convener again it's a supplementary follow-up to my colleague Craig Hoy. Mr Brann you've heard the convener raising issues about the whole decision making process and record keeping issues and you've heard my colleague Craig Hoy highlighting the issue about risk and proper consideration of risks which are central to some of the issues that we're facing now and your view are the issues that have been raised about those two areas. Will they sufficient do you think to have invited the Government to reach a different decision about the procurement of these vessels? So I think the singular piece of evidence to rely on there at least to consider is that the written advice from CMAL executive to Mr Nicholls and then subsequently Mr Nicholls up to the minister where it talks about the management of that risk in terms of the refund guarantee changing and the mitigations put in place and what the residual risk was and again I don't have the bit of paperwork in front of me but it talks about I think from recollection there was a medium level of risk remaining if you like with the delivery of the vessels that it then goes on to explain a number of scenarios that may or may not happen i.e. if there is insolvency then the title of all the different parts etc has now been secured on behalf of the buyer so it lays out what the level of risk that was in CMAL's mind remaining at that point having negotiated a different set of outcomes with the builder. Had the Government not proceeded with the procurement of vessels what would the impact have been? What would the outcome be? So at that time if the procurement had not gone forward then it would have been a retendering exercise and start from scratch and obviously at that time a delay to the introduction of those vessels into into service and the impact on communities on that. Thank you. Before I bring in Colin Beattie I just want to go back to something that Fran Petiti said which I thought was an extremely important point which is about the role of challenge in making decisions because in the end this was 97 million pounds of public money and we now know it's ended up being considerably more than that and so the role of challenge for those decisions it seems to me is absolutely primary and as the Public Audit Committee of the Parliament is something that we would expect so I mean could you explain a bit more about the relationship that there ought to be between the portfolio accountable officer and this decision making and could you also explain whether there is a role in this process for the dg finance for example I mean isn't part of their role to challenge investment decisions taken at portfolio level to see if they meet the tests that are set out in the public finance manual. So I think in terms of the executive agency the accountable officer is the chief executive and it's entirely right that they are the responsible officer for those investment decisions and those challenge functions and as I say the IDM approach is our mechanism on which to ensure that before any decision is taken that these are thoroughly tested in terms of value for money whether or not they are still addressing the outcomes that we are seeking in policy terms before that advice goes up to ministers and as Hugh has explained previously during my tenure there were a number of occasions where particular initiatives would come forward and they weren't developed enough or they didn't demonstrate that they produced a positive BCR and the teams were sent away to look at how best we could deliver a different policy outcome but with a different option and that kind of approach to major projects is the one that we are applying now to all our infrastructure projects including ports and harbours and the join-up of those two issues so some of the lessons that have come out of this has meant that what Fran and the team are now required to do is to consider not just the vessel replacement but also the port infrastructure required to support that vessel replacement and to bring those two things together to IDM in a business case format to ensure that those are thoroughly tested and challenged before CMAL are allowed to go out and award any contracts. Again, for the avoidance of doubt, I think that Fran Pechetti said earlier on that that didn't happen with the case of vessels 801 and 802. Correct, so back in 15 and I suspect it was probably as a result of how IDM was focused in at that time, it was principally relating to our major project. So the £1.35 billion Queensferry crossing, Aberdeen-Wispy referral, large-scale investment decisions, substantive decisions and smaller amounts of investment did not flow through that process. Unique projects flew through that process so if it was a unique IT project for instance, that would have been expected to come through the IDM process but that subsequently changed to include a much wider range of investment. I'm not sure I got an answer to my question about the challenge and the role of the director general finance but when I'm looking at the Transport Scotland framework document published in 2012, so the one that was applicable at the time of the award of those contracts, it does say quite clearly in there that one of the roles of the portfolio accountable officer within the DG is to challenge. Roye Brown and Yon are now in the role of being the DG in the relevant department, albeit it's changed its name, and formally you were the chief executive of Transport Scotland agency. Don't you see that there should have been a role of was there a role of challenge by the DG accountable officer? Well, as I say, I can't recollect entirely but I don't think the DG had much of a role in terms of challenge of what the investment decisions were at that point. Those were direct between the CEO and ministers. In my current role, and if Hugh brings forward an issue that has gone through the IDM process and raises that issue with me, in turn I will be copied into all the various correspondence that goes up to ministers and will pick up from those exchanges what there is for me to be involved in in terms of deciding on whether or not I should see much more information about a particular issue or not. ScotRail into public ownership, for example. OK, but from what I've heard this morning, though, the lines of challenge that we would expect to be in place for a contract of this order don't appear to have been in place or not been operated or not worked and this framework document appears to be a piece of paper that wasn't a lived document that it was a framework document that gathered dust, it didn't lead to the correct challenges being made to those decisions. I don't accept that. I suspect that David, as the current officer at that time, in his regular discussions with the DG Graham Dixon, would have been appraising him of all the work that was under way within TES at that time. As I say, the paperwork that was going forward, whether it was on this project or on Queensferry crossing or on new trains, those would have been cited to the DG as they went forward to CAPSEX and ministers for consideration. As well as the final decision, the gestation of a policy to implementation would have been exchanged between all those parties and it would have been entirely appropriate for the DG and the CEO to sit down if there was a particular issue or a particular issue that needed to be raised and for that to be considered. OK, well I think our view of the concerns that were raised by CMAL extend beyond the description of being a particular issue. I think that they were pretty comprehensive concerns about the risks involved in the placing of those orders. Can I ask for the third and final time whether there was a role in this process for the director general of finance? I don't believe so. Again, the DG finance would not have ordinarily been involved in that. I guess that the chief financial officer would have been involved from a budget and financial perspective, which you can clearly see from the exchange if he was. Ordinarily, the DG finance would have been satisfied with the support structures that were put in place by the chief executive and the DG responsible for the portfolio in the management of both the resources and the budget and the delivery of the minister's programme of works in delivering that effectively. That's the position. Right. OK, well we don't know whether they were satisfied or not and we can speculate about whether with the hindsight of what's happened to this project whether satisfaction comes anywhere close to it. I'm going to invite Colin Beattie to come in an area of inquiry that he's got. Thank you, convener. Before I do, I'd like to just get a small clarification from yourselves. In paragraph 21 of the Auditor General's report, it starts at during negotiations and contrary to what was included in its bid. This is the connection with the BRG. Now the bid, as I understand it, it was mandatory that a BRG be provided. Subsequently, FML came back and said that we can't do it. We can't provide that. The implication in the Auditor General's report is that they had accepted that in the original bid and then subsequently said that they couldn't fulfil that part of the bid. Elsewhere, there's reference to the fact that, when FML completed their bid, they were silent on the subject of the BRG, so there was an assumption that they had accepted that. Can you just clarify that? Did they actually accept it or was it assumed because they didn't challenge it that it was accepted? I'll bring Franan in here and again you might want to check this in terms of the evidence that you have with FML, but my understanding is that they raised no issues as part of the tender process in relation to any of those issues, including BRG, and in that respect they submitted their tender accordingly. Anybody who does that is, by its nature, accepting the terms and conditions of the tender, as it described in the ITT. I think that's correct. At the point of submitting bids, all parties who had been invited to tender were invited to comment upon the terms and conditions that were set out in the standard BIMCO contract, which was clear around the requirement for guarantees, and Ferguson's, as I understand, didn't raise any comment in relation to that. In line with the standard procurement process, it was then assumed that they had accepted that by failure to have raised it at that point. Is that in line with other bids? Is it the same approach as not something different? So there was every reason to believe at that point that FML were going to... I would defer to see MAL on the specific terms of the invitation to tender, but it is my understanding and it's common practice in a procurement that you would invite comments and your silence is taken as tacit acceptance and I think that that's reflected in the auditor general's report. Okay. Thanks for that clarification. I'd like to turn to something else in chasing pieces of paper. I'd like to chase the money. There's enough lot of money going into FML and I'll go through it in a little bit more detail in a second, but they received over 128 million in public money. What attempts have been made to identify what that money was spent on? I mean, when the company was nationalised, there was only what, eight million or something in total assets within that company and yet substantial loans and substantial payments had been made, tens of millions. What attempts were made to find out if that money had been spent appropriately? I'll bring Dermot in here on the loans and the tracking of where that money was being invested. In terms of the contract, the 15 milestone payments that were set in the contract and CML's requirement under the contract as the buyer required that the builder submit to the buyer evidence to suggest that that milestone had been reached and for the buyer to be satisfied that then a milestone payment could be made. It's quite evident in the Rural Economy and Connectivity Committee's report back in December 2020 that these milestones were fabricated and there's further reference saying that this is not unusual in the industry. I mean, to me, it seems extraordinary. Again, this is an area where you'll no doubt wish to seek advice from CML as a procuring authority, but as I understand it, the procuring authority agreed in that negotiation period with FML what that milestone payment schedule should be and those milestone payment schedules were tied to deliverables, whether that was equipment, whether that was a certain level of fabrication. Now, I accept that within the Auditor General's report there is a definition that says, well, but what was that level of fabrication and I guess that's the area where CML have worked hard now to try and tighten up on what those milestones should be and how you tie them to quality in future contracts. But you can't get away from the fact that the BIMCO new bill contract is a fairly standard shipbuilding contract unchanged, which includes the same terminology and language as you've seen in this contract here. So, payment for upfront, payment for acquiring various bits of equipment and then various stage payments thereafter for certain build-out of the ship. A quarter of the money put up front to enable them to purchase materials? Again, that was the negotiation that was done between CML and FML. I'm going to be asking questions to CML when I get the chance, but Transport Scotland had a responsibility in that as well. Sorry, we didn't. We weren't part of the procurement of the contract. Were you not the sponsor? We were the sponsor body for CML and ensuring that CML, as our experts in shipbuilding, were undertaking the procurement and the work that they do in running CML appropriately. That's the role of TS. You do not have a concern that tens of millions of pounds were getting flushed down the toilet, and there was no way to ascertain what was happening with it? The contract was set by the builder and the buyer, with the expert opinion on what those milestones should be and for what, and then it's the case of those payments to be made under the contract. Once that contract starts, it's a very difficult contract to stop, so there are some suspension and termination rights within the contracts, and that's basically around the lack of work for 14 days, then the buyer has the ability to stop the contract and say, well, it doesn't look like there's going to be any more progress made. But once it starts, it's in both parties' interests to conclude that contract accordingly. At what point did you become aware that relationships between CML and FML had broken down? I would say that, throughout 16 CML, I was reporting to, and again, I'll bring Fran in here just on that reporting mechanism to TS, but they were reporting on delays, but recoverable delays. It was towards the end of 16 when I, as a CEO, became more aware that actually there's a greater risk that the delay was going to go beyond that first date for delivery, and in early 2017 we reported that fact to the ministers. Minister, I think, from recollection, visited the yard in 16. I think there's an exchange in the public record where the issue of delay was put to Mr McCall directly in which his response was that he was astounded to hear that somebody was questioning whether or not the vessels were going to be delayed or not. At that point, you could start to see the relationships between both parties drifting. For the next 18 months, what I and TS and the DG economy attempted to do was to try and broker a more harmonious relationship between those two parties and to try and get to a point where we could resolve some of the differences of opinion. I think that you've seen from the response that Mr McCall has sent into the committee that those differences of opinion on events remain. I suspect that, when you speak to CMAL, that will probably remain the case. Just to clarify in my own mind, I recognise that CMAL granted the contract, signed it off, managed it and so on. What reporting did they have to Transport Scotland in terms of the progress of that contract and the issues that were arising in that contract? I will bring Frannan on this point, but I forgot to bring in. The voted loan in the documentation explains the requirement for CMAL to update Transport Scotland and ministers on a regular basis. There is a template in there that sets out what needs to be put forward. The voted loan sets out the requirement for monthly reporting from CMAL to Transport Scotland in its role as the creditor under the voted loan agreement, which had the requirement for updates on progress. In addition to that, CMAL would also report into the programme steering group, which had no formal role in the contract itself, but is a product of the tripartite. Transport Scotland, CMAL and CalMac come together to look at the programme or portfolio of investment across the network to make sure that that all works together in all parties with an interest that are aware of progress and how that impacts on other projects and programmes within the portfolio. Is monthly reporting normal? Forgive me if I said monthly, it was quarterly reporting under the voted loan for 801 and 802. We have moved towards—in subsequent voted loans, that requirement has changed to monthly, but, yes, that is standard. I think that the point is that there is an active and a regular discussion around risks and governance. In addition to that formal written report, there would, of course, have been regular dialogue between the parties. It is quite short lines of communication, so people would have been aware of progress and issues in real time. At what point did Transport Scotland become concerned at the tenor of the reports that were going in, and what did Transport Scotland do? Again, it was not present at the time, but my understanding, based on the documents and discussion with other members of the team, was that there were individual aspects of the programme that had slipped from quite early in the contract in around about December 2016. Are there about, at that point, that it was reported to Transport Scotland that some of the delays to individual programme lines were likely to be irrecoverable, leading to changes in delivery dates under the contract? At that point, we notified those concerns to the Scottish ministers. Approximate time? Forgive me, maybe January, February 2017. In the contract, there is an allowance for allowable delays, so in acceptance that there will be potential overruns, and that allowable delays, I think, at December 16, Seymol were reporting that, in their view, the Yard's view was entirely different. Seymol's view, as professional experts, we are looking at this and going, well, we can't see how the first boat could be delivered to the original date plus the allowable allowance for delays. At that point, that would have been, it's still giving it this right, May 17 would have moved to August 17, so the three months, but they couldn't see how that would be done at that point. My impression is that Seymol were actually raising concerns fairly consistently for an extended period. The question is what was done about it, what intervention was taken to try and get this back on schedule, and given the fact that there was an awareness that Seymol's relationship with FML had broken down, that should have given an additional concern. On top of that, my understanding from the documents here is that Seymol wanted to stop the payments, took legal advice, which said that they had to continue the payments. All of this, didn't it raise a real concern as to what was happening? Well, it did. The reporting that occurred over 16 Seymol were reporting their view on how the performance was going. FML had a different opinion on that. The builder is a private organisation, it's for them to build the boats out, it's a designable contract, they are in control of the build and the programme, and their view was different from Seymol's. At that point, the delays that were being reported were recoverable, so it was still early on in the gestation of this project. It's not unusual for major infrastructure, if I take Queensferry Crossing, for instance, over a six-year contract. We were only 10 weeks late, but we wouldn't be concerned about some of that early delay early on in the gestation of that project. Similarly to this, it wasn't until Seymol had got to the point where they couldn't see that the original delivery date for 801 would be delivered. Seymol worked incredibly hard throughout the whole process to try and resolve and work together in a constructive way to make this contract a success. Nobody wants a failed supplier, everybody wants the outcome good on both sides of the buyer and the builder. Seymol went a considerable way to try and assist both the builder in his cash flow issues, in his design development that he was stuck with, but also in assisting with variations. There were some variations that were mentioned quite a bit in other reports, and some variations that were to the benefit of the yard should have speeded up the process. If Seymol in this case couldn't have done any more as a buyer to try and keep this contract in place and moving proactively forward. We ended up with a failed supplier, just on a slightly different angle on the money. Obviously a good chunk of the money that was paid out, they got most of the value of the vessels actually paid out to them, but they also got loan support. Now that wasn't visible to Seymol as I understand because commercial issues around it. So what was the rationale? I mean who made the decision to give these loans to provide what is basically working capital? Who made these decisions? And what were the loan conditions and where they adhered to? I'll bring Demond in on this. DG Economy Liz Ditchburn was responsible for oversight of the assistance to the economic asset that was the yard. It became clear in 2017 that the contract had exhausted any further potential to assist in the yard. I put a piece of advice up that can allade that out to say that Seymol's additional help that they had provided in trying to assist with milestone payments and the request that had come from CBC to remove the final guarantee that that could not go any further than that the contract was at its limit. There's no more that the contract could do to assist in assisting the supplier to deliver these vessels. That then moved it out of the territory of the contract into, well, the yard as an economic asset needs support and that's where Dermot and the team and Liz looked into the loan issues. So those two issues, it was important to keep those two issues separately. And if I could just come back to something that you mentioned just at the end here about supplier failure, I think that that is an area where it got touched on in the Wreck Committee and it got touched again on the Audit Scotland report. But what I've seen through both the programme turnaround work, the work that Tim Hear did, the assessment of work that's still required now on 801, there is a fundamental issue there around the builder understanding the simple terms of the contract, which was 100m boat to go 16.5 knots to carry 1,000 people and for that to be delivered for a price of 97 million. And how they went about that, that's an issue that I think is probably one that, well, you'll no doubt wish to ask Seymill questions that are around that. Dermot, sorry, he's sitting here. You asked about the purpose of the loan and who signed it off. So Roy has covered the terms of putting up the advice. It came from DJ Economy initially on the first loan and then from the director of economic development Colin Cook's predecessor on the second loan. And the loans were approved by the cabinet secretary Derek Mackay. The purpose of the loan, as Roy said, there's two types of contracts. So there's a contract for the build, that's a procurement. The loans are not a procurement, they were an investment into the business. So the purpose was… Was the purchase of shares stock? Initially it was debt. So we reviewed the business case of the business and essentially when the business were taking on debt we wanted to understand whether the business, through its business plan, would be able to repay that debt and the government would earn a commercial return. Did CBC put any money into this? CBC had initially capitalised the business. So we… How much was that? The figure that I've heard CBC talk about was around £25 million. That was, I think, understood their initial capitalisation of the business. And then as we negotiated the second loan, under the terms of the second loan CBC were due to putting £8.5 million into the business. Did you do so? No, they didn't put in the £8.5 million, what they did in the end is to put in £3 million worth of money and that went in as debt rather than as equity, which was our original agreement. So, actually, the terms of the loan were not fulfilled by the supplier? The terms of the second loan, CBC defaulted on the second loan, the business defaulted, so they didn't… In October 2018, when the business, FML, had drawn down £17 million from the loan facility, second loan facility, at that point there was an obligation on the business and its shareholder to put in £1.7 million to subscribe capital, up to £1.7 million of new equity. They defaulted on that condition and at that point, draw down of the remainder of the second loan was suspended until we renegotiated with CBC and ultimately they put in £3 million, not as equity but as debt and we agreed that, but that debt was to rank behind the Scottish Government's debt. I mean, we're talking about loans here but was there ever a prospect that we're going to be repaid? I mean, here we had a business which was clearly suffering from lack of liquidity and needed all sorts of concessions on its contract in order to get payments to keep it ticking over and yet we're giving them loans. I mean, on what rational financial basis was that done? So we studied the business plan of the business. For the second loan particularly, we were looking at a long-term plan over the next 10 years. What was clear and the business were clear about it was they did not anticipate making any margin at all on contracts 8 to 1802. Essentially, by taking on the debt from the Government, they were essentially for going future profits that would come back to the Government. Now, those profits were to be earned on subsequent contracts. Now, at that time, the business was bidding for quite a lot of work. They did win some work in that period. They won work on an air cushion barge and they won some work on two vessels in Velosa vessels and they had some other fabrication work. Essentially, the loans weren't going to be paid back from the completion of 8 to 1802. They were going to be paid back over the subsequent period of over future years as the business won more work. The risk for the business and for the directors taking on that loan was to be sure that they could pay those debts as they fell due. The risk for the Government was that we had to believe in the business plan and believed that the loans could be paid back. We sought advice from PwC. They reviewed the business plan for us and said that there was a prospect of us getting a return on that money. That has not proven to be the case. Some of the money we have been able to recover some of the debt via the money that was offset against the loan underlying the business and an amount of money, too, that has come back via the administration. Now, PwC must have given a written opinion. Is it possible to see that? Yes. The report that we had from PwC, I think, would be dated May 2018. It is referred to in the advice that Colin Cook's predecessor, Mary McCallan, put to ministers recommending the second loan. It is referred to in there. It would be interesting to see the recommendation as well. The recommendation from the civil servants? Yes. It is all put down in Mary McCallan's submission. I think that is of April 2018. That is on the public record and the FML documents that we have published. I am conscious of the time. We have two members of the committee that I am keen to bring in before we finish up. I do not know, Willie, whether you want to go next. I wonder if I could raise the issue again about the application of quality standards that Colin Beattie led on just a moment ago there. The auditor general and his key messages told us that some of the project milestones were not clearly defined and there was no linkage, in fact, to any quality standards that may be an accepted part of that particular industry. Do you have a view on that, Roy, about why we were not insisting on a connection between the milestones in the project and quality standards that should have been applicable at each point? Again, my background is civil engineering and highways and transport. However, as I can understand the standard shipbuilding contract, there is a clear clause at the start that talks about standard shipbuilding conditions, so building the ships as you would expect to see build shipped by competent yards. I suspect that a lot of that is rested within the contracts and the way that those contracts are held between the buyer and the builder. The auditor general has picked up on the point that, surely, there is an opportunity there to review that standard BIMCO contract and strengthen it, and I seem to know that I have looked at that and I will bring Franan again on the isle of vessels to see what more has been done. However, what is evident, and that is what we saw through the turnaround director's report, is that there was a substantial amount of work that was not done in that sequence or in that generalised way of how you would have put the boat together. That is no reflection on the workforce in the yard that they built and what they were asked to build. I suspect that that is more about how it was planned and how it was project managed through that period of time. However, the contract is silent on that, so the contract does not allow SEMAL, as the buyer, to interfere in the builder's approach to building. The SEMAL is allowed within the contract to ask for variations, and the builder is entirely entitled to refuse those variations or to continue on if he feels that those variations are going to impact on the contract itself. There is a dispute mechanism in the contract. In my parallel world of civil and transport projects, there is a similar approach to how you deal with disputes, variations, costings and payment for those, but nothing that would allow the buyer to intervene in quality control, per se, but Franan. There has been, as you would expect, a significant degree of reflection on what could be done better or lessons that might have been learned from 801 and 802. Again, I would defer to SEMAL on the detailed specification of all of this, but we have reflected collectively upon this very point around quality and how we tie those to milestone events. As part of the reflection, we discussed whether it would be prudent to modify what is an internationally recognised BIMCO contract to be more explicit in relation to quality standards. The feedback from SEMAL, as our industry experts, is that that would have the unintended consequence of potentially deterring bidders or distorting the contract price, but a different way to achieve the same outcome, which we now see in relation to ILA and future vessels, is to make sure that those milestone payment dates under the contract are explicitly linked to quality. Future contract milestone events will rely upon a certificate being prepared by the builder, which has to be signed off by the attending classification society before payment is made. That might have been assumed, and that is typically the practice that would have existed under BIMCO anyway through that general quality reference that Roy set out, but we can certainly make that more explicit in relation to the milestone payments going forward. I am sure that that is something that SEMAL will be able to speak to more eloquently than I do. It is a recurring issue at our committee that when we look at any project, we very often find, Roy, that if the project goes wrong at the beginning, it is unlikely to work at the end, and there is a lack of sufficiency of rigor being applied at the outset. In particular, in the absence of applying quality standards to milestones, it would seem that the members of the committee are to be a major issue. One of the examples that the auditor general listed in his report in paragraph 138, he told us that some of the 1,400 cables installed in the first boat were too short. It is just amazing to the members of the committee and perhaps to the public as to how that was not discovered and, in fact, it was not reported to the Parliament until the turnaround director was involved in that was 2022. How on earth can something like that happen that cables that are too short can go on and seen and unnoticed for merely four years and cause that significant delay to occur? I would connect that directly with the application of quality standards and inspection and so on and so forth. Why was that missing in this case? It is common in more general on the states of different types of contract, but this Bimco new bill contract is a design and build contract. Once the tenderer takes the concept design or the outline design, he then assigns a contract and he then owns that design. His responsibility is to produce the outcomes that are set in the front page of the contract, and it is entirely up to him how he does that and why he goes about that. The final payment is based on what that end product is. There is not an allowance for Seamall, if I am correct in saying this, to judge how he goes about that as he delivers the final product because it is a complete design and build system. What you might argue is that there would have been an opportunity there for Seamall to be in and about the yard. I think that they have, within the contract, allowed them an individual to be in and about the yard to witness this. Now, they can witness it and they were recording issues that were going on with the build, but there isn't a mechanism as far as I can see in the contract to halt that. Suspension determinations set out, I cannot remember quite what the clause is, but it is very clear about those terms of when a contractor, when the buyer is able to trigger a stop of the contract and a repayment of the fees. One is a default refund guarantee. Second is lack of work for more than 14 days, and I have forgotten the third one. However, it doesn't specifically talk about quality or specification as a trigger mechanism for halting the contract. I suppose that the last question on that is, shouldn't it? It surely must be a ridiculous position to not be able to challenge the fact that cables are too short on a boat and for that to remain in position for four years until somebody else comes on the scene to turn around directly to identify that. Surely that must be something that we are looking at. I am aware that the observation reports were a mechanism to raise and highlight issues. Those are essentially change requests in the quality world, and they may or may not have been carried out by the builder, but surely, to goodness, that whole area needs to be strengthened. You are absolutely right. The ORRs are the mechanism by which the buyer is able to identify those issues that they are unhappy with, and they need to be rectified before the boats would be taken into ownership. That was fully documented. Seamall were religious with identifying what those ORRs are and asking that the builder corrected those before the boats would have been handed over. None of those issues would have materialised in the final boats if it had gotten as far as that, but that is the mechanism. Whether the BIMCO contract needs to change to deal with this more explicitly, again, that is maybe a question that is for our shipbuilding experts of Seamall that you speak to Kevin and others around. Is it accepted, this whole point, that the ORRs are general red? Is that accepted by all parties that these cables were too short, or is there some dispute about that? Maybe it is fair to moe on what the yard's current position is in relation to those cables, but I think that certainly Seamall had understood and had identified that the cables were too short, so I think that that is accepted. Even by the builder, they accepted that the cables were too short. I forgive me, but I do not know whether it is accepted by former management FMA, when it is understood that the cables were put in, but it is certainly to my understanding accepted by the current management team at the yard. Can we bring Moe Rooney in at this point, please? Moe? Yes, thank you. We do not know what happened with the cables in the first instance. They were installed prior to Ferguson's coming into public ownership. As we understand it, it is standard practice that, when those cables are fitted, they are left with a bit of excess. They were fitted by reputable contractors, so it was assumed that the coils that were rolled up included the length of cable that was required. The issue was not discovered until an inspection in January or, understand, the tail end of December, when those were unrolled and measured and it was at that point that the issue was discovered. We do not know how that has come about, but, as I said, they were installed by reputable contractors and there were assumptions made on that basis. Okay, we can probably further investigate that in the next session. Can we hear us thanks very much back to you? Yes, thanks very much indeed, Willie. We have only got a couple of minutes left and there are large areas of the report, for example on nationalisation, the lead-up to nationalisation and so on, and Colin Cook has been noticeably silent today. It may be that we will require a further session just to complete the evidence-gathering that we would like to get through, but I will conclude today's proceedings by inviting Sharon Dowey to ask any outstanding questions that she has got. Just a wee question on the Eric Ostergard email that was sent on 26 September. He makes it quite clear that the contract should not go ahead and, in your evidence that you have given today, you are referring to CML as the experts in shipbuilding, so why would the recommendations have been ignored? So again, I will come back to the timeline of that. Eric had, at that point, reflected where things were with the negotiations, as I understand it, but the time that the advice had got to ministers, those negotiations had moved on sufficiently enough that CML executive and the board were content with what they had managed to negotiate with the builder at that time. So that is, again, coming back to some of the previous evidence. That seems to be where the gestation of the movement from where it was to where it got to before the advice went to minister, but Fran, anything else you want to add? No, I think that is a fair summary. At the point of that note that you referenced, the board had been clear that they felt the risks were unacceptable. That was followed by a period of negotiation where mitigation was put in place, the mitigation in relation to alternative forms of guarantee and also modifications to the voted loan that provides CML with greater assurance. Those risks got to a position where the board ultimately concluded that they were content with the risks that remained, but the risks at that stage were acceptable and they were content to proceed. It was on that basis that Transport Scotland officials put advice to ministers on 8 October. That advice ultimately was accepted. Can I ask if there was a meeting held between everybody at CML Transport Scotland, the ministers, that they all come together in a meeting to discuss all the issues that they had? Not that I can see from the paperwork, so the paperwork is in front of us, but... Again, not that I'm aware of. My expectation would be that, had there been a meeting engaging ministers at which decisions were taken, that would have been minoted. I haven't seen any evidence of that. I expect, and I think that I understand from the exchanges, there would of course have been regular dialogue between CML and Ferguson's. Transport Scotland wouldn't have been privy to that, but there was regular engagement between Transport Scotland and CML. Ultimately, the output of that is all recorded in the submission of 8 October. Even though all the issues have been handed to the ministers, they have not actually had an in-person meeting to discuss it with the experts in shipbuilding. Just going on to the email for October 2015, the eighth, an email sent to Derek Mackay and Keith Brown. The senders redacted along with a list of other people who were also copied in in the correspondence, but it states that the DFM approved the financial implications of the contract award prior to the announcement by the DFM on 31 August that FML was the preferred bidder. It goes on to stay still that it's clear that the board of CML is still concerned, and at the end it asks for the minister's confirmation that he's aware of the issues and is content to give approval to proceed and also asks if the minister wanted to speak to a representative of the CML board. So would it be fair to say that it's the Deputy First Minister that was made fully aware of the financial implications prior to the announcement by the First Minister, so he's the one that's authorised the contract to go ahead? No, so is it come back to the evidence previously, if the DFM's role was in making sure that the finance was available to continue forward with the procurement? But with the financial implications of it, to me it looks as if the ministers haven't been happy with the financial implications, so that they handed it over to the Deputy First Minister to give authorisation? Well, I don't have that bit of paper in front of me, but I don't see that's the reading of it. I think that, as I said, that DFM's role in this was to ensure that the finance and the budget was available for the procurement to continue on. So one of the issues is that is the authorising environment, i.e. is the money available to take forward this project, that's quite rightly an issue for the DFM as the budget, the Cabinet Secretary for Finance, was the budget available, the decision on whether to proceed with the procurement, is the ministers? Right, and again at the end of this letter, are you aware if the meeting was requested with CMAL and if it took place? We've found no evidence that there was a meeting that took place between ministers and CMAL. Okay, well, thank you. I mean, I guess my only final question, Roy Brandon, to you, is just to ask if, was it in your gift to advise ministers to terminate the contract, and if it was, was that something that crossed your mind to do? So it wasn't within my gift, it was within CMAL's gift as the party to the procurement. Apologies if I keep restating this, but Transport Scotland were not a party to the contract, so buyer, CMAL, builder, FML, within the terms of the contract, it is entirely right that CMAL could have triggered a termination or a suspension of the contract, and I think I've mentioned a couple of times now what those conditions were. If there was no work undertaken in the yard for more than 14 days, then CMAL could have triggered a cancellation of the contract and requested all their money back. So I think another important thing here that within the contract clauses, even though you had a refund guarantee, partial refund guarantee, the contract clauses still require the contractor to repay if there is a suspension or termination. That would have just meant that the yard would have had to find the money to pay back the buyer, CMAL, and probably in that space then the yard would have in solvency a much earlier process. So it was an area that was considered, it was one of the options that was looked at by PWC in the 29 options that they put forward, and it was one of the three recommendations but discounted because of the impact that that would have on, at that point, not just the vessels but the vessels, the yard and the jobs. Those three things were interlinked throughout the course of the project itself. You recused Transport Scotland from that, but you, as the accountable officer, gave advice in April 2017, at the end of April 2017, which is among those 200 odd documents that are now in the public domain, where you said that if flexibility on the surety bond was going to be introduced, then you would require written authority for that. Correct. So I was pretty clear in that advice that there was no more flex within the contract. The contract CMAL had gone as far as they possibly could, and I couldn't see how they could do anything more than that. If there was a requirement, if I had been required to ask CMAL to remove the surety bond, then I would have sought a written authorization to do that, and clearly my recommendation up was that that should not be touched, and there was no issue with that at all. Ministers didn't ask me to do anything more with that, and they accepted the recommendation. I also go to say in that piece of advice that I expected that there would need to be some other intervention or assistance to make sure that that was going to be a successful outcome. At that point, I was pretty clear that the contract had gone as far as it possibly could. But your recommendation was, or what happened was, at that stage, a re-profiling of the, as you called it, or an acceleration, as many others would call it, of the payments to FMAL? So CMAL had suggested, I'd put forward the proposal to bring forward some of the payment for additional milestones, strictly controlled by CMAL, title taken by CMAL on them, and clearance process is in place to make sure that that money was apportioned to the title of whatever it was, parts manufacturing that were coming through the business. So there was no new cash into the business from the contract, same contract value, just the re-profiling. In actual fact, CMAL controlled that very well because there was a couple of items that had come forward from the yard for work that was not connected with those milestones, and they were refused by CMAL. So my position on that approach to ministers was CMAL proposing that that was something that they could do to again assist the builder to continue on to deliver the outcome successfully for these vessels. My view was, as the AO, that proportionate is it manageable, is it balanced at risk, and out of all those issues that had come forward, the only ones that I could hand on heart say that would assist at that point were the re-profiling. The surety guarantee could not be touched. But as part of that arrangement, that new arrangement, wasn't there a commitment given to CMAL that they would be compensated, their budget would be increased to accommodate that change in the profiling of the payments? There's no new money, so the totality of the voted loan was exactly the same. So it brought forward what would have been in the final payment into an earlier part of the budget year, but that was only a re-profiling off the totality of the voted loan. There was no new money into the system. Just finally on this point, because this has been brought up, I think, in the Audit Scotland report, which is around the fact that there were 15 intervals of payment, rather than typically five. Again, can you just, for the record, tell us the reasons for that? That's a question that you need to put to CMAL. A normal practice is between buyer and builder that they agree what the milestone payment should be, based on what the builder will expect to have in place by either engines or equipment, or when he anticipates he will need a flow of cash to allow that to be successfully built. Ships are expensive, they cost a lot of money and they have a lot of upfront costs, so it's entirely right that the builder and the buyer agree what that milestone schedule is, and in this case they agreed on 15 payments. I think that one of the things that I've drawn from today is that there seems to be a lot of responsibility and accountability placed at the level of the builder and the buyer, but the whole apparatus of accountability in the civil service doesn't seem to have been applied. To the point of the award, and once it becomes a contract, the contract, and this is in all other cases, so... But it's gone from £97 million to two and a half times that much. Indeed, so the failure of the contract has been part of that process. Contracts that I direct control over, Scottish ministers direct control over contracts like Queen's Ferry crossing, for instance, we would be acting in exactly the same way as Seamall on those issues, so if Queen's Ferry crossing, for instance, was ten weeks late on a six-year contract, which is those issues, those delays, I would have been dealing with, as the buyer and the builder, Queen's Ferry crossing contractor consortium, we would have been in those discussions about how to make sure we maintain progress on the contract. Civil service doesn't have a role in contracts that have TS or SG, but they have a role in the contracts that are procured by our agency, Seamall, and private organisations directly in the contract. We have oversight of the sponsored body, and that's entirely appropriate to make sure that the sponsored body does not act inappropriately, so they are not making payments that are not linked to progress or are not linked to the contract itself. Mr Brown, on that note, which is where we may pick things up again in the future, can I thank you very much indeed for your time and the evidence that you've given us this morning, and can I thank all the members of the team that joined you, including Mo Runi, who gave a contribution towards the end? As I said, we've got whole areas of the report that we think are important for us to interrogate, and that's one of the reasons why Mr Cook wasn't called this morning, but I'm sure that we will get back in touch to see if we can arrange a follow-up session, because I think there have been lots of important issues raised this morning, but some of the ground that we need to cover, we haven't quite got to. I thank you once again for your time, and I now close the public part of this morning's session. Thank you very much indeed.