 Good morning, and welcome to the 29th meeting of the Neben zero turnout and transport committee for 2023. Today we have apologies from Jackie Dumbart and Jim Fairlee is attending as her substitute. Jim, welcome to the meeting. It's good to see you here. First item on the agenda is because you are attending as a substitute member of the committee is to invite you to declare any relevant interests that you have. I have no relevant interests other than a prior membership of NFUS Scotland. Perfect. The second item on the agenda is a decision on taking business in private. We have consideration of whether to take items 5, 6 and 7 in private. Item 5 is to consider the stakeholder's view on Scotland's guiding principles on the environment, statutory guidance and the recent Scottish Government report on the effectiveness of environmental governance regulations. Item 6 is to consider the evidence that we will hear under agenda item 3. Agenda 7 is to consider whether to seek approval for the appointment of an adviser. Are we all happy to take these items in private? We are happy. Thank you. So, agenda item 3 is an evidence session with Ferguson Marine Port Glasgow Limited following the company's latest quarterly update on the completion of MV Glenn Sanox hull 801. MV, I think it's going to be called Glenn Rosa, but as it hasn't been launched yet, I'm going to refer to it as hull 802. We'll examine the issues raised in Ferguson's marine's quarterly update as well as other issues affecting the delivery of the two vessels. I'm therefore pleased to welcome Andrew Miller, the chairman of Ferguson Marine Port Glasgow Limited and David Timon, the chief executive officer for Ferguson Marine. Thank you for joining us. Before we begin, David, I believe you want to make a brief opening statement. Yes, thank you. Good morning, convener. Thank you for the opportunity to come here today and to take questions you might have for me or our chairman, Andrew Miller. In the first few months after being appointed CEO of Ferguson in February 22, it became very clear to me that the design was far from complete for Glenn Sanox, how much rework and redesign would be required. As context, less than 5 per cent of cabling and only 20 per cent of pipe spools had been installed at that time. Regrettably, we've encountered many more problems than I first imagined, and the amount of work to solve design clashes and errors of the past has been significant. However, we have now reached the stage where design is essentially complete and from this, for the first time since I took office, a sense of control has been established over the scope of work for contractors, direct labour, focus on staff and associated materials. The principal contractors for Glenn Sanox are on framework contracts, pricing for work as it arises by agreed labour rates, management charges and materials costed separately. As new design or redesign has been found, work scope has increased and contractor and focus on direct labour costs have risen month by month. I estimate that 50 per cent, about 35 million, of the increases over the last 18 months on Glenn Sanox have come directly from reworking the design, sometimes regrettably involving two or three iterations. Whilst the equipment on board Glenn Sanox is not complex in its own right, the vessel is made complex by the need to fit a lot of systems and major components into restricted spaces. In this sense, these two ferries are far more complex than the Lock Seaforth, the largest vessel in the current fleet, and more complex than the four ferries being built in Turkey for Seymell. The design challenges have been very substantial, more complex than the Type 26, according to senior industry visitors that I've had on site, and have been made far more difficult by the changes in designers and staff through the recovery twice from administration, nationalisation and the pandemic. However, we are making steady progress for trials to start in the new year with Glenn Sanox, and then we will set out to prove the final design is fit for purpose and able to deliver the reliability expected and required by all involved. Having at last a final design and a clear work scope allows a more confident approach to Glenn Rosa, and we've been able to get main contractors to offer fixed prices. Through that, we now have perhaps for the first time an opportunity to stay within the budget and contingencies. Overall, combining the £123 million incurred by FML between 2015 and 2019 and the latest forecast I've set out, Glenn Sanox will have cost just over £200 million to complete, while Glenn Rosa is expected to be £40 million less, reflecting the benefit of being the second ship. Within that, the overall cost of equipment and materials has doubled from about £50 million to £100 million, and £80 million will have been needed to cover the overheads of the shipyard. I'm pleased to advise that the work developing with BAE for the Type 26 programme has secured work for nearly 30 Ferguson staff who otherwise would be faced with empty fabrication halls, and this work has also covered some of the overheads of the yard. This new work is an important aspect in securing staff morale on site, essential for maintaining the productivity we need for Glenn Rosa and Glenn Sanox. Thank you. There are a whole heap of questions, as you'd expect, David. I thought I'd start off with an easy one is looking back when you first came and took over the construction. Was it clear there were serious problems with the construction of the vessel at that stage? Were you clear from day one that you moved into the yard that there were problems? Not from day one. Within the first three months, I realised that the design was incomplete. There were areas of clashes in routing of systems, and there was a complex problem ahead of me. When I visited the yard in 2018, there were pipes going up the lift shaft, which were clearly not going to allow the lift to operate. You identified within three months why the system was never picked up before. I don't understand why, after the yard was nationalised, it appears to have been two years for the problem to be compounded. Do you think that that is a fair assessment? I think that it is a fair assessment. I am not sure why it took so long. Certainly between February 2020, just before lockdown happened, the contracts were placed with ICE, the international contracting engineers and designers that we used. They were given a fixed-price contract with liquidated damages to produce the design by November 2020. During that lockdown period with the yard not working, they produced nearly 20,000 drawings, formalising the design that had been developed by FML in using different designers in 2016 through to 2019. The Ferguson team on site was pretty thin at that time. Looking back, they barely had scope to catalogue the 20,000 drawings, let alone actually approve them. The issue of drawings over that period had a lot of circled holds, areas of questions and things to be clarified. I think that it then took another year to progress through that system by system. I am unclear why 10 months after the yard was nationalised and we had a turnaround director in the yard. Nothing has turned around. It has got worse. Can you explain that? I cannot explain it. I was not there at the time. When I took office 18 months ago, it was clear that there were still large gaps in systems conflicts. Very little of the piping had been put into place. A lot of the cabling that still had to go, we had only had about 10,000 metres of cabling in place in the ship in February 2022. We are now 310,000 metres of cabling. All of that has gone in in the last 18 months. We paid nearly £2 million to a turnaround director that did not turn it around. It is not for me to say on that. We will go to the first question from Ash. I think that you have got some questions. There has obviously been an announcement quite recently of further cost increases. I think that that will be of concern to many people who have obviously been watching the costs increase over the last period. Will you be able to outline for the committee what the reasons are behind the latest increase to costs? If we look at the two ships separately, the largest increase is on Glen Sanex. That is a product of finalising the design, reworking the design regrettably, doing some things twice or even three times as we have rerouted cables, rerouted pipe work. One small example would be the hydraulic pipe work in the front of the ship that is associated with opening the clamshell doors. That was all installed in mild steel and should have been stainless steel, so we had to take all of that out and redo it. That is one of many examples. You spoke in your opening statement about material cost rises. Is that due to different materials being required or is that due to inflationary pressures that we are seeing at the moment? It is a bit of both. The roughly 50 million budget in 2015 was for the main engines, generators and a lot of that equipment was bought pretty much on budget in 2015, 16 and 17. But the rest of the cabling materials, outfitting materials, pipe work, that has both scope and inflation aspects. Can you detail what proactive steps you are taking to ensure that any further cost increases are being kept down to an absolute minimum? The first action is to finish the design. As I said in my opening statement, this is the first time that I have felt in control of the work scope. If you know what you have still got to do, you can price it. We have had open-ended contracts, time and materials with all the contractors and we could not get them to give fixed prices when we could not give a fixed scope. The increases that we have faced over the last 18 months have been directly a result of asking contractors and the Labour to do more work. With Glen Rosa, a year ago, when we set out the 105 million budget, we had aspirations that we might be able to reduce the number of man-hours, a stretch target I think I called it in my letter a year ago. Inflation, increase in work scope has eroded that ambition for stretch, but the increases that I have announced at the end of September letter are only 5 million from 105 to 110. That is really linked to defining the scope and dealing with inflation aspects. Less increase forecast on Glen Rosa. Again, as I said in my statement, I believe that we have a chance now of sticking to budget and within the contingencies on Glen Rosa. You have got a current revised cost estimate, a current predicted delivery date as well at the moment. How confident are you that you will meet both of those? I am more confident in the pricing than I am in the delivery dates because there is an uncertainty of the trials process. Once we start to run the engines, test the ship over coming months in January, February particularly, that is when we will know whether the design works, whether any vibration issues cause things to come loose. These are conventional things that you test in the trials process with the ship. Again, as I said in my opening statement, the ship in itself, the equipment is well proven. There is nothing there that is out of line with the market, but it is a complex ship in that systems are overlaid on itself. The trials process is there to test whether it all works. If the trials go smoothly and the handover happens before the end of March for Glen Sanox, I am confident that we can stick to the programme with Glen Rosa following on from that. If we get some delays in the trials from Glen Sanox, it will have a cascade effect on to Glen Rosa. You said in your written update that the design work is now largely complete. You have also got a contingency of £30 million, and that is at this stage of the project. If the design work is complete, why the need for the £30 million contingency? The contingency is in two parts, maximum £12 million on Glen Sanox, £18 million on Glen Rosa. I set that out in the letter on the end of September to the committee. The Glen Sanox contingency is linked to trying to put numbers on possible things that might come out of trials. Do we need to replace things? Do we need to buy new equipment? Have we got delay costs? Have we got to rent key side space for running the trials? The £12 million fork is allowed for those aspects. On Glen Rosa, the £18 million, I put a range of between £3 million and £18 million. We are in the process, as I said, of trying to secure fixed-price contracts with the contractors. The electrical contract and the piping contract is nearly 50 per cent of the sub-contract costs on Glen Rosa. We are in negotiations at the moment. I have got some contingency in the £18 million. I anticipate that, to be able to transfer risk to the contractors and get them to get a fixed price, I may have to negotiate a little bit on the pricing. Some of the £18 million is allowing for negotiations that may happen. The other parts of the £18 million are for potential delay costs if we get a cascade effect from trials from Glen Sanox. I think that the next question has come from Monica. Thank you, convener, and good morning to our panel. In your most recent written update, you have highlighted the effects of the Covid lockdowns on construction progress. In previous updates, for example, in July 2021, it was highlighted how effectively the yard dealt with Covid. What proportion of the sexual delay is attributable to Covid and to those lockdown periods? It is very hard for me to do that. Looking back, I was not there at the time. I think that it was £5 million or £6 million was the claim for Covid impact that was made in 2021 before my time. That seems to me to be a small sum for the lockdown effect of the yard for six to nine months. In particular, the impact, as I mentioned earlier, about the drawings being produced by ICE at that time, and a fairly thin engineering team trying to cope with that. You imagine trying to get technical approval of drawings with people working remotely, in some cases working from the outer hebrides. One of the engineers for CML was involved in trying to approve technical drawings working on a line on his laptop. The embedded costs of that period, I think, were far more than the £5 million or £6 million. Therefore, the cascade time impact would be more as well. Does that mean, in your view, that the impact of Covid has previously been underestimated? Personal opinion, yes. You made an interesting point about remote working, in terms of having a negative impact, but others might say that shipbuilding is an international industry. It is quite established that contractors and people who are working around the globe are able to communicate effectively. Is that something that you would recognise and agree with? It is a mixture. There are some benefits of working remotely in some areas. Procurement teams can work remotely. The ICE design contractors are based in Romania. We have pretty good dial-up lines with them and can work remotely at a distance. When you are physically putting the ship together and the engineering team needs to walk the corridors, walk through the engineering spaces, you have to be on site. Remote working can work, but when you are putting the ship together, you have to be on site, seeing the work done. There has been reference to a shortfall of skilled labour that contributes to delays. I wonder whether you can expand on that in terms of the picture or spirit of skills previously and your view of that now. I think that when this contract was placed in 2015, Ferguson was recovering from administration and had reduced down to only 70 staff. There were about 20 salaried staff within that 50 were their trade skills. That was a pretty thin team to start this project with. They ramped up to about 200 within the first year. We are now running at about 320. Within the trade skills that we have, we have 60 welders and platers with an age profile, most of them within five years of retirement. At the other end of the spectrum, we have 60 apprentices, all under 25, and a big gap in the middle. The skills mix in the yard is quite challenging if I look five years ahead. How do we fill that retirement? How do we train people up? How do we recruit people in the middle-aged groups to come in and build a more sustainable team for the future? Indeed, and you have a plan in place for that. In terms of looking at your most recent written update, it mentions that designers were set—this is a quote from the letter—an impossible timeline and deliverables. I wonder if you can help with understanding who set the timeline, why it was impossible and what effects it had on costs and delivery. I mentioned it just after my opening statement that 20,000 drawings were produced in a nine-month period between February and November 20 during lockdown period and early pandemic issues. It would have been my predecessor who placed that contract in February 20. Talking with the CEO of the design company, he said that they agreed to a fixed price with liquidated damages if they didn't deliver by November. In doing that, they produced nearly 20,000 drawings with comments and mark-ups on them without a team at Ferguson able to receive them properly and barely catalogue them. As I mentioned earlier, certainly not technically check them. I think that task was unwise to set out with that deadline, with that fixed price. It may have seemed logical at the time, getting a nice fixed price from the design contractor, but it embedded a lot of questions all over the drawings that were produced and it took a lot of time to then settle those out. The final question from me is, what is your understanding of the role that ministers played in setting those deadlines or reviewing those deadlines? I am not aware of the ministerial roles in the past. I know the relationships that I have had over the past 18 months. You left that answer hanging. You said that you know the relationship that you have had in the past 18 months. You better tell us, because we don't. I have had regular meetings with, first of all, Ms Forbes, then Mr Swinney, Deputy First Minister and then subsequently with Neil Gray over the last few months. Most of the reporting is via the sponsoring team on a weekly and monthly basis. So, pretty hands-on, is what you are saying? With the sponsoring team, yes. I think that the deputy convener wants to come in with some questions. Thank you, convener, and thanks for being here. Just following up on the questions that colleagues have asked, there are a number of other projects that have had challenges through even recent history, including the building that we are in now, where, as my understanding, the design was not complete before the project was initiated. I mean, how much of a problem has that been throughout the process of those two vessels? If the design had been largely complete, to use your words, at a much earlier stage, would that have had a really significant positive impact compared to where we are now? Definitely, yes. It would have had a big impact. It doesn't matter whether you are trying to put a new kitchen in your house or building like this. If you know what you are asking the contractors to do on day one, you get a clearer price and you get a clearer programme. With a complex vessel like this having a lot of uncertainty in the design, it led to mistakes, to rework and to increase costs. There is no doubt about it in my mind that the design was not robust enough when steel work was started a long time ago. Is there anything further you would want to relate to us as to why there was that position in terms of the design when works were initiated? I can only look back with hindsight. Reading the KC report that was published last week, it highlighted again that the statement of technical requirements was originally drafted for a 200m vessel and then it was reduced down to the 100m vessels that we are now building. That implies that the specification was larger than it perhaps needed to be. The multi-port operation that was in the original specification certainly led to a complex ship with quite a lot of redundancy. For example, the switching between the two main engines. You can switch power from one engine to both propeller shafts and you can run both propellers from one engine, swap it over, run it from the other side. That level of I think the 16 different modes in the propulsion system alone and we have a complex ship management system that allows you to run all of those options from the bridge or from the main switchboard room. That level of sophistication for this ship has driven the design complexities. On the design that is largely complete, are there areas of the design that concern you at this juncture that still need to be complete? Are you satisfied that those remaining areas that require to be fully decided are going to be able to be considered and signed off in a time as matter? We are being asked to build the second ship the same as the first one with minor improvements. So where we can route cables a little more efficiently, route piping a little more efficiently, we are doing that in the design planning. The other thing that I have spent quite a bit of effort on with the designers is to making sure that we have captured all of the learning from Glenn Sannocks and in the work packs that are typically a 40-hour work pack would be issued to a supervisor in a job that he's got one drawing. He hasn't got to refer to 10. He hasn't got a mixture of modification sheets, marked-up drawings as we've changed things from Glenn Sannocks. I hope that as we plan the programme and start the work, we've got clear definition of what we're trying to do. Thank you. I hope that they're all numbered correctly. I think on the original specification, there were passenger cabins dictated as well, which were never built. Jim, you want to come in on it? This is just a kind of a follow-up to Ben's question. I'm new to this committee, so if I'm asking stuff that's been asked previously, then you can tell me. You talked earlier on about mild steel being used in the hydraulic shell clamp doors when it should have been stainless steel. That seems like a fairly basic error to have made. If you're building a house, you know the weight of a lintel that you're going to put in if you're going to hold up a window or you're going to hold up a garage door. Who's responsible for making those kinds of decisions and implementing those kinds of costly mistakes? Sorry, let me just clarify. It was the hydraulic pipework for the control systems, not the structural steel that I was talking about. Do you understand the hydraulics? The specification came out of our design team, and it was wrongly specified. Somebody written down mild steel, had the piping built, had it installed, and then when we checked through that it's in a seawater environment, it's a weathertight environment rather than a watertight environment inside the clamshell doors, and it has to be in stainless steel. Simple error, missed. We've had galvanised pipe used in areas where it shouldn't have been used and I had to change that as well. I've had lots of mistakes. That was my next question. Has there been lots of these kinds of mistakes? Douglas, you've got some questions. I'd like to get Mark in in the middle of some of the questions, so if we can, you can get off the start of. First, you made right to start that you said that those ferries are more complex than a Type 26 frigate. Now, listening on to that, that just sounds absolutely incredible. How in earth did we get into that sort of situation? I honestly don't know, because the specification was produced a long time ago and before I got involved. I just reiterate that they're more complex in the sense of trying to put a lot into a small space. That's the challenge rather than necessarily the individual components. Obviously, you have a lot more sophisticated systems on the Type 26 frigate, but if you think about a ferry, it's a U-shape around the car deck and you have to squeeze everything into the side casings and below the car deck. That's the fundamental engineering challenge of a ferry. If it's so complex, what does that mean for going forward in terms of the maintenance of those vessels and the lifespan of them? Does that mean that it's going to be a lot more expensive to keep them running? I don't know, is the answer. As I said in my opening statement, the individual components—the choice of engines, choice of generators, choice of the ship management system—are all well-proven technologies, so they should be reliable. The complexity could be that it takes five hours to strip down a pump rather than two hours because you've got restricted access and you have to take a few other things apart before you can get to the job in hand. If this ship proves to be reliable, all it could mean is that annual three-week dry docking becomes a four-week dry docking perhaps. I could imagine it being that sort of burden on maintenance rather than anything more significant. When you talk about the complexity of the engine management system, is that not going to potentially provide issues going forward that they are maybe over complex for what we actually needed? The practice system that's been installed on the ship management is well-proven and it's been developed to reduce maintenance issues because it interconnects so well and gives the chief engineer and the captain so much more information available at his desktop rather than physically having to go and look at things. The data management should be reliable and it should be quite a sophisticated ship to operate. Staying on the pricing, we had been told that the £97 million original contract price was understated and it should have been a lot more, but considering that FML was the most expensive when it came to bidding, how could that be? It's long before my time. We're going back nine years to that bidding process in 2015, eight or nine years. When I look at the specification and price it with the benefit of hindsight, I think in one of my letters I estimated that those were ships that should be £70 million each in the marketplace, £140 million rather than £97 million. I think that I put that figure to the Public Audit Committee last December. How other competitors would have priced lower than that, I don't know. Even that £70 million figure is still a lot, a lot less than £200 million and £160 million. It seems like instead of building two vessels we've actually built a gravy train instead because that's a huge amount of money. What's happened to that extra £220 million? Has that all gone to contractors? Has it gone to things like the wrong type of equipment that's put in and they have to come out and be scrapped? Where's that money gone? There's been some scrapping of pipework and other equipment that's been taken out. Remember that in February 2022 we took out 20,000 metres of legacy cables and had to scrap that. If you take the components of the £97 million original pricing there was about £70 million for contractors and materials and from what I've been able to see I think £50 million of that was equipment and materials that has become £100. That's through inflation buying somethings twice so that component has gone from £50 to £100. There was only about £10 million, £12 million in that original £97 for overhead contribution for the shipyard. The ferries were meant to be partially contributing to the yard for a period of about four years. In the figures of the 130 and 110 for the two ships now if you add together the FML £123 million there's about £80 million of overhead recovery for the shipyard over eight years, eight nine years will have been in the budget so overhead contribution has one significant part of the increase and the rest is increased in direct labour costs and subcontractor costs. But if you were building that again it would be a lot lot less I think that's what you said earlier. Overall external spend in the 360 total that's the 240 from FMPG and the 123 from FML there is more than 200 is external spend and the rest is internal overheads and labour at Funguson. Moving on to the the dual fuel aspect of it. Obviously the that's added a lot of complexity to this project but one of the unsuccessful bidders of the Oron 802 have since delivered four dual fuel vessels of roughly a similar size but a lot less money. If you learned anything from them, were you in communication with them how were they able to deliver dual fuel but we haven't been able to? I haven't been in touch with the others. The complexity of the LNG system is the space it takes up. There is a very large cylindrical tank in the middle of the ship that stores the very low temperature LNG in liquid form and then there's a sophisticated heating system that turns that into the gas that is then used on the engines as a substitute for the marine diesel. As a system that's not complex there's just one pipe albeit low temperature steel pipe for loading low temperature liquid once a week once a month when you have to fill the tank then you purge that line close it off and you have liquid in the in the big cylinder tank in the ship that turns into a gas and you run the engines. That's well proven technology it's out there on many many ships all over the world LNG is well proven. The only complexity for this ship really is we haven't commissioned an LNG ship in the UK before so they've previously been built elsewhere and we're going to go through that learning of the final commissioning of that system in the coming months and it's the space impact that tank takes up under a lot of space in the ship. Do you think the vessels will ever run on LNG because obviously they're initially they're not going to are they? We're going to hand them over with dual fuel capability so yes CalMac will be able to run them on both fuels from handover how they choose to operate them that's their decision and I guess it's up to them part of the commissioning process will be running on LNG as well I would imagine. Yes we'll prove the whole ship with the diesel system first and then commission the LNG and then run the engines switching between the two fuels. Okay I'm going to go backwards slightly on some overhead costs I think Mark you wanted to come in and and Jim Fairlie would like to come in as well so Mark for you first. Yeah thanks Campina. Yeah if I could go back to overhead recovery I think you're saying in your letter to the committee that some of the overheads for the yard will be covered by other business can you can you describe to me what that other business is and has other business come in since nationalisation? Yes it's a business I secured with BAE to be a subcontractor for the type 26 programme it's only starting slowly we have about two million pounds worth of work to build three small units for type 26 number three that's currently in build in govern that's kept about 30 people busy in the fabrication hall that's been running for we started that in July and it's due to complete before Christmas we're currently there's an invitation to tender out for a lot more work for the type 26 programme and we're bidding for that not quite sure what we'll secure for next year but that could soak up about 30 to 40% of the yard capacity from spring onwards which is important for keeping people busy it also would then we would do an overhead allocation proportionately to the the ferries and the other work. Thanks for that and have the difficulties with 801 802 affected affected you as a business like would you have expected to have more work coming in or is the work on the frigates what you would expect right now? We chose deliberately to position for the work with the frigates we've also submitted quotes to Babcock for the type 31 programme over at Rassaith and we've looked at a number of other small projects steelwork fabrication bridges and links bands small work like that but frankly until very recently all of the workforce was fully occupied on the ferries. Okay so you don't see any reputational damage? I think the constant media coverage has been difficult certainly getting BAE to place work with us is a morale boost and an indication that they trust us we we need more of that. Okay back to you convener. Thanks very much Mark, Jim Eubans to come in with a question. It was very much along those same lines I was going to ask you how long the BAE contract was for and how many people that would keep employed and just looking forward to the longer term you know what is the long-term prospects for keeping the yard open and keeping these people employed? The BAE type 26 work they're currently trying to find a supplier to do the bow blocks for ships four five six seven and eight that's between 80 and 100 million of work over perhaps five years there's possibly further work to come from the 26 programme after that so that's a very significant pipeline of work. If we don't get the bow block contracts then there are also more units smaller units very similar to the three that we're making at the moment and there could be you know 10 or 12 units per year for that ship programme over the next five years one way or another we're strategically trying to position ourselves to be a key subcontractor for that type 26 programme that could take up maybe a hundred people in the keep the fabrication halls busy the work is very suitable for for Ferguson being only 15 miles down river from Govan it's easy to transport the finished units up by barge up river to to the finished shipyard in Govan and it's free issue materials and it's free issue engineering so our job is a fabricator and that is simple repeatable work that we can do well to a good quality and we're getting some very good feedback at the moment for the work we're doing with the what's called the pilot project that doesn't keep the yard busy completely after glen glen rosa has finished we need something else and and i've set out both to the board and to our sponsor team in in sg and ministers that for the yard to recover we need repeatable work we need to get into a drumbeat of something that we can do consistently within within our capabilities using the facilities as they are currently built so we're not trying to do something that stretches the facilities or stretches the team and and the obvious program to complement the bae work is the small ferry replacement program the seven small ferries they're 50 meters they're a simple electric propulsion big plug-in battery bank switchboards electric motors we could contract with a specialist supplier for all of that plug-in electrical pack and we build the steel work together we'd build it in six or seven units we know we can do that c mel know we can do that and if we could get the small ferry program and the pipeline of work from the type 26 program then we have a sustainable five-year vision ahead of us that's just part another question is it the design part of this project that has been the problem rather than the implementation of it it's certainly one of the major issues i think the implementation has been stopped start hasn't helped contract design yeah fundamentally design is the issue so when you talked about the bae contract the bae contract you're saying that that's just repetitive yard work are you trying to avoid the design side of things do you not have the capability for the design as well as the fabrication i'm not trying to avoid it the but as a strategic choice we've got to restore our reputation we've got to have a new chapter in the future of the yard and if we choose wisely the right type of work then we'll win back our reputation so we have a weak design team a weak design capability uh choosing the small ferry program which is a relatively simple package that's repeatable uh working with bae as a subcontractor with their design and their assembly procedures and routines that's a stable environment that i think we can do well thank you just on the design david presumably the designs were signed off by c mel as and when they came up as the sponsor for the vessels so why don't they pick up all these design problems that you're saying i mean are they are they working with you at the moment we have a team of c mel people on site and have had for years right through the contract as the owners representatives firstly as the client where's the f mel contract and then on behalf of the Scottish ministers who is our client now for the last few years they are regularly looking at the ship walking the ship coming up with what are called owners observation reports o ors and we have we've had a list as i think 600 700 uh areas that they've identified that needs design improvement and we gradually work through them i'm totally confused so you've got c mel signing off the designs and the designs are a problem and you're saying that they're not signed off c mel are also signing off the payments and signed off 82 million pounds of 97 million pound contract when only half a boat was was constructed well what's going on i don't understand where does the buck stop because you're saying it's not the designs c mel have signed the designs or for somewhere between the two of you i'm confused who is who is carrying the can there are four stages of design concept basic detailed and then production so you the concept and basic design are produced by the specifying client so the combination of calmac and c mel back to 2014 2015 at when when you go to contract uh and Ferguson marine engineering f mel took on the contract they take design accountability and the buck should stop with them to deliver within their contract price their arguments going back in the past as much as i've been able to read were saying the design specification wasn't complete and they requested variations and had a large claim in 2019 i think f mel by that time were forecasting that the cost had doubled from 97 to 197 and 83 as you said was paid out 45 million loan was also written off and used to cover the difference between the 83 and the 123 and um the the company then went into administration in 2019 through the failure of that that agreement then uh Scottish ministers take on the contract nationalise the shipyard the accountability is with me and the management team and my predecessor and c mel are just the observers on is are we building it to the specification so all the problems with design that you're facing now fall back to your predecessor is that what you're saying i think uh a fair amount fall back to the um the Ferguson f mel team in the early stages uh proceeding to build an empty ship without advanced outfitting before we put modules together and then that was further exacerbated by the contract placed with ice in 2020 okay i don't want to cover old ground but i absolutely know for a fact that if i was representing a client and i signed off 82 million pounds worth of work and i only got 30 million pounds i'd probably be for the high jump um so um maybe it's different as as being a surveyor or an ex surveyor than it is being building boats but somehow i doubt it jim did you want to come back in thank you okay douglas you have a further question thank you given i just want to come in for a really a point of clarity so you spoke about the costs of the vessels being 200 and 160 does that include the pre nationalisation costs or does it include other that you know you mentioned the the loan to the yard as well is that the costs for everything that the government's paid towards vergesons and for those two vessels yes in the 123 incurred cost to dates that is in the f mel documents that i've seen dating back to june 19 pre administration that they break that 123 down into 75 for glenn sanix and 48 for glenn rosa and again just can't go back to convener to your comments a moment ago there was about 40 million of fixed equipment bought within that 83 so it wasn't just the steel work there was a lot of equipment bought but yes the 123 plus the 130 plus 110 adds up to the 360 okay thank you okay i'm going to now just ask one or two questions as far as one of the reasons for the delay that you've given david could you just confirm to me who is it within your operation that speaks to the mca regarding approvals is that you or is there somebody there and it's a combination it i have been involved personally within the first three months as i mentioned earlier i realized that there were design gaps one of which was an mca issue i was shown drawings dating back to 2016-17 that had redline marks from the mca highlighting that cargo rules have been used for some of the crew spaces and highlighting that there were non-compliance issues on stair widths and other other aspects so in june 15 june 15 was the earliest i could get the mca to come and see me but the regional director the principal surveyor from the glasgo office and the technical manager came for a meeting with me and two of my senior management engineering director and compliance director and we went through the issues in in june saying okay the drawings clearly show that the design produced years ago has structural limitations on escape shafts on stairwells up from the car deck to the passenger decks and has some assumptions on the routing and corridor widths of passengers and their evacuation from let's say the observation lounge deck six through crew spaces to get to the muster stations on deck five so we had a fairly lengthy conversation 18 months ago and i said my key question to them was are there any redline issues that we're not going to be able to solve because this is high on my radar having evacuation routes having escape routes identified and designed is normally one of the first things you would do with the ship and that should have been sorted out in long ago 2015 16 the surveyors in that meeting assured me that we would find a solution but the they use the word equivalence equivalence and compliance rather than exemptions and the mca never acts as a consultancy it won't give you advice on how to solve a problem you have to come up with the answers yourself but the output of that conversation was that we should do some 3d computer modelling for evacuation routes and we employed Lloyd's register of shipping to to use their sophisticated modelling to do that and to show that we could get rule compliance which is get everybody on the ship into the muster stations and off down through the slides within an hour is the allowed time maximum time the modeling showed that we could get everybody out in 29 minutes and so that led to a feeling of okay we're going to get compliance we're going to get equivalence it's called a 1261 form that gives you an exemption or equivalence approval and the first 1261 form was issued in November 22 and that led to after we've done the evacuation modelling and that led to the submissions down to head office in January this year 23 but it wasn't until April 23 when we realised that head office had a more strict approach to application of rules decisions that have been made a long time ago the modelling and we had to do some rethinking between April and June I've been fairly closely involved with it over the last few months so is the compliance director the same person that has run through the whole project or did the compliance director change when it came to the MCA he was actually an original employee of ffmell and transferred to pedacross in nationalisation he was the one who highlighted to me that the early drawings from 2017 but we were perhaps overconfident that we were going to get all these exemptions based on the modelling and the conversations last year and it was a bit of a surprise that we had to do the design changes that we've done over the last few months I wrote to you I think earlier when did I write to you I wrote to you in august asking about when you approached the MCA regarding these escape hatches and routes and the first one the 1261 application you said was put in in July of this year but you're telling me that you put it in in July and that was for just one escape route when you actually identified the problem two years ago nearly two years ago there were separate issues so I'm sorry if my letter what to you wasn't clear but the the the exemption 1261 that was issued in November 22 related to the main stairwells that come up through the casing from the car deck so as you park your car get out and walk up the stairs either side into the passenger areas those stairwells the tread width is 800 millimetres and it should be 900 millimetres given that you come up single file and the modelling allows for a person to be roughly 500 millimetres wide actually the fact that it was 100 or 800 or 900 was deemed to be not a serious issue because there was plenty of widths for the hand railing and an access for staff through there that 1261 was issued for both ships in November 22 the application that we did in July this year was realizing that the assumptions that we've made in the modelling that passengers particularly on deck six in the forward area observation lounge there's only a single staircase down from there to the evacuation areas on deck five and the only alternative to that is to go through the crew spaces through the crew cabins and corridors and to the two staircases at the rear of deck six that was deemed to be unacceptable with the latest update we got in april and may and as i said earlier the mca don't give you a solution to that they just say it's not accepted you can't rely on passengers going out through crew spaces and the crew the crew sort of i understand that and i understand that the revisions four and five that you're talking about were done in november last year but if you look at revisions seven eight and nine which are the ones you're on i suspect at the moment they were only submitted in in july of this year now we've had a letter from the mca david which is quite clear saying exactly what you've just said it's not up to them to design the problem design out the problem it's for you to work with them and they go on to say that the regulations that they are referring to have been extant and enforced since 2009 in fact they say there were amendments but they made no difference and therefore they are unclear why you are citing this as a problem because they're saying they've been fully consistent with the requirements since 2009 so it either either there seems to be some discrepancy the mca say it's your fault and you're saying it's the mca's fault because they're interpreting a different way now you both can't be right one of you's got to be wrong the meeting i had with the local surveyors from the glasgo office and the regional director last june 22 and the modelling we did after that we were fully aware that we'd made some assumptions or ferguson fml had and hold a marine back in 2015 and 16 had made some assumptions that the cargo rules could be used for the crew areas and the ship had been designed with that in mind and again just for the benefit of the committee to put that into context if you've got professional crew you assume that they're not going to panic the same way that passengers might and so you're allowed narrower doorways and narrower corridors for circulation within the crew spaces we the ship was designed with those assumptions in mind and we those conversations on how we would get approval for the ship have been going on with the local office and finally overruled by the head office who wrote to you that letter i saw last night in april this year so there was a disconnect between the local conversations we were having with the mca here in glasgo and the final decisions from the head office in southampton really so so you you are putting this down between i mean the committee will have to i would suggest consider that further because you're saying that it's a discrepancy in somebody else's offices whereas they are quite clearly saying that that it's actually you well the responsibility has to rest with ferguson for firstly producing a design with the wrong assumptions as the mca very clearly set out there are precedents of other ships out there with cargo spaces on ferries being crew spaces being designed for narrower corridors compared with the passenger spaces that is not allowed anymore i know that the principal surveyor from the glasgo office flew out to turkey to look at the four ships that sea mall have had in build there to check that there was no issue with those ships after this clarification was issued in april we have come up with a solution of producing extra staircases so that the passengers don't have to go through the crew areas and we've also bought 17 new doors to make them wider in the crew spaces to get as close to compliance as we can there so those areas the staircases and the extra doors have cost about a million pounds of work to do that design buying the equipment and the disruption costs of that we have come up with a solution we've found a compliant solution and and yes it's ferguson's responsibility to get that right and we didn't get it right in the past but is it not then disingenuous to put it down to or put it in the report that you gave to the parliament that this was one of the reasons for the delay when this delay should have been identified or was identified over 18 months ago if you'd started addressing it 18 months ago i would humbly suggest that the delay might not have existed i think there's two aspects one uh that it hasn't caused a delay to the handover we've been able to come up with a solution the staircases are in place they're being finished off now we're waiting for the doors to be delivered uh their due in december uh they will be fitted within the trials period uh the extension to the time that i've now put into the end of september letter is mainly down to electrical and piping work and finishing off the rest of the ship we've been able to cope with the mca changes that we've had to make within the programme uh yes with hindsight in june when i wrote to you june and august i believe that these were going to cause a risk uh to the delay to the ship but as i clarified in the letter at the end of september we've been able to cope with the escape route changes within the programme and the programme has slipped for other reasons okay David i'm in what what concerns me is as clearly says in the mca letter there has been no reassessment of the application of the regulations they have not changed so you're saying that they have changed and that they're saying that it's not so it's your word against them it we shouldn't get into that position the local conversations we've been having on on ship in the shipyard with the local surveyors led led us to believe that we were going to get exemptions on the without having to change the doors in the cruise space without having to put new staircases in as i said a moment ago maybe we were over confident in those assumptions and the conversation with the local surveyor and it's been very clearly um well finally clarified by the letter last night yeah it's a fairly damning letter just just so i can understand before we move on you also said in your uh sorry i should offer the committee does anyone want to come in on the mca letters for i'll ask a slightly different question uh Douglas if i may actually um in terms of the mca letter because you know when we asked the cabinet secretary when he was aware of issues with the mca you know he said the 28th of june would set out requirements for um Ferguson marine to install additional escape escapes in the upper deck areas what i can't understand is two days later we had an update from yourself that only has a fleet of mention of mca not any mention of additional stairways having to be installed why was the committee not told at that opportunity that additional staircases had to be installed because the cabinet secretary knew two days before it was still work in progress and we haven't got a clear solution agreed with the mca and um i'm not sure why we didn't well we couldn't i couldn't give you clear information at that time but the cabinet secretary was giving clear information he was giving clear information additional escapees in the upper deck areas had to be installed so surely if he was told two days earlier we should have been told during the update on 30th of june we didn't get approval for the stairwell design and the extra doors until end of august so we knew that we were going to have to design some solutions but i didn't have a a fixed solution at that time but as a committee we should have been told just the same way as the cabinet secretary was told two days before of the issues that was was lumen i think i would have just been courtesy to this committee i'll leave it there can we go andry can i just ask from the board's point of view you're aware of all of these delays are you comfortable that assumptions were made which proved at the end of the day not to be valid assumptions yeah we have i've been chair for the last 10 10 months and you know we've had some issues in terms of you know competency at the at the board level that we're sort of sorting out people aren't keen to do second terms as it were which is a bit of a disappointment by fully understand and um i spent the last the last week two full days going through applications and interviewing people for the the board roles the board are across the issues that we've actually spoken about today it is a bit messy it's like trying to catch a bus when the bus is running and jump on it make sure you don't break your leg but the board are capable and competent in this area and we do have two board members who i have extensive shipbuilding one from BAE is a sort of marine architect and another board of directors who used to work on the client in the past so there's nothing that's come up today that is a surprise to me personally okay David just before we move on to some other questions from other members could you just clarify you said that these additional fire escape routes and requirements to be met known requirements to be met would reduce the passenger carrying capacity from a thousand i think it was to to the eight hundreds what effect is it on on lorries and cars is the reduction in lorries and cars no the carrying capacity target carrying capacity for lorries and cars remains the same and i should clarify that our contract was 960 passengers although the target was a thousand the contract was signed at 960 the revised 1261 approvals that we've had with the mca for the stairwells and doors allows a maximum of 929 so only a drop of 31 but we can only achieve that 929 by using some bench seating and higher density of seating in some of the areas that seamale and calmac between them have decided they would rather maintain the quality of seating and reduce the headcount down to i think the figure is 852 is in discussion at the moment it's their choice whether we we maximize to the allowable 929 or reduce to 852 but i understand you would you'd need to ask them more more details but i understand there's less than a month where numbers are likely to be above 100 800 sorry 800 800 indeed which is which is why i think the rec committee uh why the rec committee questioned why they were asking for a ferry to be built with a thousand seats on it but my question to you was that still exactly the same number of cars still exactly the same number of lorries that's the yes we in the contract we have loading conditions permutations of lorries and cars that we have to verify the inclining test that we'll do at the end of january to verify the vertical central gravity of the ship as built that will be the final refinement of the load carrying capacity and we hope to prove that we meet target in in january and at the ferriers built we'll still meet the dead weight requirements in the original contract and the speed requirements in the original contract yes i'm assured we've got more than enough power to hit the 16.5 knot speed requirement although i understand the operating speeds going to be around 14 knots from information from calmac and the dead weight i think is just under 900 tons is the carrying capacity in the contract okay so we'll meet the original contract subject to the inclining and all the trials going right yes i hope to meet the contract okay douglas i think you've got some further questions yes it's really around that 1261 that was rejected back in november 2022 so when would have seamal been notified of that and when would have transport scotland be being notified that that 1261 application had been rejected sorry could i clarify it wasn't rejected in november 21 the the november sorry november 22 was the first 1261 that was issued confirming that the 800 millimetre wide stairs in the casings was acceptable we submitted the rest of the evacuation modelling finally at the beginning of this year and that was first we heard of that wasn't going to be accepted was april this year and at that time we started discussions with seamal as well because as we came up with solutions for the extra stairwells and the doors changes we wanted to involve them in how we how we came up with solutions okay so it would have just been after april that you received that rejection of that document and then you would have informed seamal and transport scotland at that at that time then seamal first because we have regular meetings with seamal transport scotland we only meet once a month and we've heard in the past that there's weekly meetings take place between fergsyn and scottish government officials so would have it been discussed at those meetings as well yes so the monthly meeting was a main progress meeting but more recently over the last few months we've been meeting on a weekly basis it's called the handover planning team so that we're trying to work on the logistics of handing over glen sannocks to kelmack and so the weekly meeting involves transport scotland kelmack seamal sg and ourselves and that those weekly meetings with this 1261 process being discussed during those meetings yes so the government would have known in april that there was an issue around the stairwells because the 1261 the weekly meetings weren't running in april they only started from i think july or august onwards the monthly meetings i think the first monthly meeting that i advised sg was towards the end of may okay so end of may scottish government would have known that there was an issue on the escape plan in the 1261 so i guess i'm just trying to work out why maybe like this committee weren't aware of it till much later and it seemed to be that the cabinet secretary wasn't aware of it till much later as well but it would have been discussed at those meetings so i guess that's maybe a question for us convener that we have to try and work out why that wasn't fed back to the the cabinet secretary during those meetings if it was discussed at the the meetings that we've heard about at the end of me i have to clarify the end of may baby it was june but the process we went through we decided that we would make it broadly public when we knew what the solution was at the time we all we knew what was a we had a problem and we didn't have a solution we hadn't worked out how to fit the staircases and how to solve the the doors and were we going to have a bigger problem or could we come up with a solution with staircases so we made the sponsoring team aware that we were in discussions trying to find solutions and we didn't get a solution and agreed until the end of august and during that period i wasn't aware of how the sponsoring team were reporting to the cabinet secretary and ministers that's a disconnect i'm reporting to the the sponsoring team no no of course but it's useful for us to know that Scottish government officials were aware in me thank you okay graham welcome to the committee and your questions are now thanks thanks very much convener and thanks for allowing me some time to ask a couple of questions i think it'd be worthwhile for just follow-up on some of what's been said already so to summarise what what you've been saying and you've been building a vessel that's more complex than a type 26 it doesn't meet or hasn't been meeting safety regulations according to mr miller people are fleeing the board um you could say it's like right right well people people have left the board attracting quality people for the board has been significantly challenging so now can you tell me mr tideman i'm at my understanding is that your director of compliance left his post last month is that correct uh two months ago i think two months ago okay was he being blamed for this mca issue no not personally he wanted to set up as an independent consultant and he chose to set himself up that way a couple of months ago the the lead on design responsibility sits with the engineering team what impact will him leaving have on the completion of all the ships documentation including class society documents very little we have the team in the engineering team and the quality team are on top of the documentation in the closeout and are you are you concerned at all that there are other areas of non-compliance on the ship no as i said i called the mca in for a meeting 18 months ago to ask them that question of could they please put on the table anything that was going to cause me a problem i thought we were on the right track with the mca approvals from that meeting in june 22 it was a surprise in april this year to to see a change of direction which we've fortunately been able to solve i had a similar meeting with the senior people from Lloyd's register and was assured at the time that we were on track and on a steady path to get the certification from Lloyd's as well and i don't believe we've got any surprises in that dimension why have you have you actually checked because this this game is a the players have come out of the blue for you although it shouldn't have come out of the blue because the rules haven't changed no it shouldn't it as i said it perhaps we were overconfident because of the 12 61 being issued on the main staircases last november and it was a surprise at the time in may june somewhere around then when i realized we got the mca issues to solve i also called the senior surveyor from Lloyd's and said this is surfaced with mca is there anything from Lloyd's that could similarly surprise me uh he took a few days to go and investigate and came back and said no he didn't think so okay can you explain to the committee what the role of a classification society is um a class society whether it's Lloyd's register american bureau shipping north uh death north spheritas or any of the international societies um they publish rules for construction of vessels and notations for whether you want for example unmanned machinery space or built under survey it's a well proven process over a couple of hundred years the client can always choose which classification society and which rules it wants to build its ships to and cmail chooses to build specify Lloyd's register and the notation that we're required to achieve is specified in the contract does the classification society have to sign off all the steelwork on the vessel yes the structural drawings all the outfitting drawings all the machinery drawings are all submitted to Lloyd's for plan approval in the early stages and then the surveyors on site verify that we've built in accordance with the approved drawings so has that happened as all the steelwork on the whole on the glenn sannocks been signed off i'm not sure whether we have everything signed off at the moment the surveyors are regularly on site but it will be by the time we finish the vessel i know that we for example we have just achieved Lloyd's sign off on the starboard side of glenn rosa for example they're just now surveying the port side okay i'm just going to move on to one one other area convener if that's okay because you mentioned it actually mr tideman you have made a request to Neil Gray for extra money for the yard mr fairly mentioned the future of the yard quite rightly you have asked Neil Gray for extra money to mod essentially modernise the yard have you had a response to that yet no it's still being considered by mr gray and his department but it was pretty time critical wasn't it the time critical element was the long lead time for a plating line the manufacturer is finish and builds a plating line roughly every six months and the at the time we submitted the application in earlier this year we were hopeful of placing a long lead time purchase order for the plating line and having delivery by december 24 we've now lost two slots since then and the earliest delivery would be december 25 but you need to get my understanding is you needed to get an order in this this calendar year each as months go by we don't lose a month we lose a six month slot so currently if we could place an order in the next month or so we could probably have the plating line installed by december 25 if it slips another couple of months say towards Christmas it might be summer 26 before we could have it installed so are you saying that Neil Gray needs to come back to you by when end of november as soon as possible would be lovely and if that doesn't happen what's the impact on the future of the yard well the productivity is low in the yard as we know we are pricing of the work for bae for example we know we're not as competitive as other yards that have modern plating lines and modern facilities now it's the client's choice as to whether they can place all the work and pay a premium in some areas so we are winning some work with bae even though we've got low productivity given that the plating line can't be installed for nearly two years or more than two years now at the earliest we will not get to decent productivity until 2026 which makes pricing work for bae harder makes pricing the small ferries harder it just it's harder the longer we postpone it the harder it gets yeah I understand that because we've discussed this but you know we need a decision is what you're saying yeah okay thank you convener thank you grim Jim you want to come back with a follow it's just a follow-up minute so I follow on to it Douglas Lumsden was asking you earlier on and again this may be something that has been discussed in the past that I don't know about you talk about these weekly monthly meetings that you've had and Douglas was referring to the fact that this committee didn't know about the rejection of year 1261 and you alluded to the fact that you waited till you found a solution when you go to the government as your point to tell them what your problems are because they're no kind of company with a solution you need to find the solutions yourself so I presume that any delay isn't about trying to hide anything it's about right well I know what the problem is but here's the solution is that am I right in that assessment yes yes you are right we have no reason to hide things so as soon as I'm aware of an issue I table it internally first with the management team in the weekly and monthly meetings with the sponsoring team and sometimes there's a problem on the table for a while before we've come up with a solution and therefore we can't price it until we know what the solution is okay thanks thank you thank you just looking around the committee if there's any other questions I've just got a final one David it's the pricing of all of this seems quite opaque to me so you've got the cost that you put out plus the contingency plan plus what I call the Derek Mackay loan then you've got the extra money that's been given to the yard then you've got some capital investment as well subsequent to that which basically means to produce these ferries I think we're talking about 175 million pounds each for each of the ferries that's roughly where I'm at and that doesn't include any of the stuff that needs to be done in the harbors to make sure the harbors can take these boats because we know that our drosson can't and we know that there's no lng tanks so there's probably quite a lot of extra money in there which is not part of this contract but my question to you is if each of these boats Glen Sannox and 802 are worth or have cost 175 million pounds to build what will CML be putting them on their books at what value will they be putting them on their books at because that's the value that they'll have to be ensured at and that's their true worth so what do you think the true worth of those boats are it can't be 175 million surely I don't know what CML would what decisions they'll make that's up up to them to do I did say earlier that I thought a market price for this would be around 70 million if you were going to the market to buy one now so that was the figure I put in my letter to the public audit committee last December so effectively it's costing us 100 million which we've wasted on these boats to get that to get a boat that's worth 75 million or 175 million is what we've paid for a boat that's worth 70 million that's you know running the simple maths that seems to be the answer wow okay if there's no other questions I think thank you very much for for coming giving your evidence this morning and I'm briefly going to suspend the meeting to allow you to depart and for the committee to take a break five minutes please committee