 I welcome everyone to this, the 23rd meeting of the Public Audit Committee in 2023. The first item on our agenda is for members of the committee to agree or not to take agenda items 4 and 5 in private this morning. Are we all agreed? We are agreed. Thank you very much. The first item on our agenda is consideration of the Scottish Government's response to the report that the committee produced in the spring of this year on new vessels for the Clyde and Hebrides arrangements to deliver vessels 801 and 802. I welcome our witnesses this morning. Fiona Hyslop, the Minister for Transport, joins us. Along with the minister is Colin Cook, director for economic development in the Scottish Government, Alison Irvin, who is the interim chief executive at Transport Scotland, Chris Wilcock, who is the head of the ferries unit at Transport Scotland. We have a number of questions to ask, but I think that first of all we would like to invite you to make a short opening statement. Thank you, convener, and good morning committee. I thank the committee for their invitation to address further the report prepared into arrangements to deliver new vessels 801 and 802 and the Scottish Government's response to it sent to the committee in May 2023. The committee will be aware that I was appointed as transport minister in June 2023. I am aware that the committee felt that the Scottish Government did not respond as fully as it would have expected, and I want to address that in my opening remarks. Firstly, as confirmed in the then minister's response, the Scottish Government fully welcomed the report from the committee. This built on the work already undertaken by Audit Scotland and the earlier report by the rural economy and connectivity committee. The report contained a number of observations and recommendations throughout. Although the response was not on a point-by-point basis to all the stated views, the observations and conclusions of the committee, the Government's response did extract the key recommendations for the Government that could be identified in the report and set out the Scottish Government's response to those. The approach taken was to group those where we felt that there was a common theme. Where there were recommendations for other parties, such as the Auditor General, the Government did not comment in detail but noted that we could engage fully with further audit work if identified. The response came from the previous transport minister, so I am keen to identify which specific areas the committee considered warrants a further response to that already given, either today or in writing if that would be helpful. I have, however, recently read the report in great detail again, and I have, in my scrutiny of what has been requested to the Government, identified two areas that were not fully responded to. Both are on wider cross-government areas and process improvements, so I am sure that the committee receives a response to those. Having spent two years until June as deputy convener of the net zero energy and transport committee and as a member of the economy committee, I take the work of all parliamentary committees very seriously, and I am committed to making sure that the committee has what it needs to conclude its work on this important matter. Finally, I would like to highlight that my colleague Neil Gray gave evidence to the net zero energy and transport committee on the current issues. I also did earlier this week, and this committee may also be aware that a further update from the CEO of the shipyard on delivery progress is due to be given to the net zero energy and transport committee at the end of the month. Ministers will continue to work with the net zero energy and transport committee in its scrutiny of this element. Thank you very much indeed, and we have, of course, note the point about your appointment being after the report had been published and the response received from the Government. I think that it is fair to say that our sense of it was that we produced 13 overall conclusions, and six were responded to—one was partly responded to—and six were not responded to at all. The reason why we were keen to have this session was to try to explore a bit more of those areas where we felt as though there had been an insufficient response given the weightiness of the conclusions that we had reached. I want to begin by going to a fairly fundamental point, which is that we reached the conclusion that both island communities, taxpayers and, indeed, the workforce had been badly let down. We wondered whether you wanted to take the opportunity this morning to comment on that. Secondly, do you consider yourself where responsibility lies for the six-year delay, three times and counting over budget, of the procurement of those two vessels? Those were obviously conclusions for the committee. It is for the committee to come up with its own opinions, views and conclusions. It is self-evident that islands have been let down, and I understand that. I have spent the summer as the new transport minister meeting a number of island communities and their ferry communities. Resilience in the fleet is really important. There are other issues in relation to ferries, which are the net zero energy and transport committee that I have been dealing with, and more to do with operational management issues, which is not the core function of the committee. Resilience in the fleet is really important, which is why having the six ferries delivered before 2026 will make a big difference in relation to that resilience, because it is the resilience that underpins that. That is why those replacements are really essential. Clearly, we know that there are current delays, and we will hear more. That is why I referred to the chief executive's regular updates to the net zero committee in relation to where they are in progress for 801 and 802 Nino, Glen Sanox and Glen Rosa, but there are another four ferries that are being built in Cymru in Turkey, and they are progressing well and in terms of progress there. I acknowledge that. I think that it has been self-evident. A number of ministers have apologised for what has happened, particularly to island communities, and I think that is self-evident. In a sense, there was not a recommendation from that conclusion, but if that gives you a reassurance that, yes, we take it very seriously and continue to take it seriously. As part of my focus as the new transport minister, ferries is definitely one of my main focuses. I keep having to say this, but I think that I should be quite clear that I referred to the fact that I was deputy convener of the net zero energy and transport committee. They spent well over a year taking evidence on ferries and they produced a report. I was not a member of that committee when the report was finally concluded. Clearly, as minister, I wanted to deliver on the response that the cabinet secretary provided, but if that gives you an indication that it is probably one of the reasons why I am in this post is to take a focus on that if I can reassure you. On the point about responsibility, I think that there is quite comprehensive setting out of the problems that occurred, particularly initial stages of the design process, and clearly, as you have identified—indeed, others have identified relationship issues between the two contracting parties that have its challenges and difficulties. I would refer back to the rural affairs environment committees. The report was very comprehensive in setting out those issues. It was uncomfortable reading for a lot of people, but I think that it really set out. I think that your report also reflects those issues in terms of what the problem areas were. I know that the committee has visited, because I have seen that from your report. I visited the yard and MDU, who has an opportunity to visit as well, to see the disconnect between the design and obviously the build and the retrofitting that had to take place. I do not think that it was very helpful. There were other issues along the way. In his response in particular, which I, obviously, this committee would be interested on and spend, I thought that, again, sometimes it is easier to reflect on things separately. I thought that David Tideman's response, identifying some of what he saw as the difficulty areas, was an element around the pandemic, which stopped progress, but that was not fundamental to the initial issues. In his remarks later on, he talked through what he sees as being the key areas. A lot of that was a design build issues right at the beginning that things were not done properly at that stage. I think that that is well documented. The issue then is, and I think that that is where your recommendations are. It is probably more of some of the commentaries in there, but clearly in recommendations from Wreck about what happens in terms of milestones, et cetera, we know that the improvements are made. I think that this committee's purpose is to make sure that the improvements have been made and will be made. I can reassure you that there have been improvements made. Some of them were made even in advance of your committee's report, but certainly afterwards. I think that some of the things that we want to do, particularly in lessons learned, is to pull that together and identify, because some of the issues are, for example, in the Scottish financial module and the public finance module, those changes have been made and we need to make sure that you know where they are and identify where they are for some of those issues. Some of them are for CMAL and some of them are for Transport Scotland. That is quite a wide response, but I hope that I can give you some reassurance there, convener. I mentioned the workforce and I should refer members to my register of interests and my membership of the GMB union. Do you have any reflections on the role of the workforce and the extent to which they have been involved or conversely sidelined in some of those decisions? I think that our sense of it has been, and certainly when we visited the yard, that was absolutely underlined, that they had a clear view of how this construction project should have been undertaken about the configuration of the yard and the reconfiguration of the yard and so on, but they were ignored. Do you have a view now on the weight that should be attached to that voice? Again, that was in your report not as a recommendation to Government, but as a conclusion and view of the committee. You are asking for reflections on what you are not asking for a particular official response to what we will do as a result of that. This area is probably more, and I think that we should, I suppose, delay the responsibilities clearly from Transport Scotland, from the Scottish Minister's point of view. As a Minister for Transport, responsibilities are for procurement, including the four new ferries in Turkey, when you realise the six that will be delivered by 2026. The running of the company and the organisation post-nationalisation, so obviously that was, you know, you're talking about ferries and marine port Glasgow, and that's a current responsibility, which ultimately lies with Cabinet Secretary for the Economy, pre-nationalisation, the private ferries and marine engineering limited, there are issues there, so there are issues for two separate companies at different times. If you are asking for my reflection about the role of workforce, I certainly think that the strength of any organisation is how it can actually involve its workforce in decision making and advice, because the people who are doing the work are experts in that, and I know at different times it's been specifically requested and has been delivered by the board. Of course, in the nationalised ferries and marine port Glasgow, the role of the board and impressing the importance of the board to involve the workforce and particularly trade union representatives on a regular basis, my understanding is that that does happen. Your question is, had they been listened to earlier and sooner, and I think that you're going back to the kind of, even the kind of 15, 16, 17, that period as well. I can't really comment because when I wasn't there and it was a private company at that time, but you're asking about the principle of that, and I think, is it a lessons learned that you'll act to participation of the workforce in key, you know, key, I suppose, deliverables in terms of operation manners? Should that work? Well, that's part of the fair work approach that the Government is committed to. I think you need to, you know, obviously reflect on, and you did, and you've taken evidence from the workforce as to where they've seen that in the past, I think, in terms of where this Government, and I would say probably under the new First Minister, the focus on that, and I think you've quite clearly seen that from the approach that the Cabinet Secretary, Neil Gray, has taken in this as well. So, that's my view. Okay, I mean, just for the record, there were, I mean, there were serious concerns about the performance of the turnaround director who was a part of the post-nationalisation project. So, yeah, and I think, again, my understanding is the demarcation here is that it's Neil Gray who's the Cabinet Secretary responsible for the yard. Okay, well, let me move on because time is almost running away with us already, and that is what the Scottish Government's response is, because we didn't get this from the previous Minister for Transport. To our conclusion that there's been a significant lack of transparency and accountability through this project, and we drew attention in particular to the fact that FML wasn't transparent about its unwillingness or inability to produce a full builders refund guarantee. We also think that, for example, it was inappropriate during the course of a live procurement process for the then transport minister to respond to a regional list MSP, and that's the correction that we need to make to the report, that there have been occasions previously where a full builders refund guarantee hadn't been necessary, and that was then taken as the green light by Jim McCall and the FML leadership to continue with their bid in the tendering process. So, you're reflecting not on transparency of the Government at this age, I'm sure you will at some point, but you're reflecting on the transparency of a private company. You're engineering limited at that time, but also in terms of the exchange of those letters, and was it material to their decision, or did they use that as a decision? In your conclusions, you think that that would not in and of itself be the green light, and it shouldn't be, because neither the two individuals concerned were party to contract. Indeed, FML, the private company FML, would have wanted to ensure that they were abiding by the procurement requirements of the contracting party, which was CML, and the contracting party, which was CML, did obviously set that out in what was required in terms of procurement. I should also say that, and I think that you're quite aware, and I think that the former First Minister in our evidence identified that in terms of the Transport Scotland's provision of that exchange of letters, I think that the understanding is that you had that correspondence, or knew of that correspondence, and the content of it anyway, but the formatting meant that there was a paragraph missing, and also when it was sent to you, it was sent during the week that you were about to finalise, we wouldn't have known that, or officials wouldn't have known that, and again that was remiss, and I think that that's recognised, but that wasn't necessarily would have had an impact on your report, because obviously that correspondence was made available, and in terms of the issues around whether that should have been taken as approval, anybody who deals with contracts and legal authority would not have taken that, and the other point as indication that that was somehow a Government approval, in terms of what it did say, which I think was reasonable, was that there have been instances in including work at Ferguson's previously for the hybrid vessels that were done on a different operation, and all that letter did was reflect that there had been a different operating method previously for some of the smaller hybrid vessels that Ferguson's had produced, so in terms of the criticism that the committee made, I think that it was a fair criticism of what happened in terms of how that private company decided or gave evidence to you, that's for you, and that you're asking me to comment on something that I wasn't partied to, so. We've got a particular question on that. Before I go to the deputy convener to go down that route of questioning, can I just ask you again a kind of, you've mentioned the fact that your CVE includes deputy convenership of the net zero committee, membership of the economy committee, so, but your CVE also includes cabinet level ministerial responsibility between 2009 and 2020, which covers a large part of the time span that we have looked at in our evidence collection. I mean, do you have any, I mean, can you tell us as a member of the cabinet during that time which issues around Ferguson Marine port Glasgow, which issues around Ferguson Marine, as it is now constituted, came to the cabinet? I think that's a bit of an unfair question to expect me to have on tap the different times that it was discussed at cabinet over that period, which was an extensive period and from some time ago, so I'm not really in a position to come back to you yet. I haven't got instant recall on that, and I don't think that. It will have come at different times for different points and reported to cabinet at different progress. I cannot, because it was not my kind of lead responsibility at that time to go through those issues, decisions that would have had to be taken, would have been taken. In fact, a lot of, obviously, the reporting will have come to Parliament in terms of ministerial statements by the relevant cabinet secretaries at different times, as it does just now, but I cannot give you instant recall as to what happened in that 11-year period, and with respect to what I'm sure that's something to ask me and my capacity now is minister for transport when I'm meant to be responding to obviously your report that was published. You mentioned the former First Minister's evidence to us, and she told us that no formal decision was taken by the cabinet on those matters. The decision to nationalise the yard, for example, was that not a cabinet-level decision? So there's different issues, and I think again that you've had the evidence, but I'll need to check on that in terms of what is the role and responsibilities of ministers and cabinet secretaries, the things that do need to come to cabinet, things that don't. Particularly in relation, I think that you go into quite a bit in that area about the authorisation for the approval of the award of tender and was that appropriate for a minister to make or should that have been a cabinet or at what level that would have made, and I think you go through that quite well in your report. So certain decisions will be taken at certain times, but I wouldn't want to mislead the committee by saying something that isn't true, and therefore I can't honestly have an instant recall as to when those decisions were made. I'm focusing on my evidence here to what I was asked to do, which is actually not even evidence on the leading up to your report. It's your request for a response to the Scottish Government's existing response in May 2023. Yeah, I mean, it is a question though of transparency and openness and how government dealt with this. And I think that the, you know, there is a, I think a legitimate, quite, I mean, for example, we were told by the now DG for net zero, Mr Brannan told us that decisions would go to cabinet of the gravity and scale was his expression of Scott Rail being nationalised. So I'm just trying to understand whether the decision to nationalise the yard at Pot Glasgow would have been a cabinet level decision. So I don't know if anybody who is probably more familiar with that would recall. As far as I understand it, no, that was, that was not a cabinet decision, that may have been a ministerial decision at the time. Okay, that's fine. I mean, and I think that's in your, I don't think that's new, I think that was in your report as well. Okay, I'm going to bring in the deputy convener, Sharon. Thank you, morning. The majority of the committee concluded that the former minister for transport in Ireland showed poor judgment in responding to an MSP about alternatives to builders refund guarantees during a live procurement process. Are there any lessons for the Scottish Government to learn from this? I think clearly as the whole of this process is, including from the, you know, the conclusions of not just your own committee, but the Auditor General's report, and also from the economy committee, sorry, the REC committee, there are lots of lessons to be learned. I think that that exchange, reading that now, it's quite clear that the minister for transport, the then minister for transport, was reflecting on what had actually, what had happened before, that there had been instances at the yard, which also at that time, the private and marine engineering limited would have known about, that there had been situations where, you know, things had developed without a builders guarantee. So that, that was a reflection, it wasn't advice as to what would happen in another procurement, it was reflecting on the past. But do you think it was appropriate at all for him to even communicate, considering that he was the minister? I mean, so many things are judgment calls, I mean, I think it's really, you know, on hindsight a lot of things you might not want to do, or we think again, you know, in terms of communicating during live procurements, I try and avoid it. I mean, I've not had that much, you know, in the last and recent times, but, you know, I think there's kind of that safety first thing, but you've also then have got MSPs who demand to have responses to the letters, and if they don't get responses, they'll stand up in Parliament and say, why haven't you responded to my letter? So that's the kind of call, you want transparency and openness, which is again what you're asking for. So it's a judgment call. He made that judgment, you know, in terms of looking back on that. Had he known what he does now, would he have done the same thing? I don't know, but I think, in terms of the content, because it was about a factual reflection of what had happened, as opposed to an opinion on a procurement, it was in that, he probably saw, I mean, I don't want to second guess how somebody decides things or judges it, but that's my reflections on that. I think what the committee is looking for has just been some, and that's what you're doing, is reflections on your conclusions, as opposed to, you know, ads responding as to what we will, what we're being asked to do as a Government now. So is it fair to say that there's no license then? Because if that was asked in Parliament, then you would normally get the response, so if it's a life case, I can't comment, it's a life procurement exercise, I can't comment. So, from your answer, I'm guessing that there hasn't been any instruction given out to any ministers saying that they can't comment, and any… Well, normally advice is not to do something that would cause any issues involved in a procurement. That's what you would normally get in terms of, you know, when the letter comes up or the letter comes in, but I don't know, Colin, do you want to reflect, because you've obviously dealt probably more with this on the economy side of things? No, I mean, just to reaffirm what you said, minister, I mean, typically, we wouldn't issue any public statements in the middle of a procurement exercise for obvious reasons, but this is not something that I don't think has been a case of having to reaffirm that guidance to anybody, but I can look into that. So would you reaffirm the guidance to Scottish Government officials or would you reaffirm the guidance to ministers? Well, I can talk from an official's point of view, and we wouldn't typically make public statements about any procurement when it's live, because it's obviously important that that process is followed appropriately. I would get advice from saying that, you know, this minute that MSP has written in, we're in a live situation, you know, and I've got that, do you know what I see? And, you know, under, for example, there's a number of… it's not necessarily about PSOs, you know, like for, you know, there's a lot of… and I've had MSPs want to speak to me about it, they want to write to me about it, and some of those issues, we're not party to it, it's actually other parties, but we don't want them to fear within procurement that are actually for other parties as well. It's not even just with government, so normally ministers would accept advice that's given to them in terms of the drafting of the letter. Okay, thanks. The majority of the committee also included that it was unclear why the former minister told us he had no knowledge of the preferred bidder before going on annual leave when evidence from the former Cabinet Secretary for Infrastructure, Investment and Cities stated that he was aware. Correspondence from Transport Scotland issued after the report was agreed appears to support the former cabinet secretary's position, so is the Scottish Government any clearer whether the former minister was aware who the preferred bidder was before going on annual leave? Right, I think I need to reflect and work out the chain of events and the evidence that you have in that. Again, that wasn't something that was a recommendation to me as a current transport minister for action, unless officials have got better recall of that. So the only thing that I would respond back to you is that you've heard from the former transport minister in his position. You've seen the evidence that's been put in front of you in terms of that exchange, so you've got that there. It's not for us to make a judgment on what you've been told. Okay, thanks. One of the questions was why the correspondence was received late, because it took up a freedom of information before the committee actually saw the... Right, so my understanding, and I'll ask officials to work it out, and actually you could just say, you know, as a minister, I expect my officials and whatever portfolio, and certainly in this one, to respect Parliament and committee's request for information. I think what happened in that was that there was a conclusion about press lines or approval of a press line for the minister, and that was identified when it was an FOI that came from another route, and as soon as it was, it was given to your committee. There was no kind of intent not to give it to your committee or somehow not provide it, and I think the issue is that it came in at the same time as you were concluding your report, and again, because officials wouldn't have no idea when you were concluding your report, they wouldn't know it was late, if that makes sense, although I know you've taken a long time over this. That's my understanding of the explanation. I don't think that that's acceptable, but I think that that's again improvements of trying to identify record keeping, which, as part of the Government's response, has happened in terms of trying to locate things. However, there's a huge amount of information that Transport Scotland has provided for not just your committee, but also particularly the REC committee. Is that my correct recollection of that process? Minister, I would just echo the points that it's regrettable. We didn't find that the first time round a method. We've provided quite significant bundles of information to the committee, particularly following the First Minister's appearance, and that was one of the questions that you had asked on that. There is a huge volume of material, as you would expect. A lot of which has been published in this space. It was only when we had a separate follow-up, a separate FOI, that this piece was identified. As soon as it was identified, I asked the team to send it on to the committee. Regrettably, that was, as we now know, at the point that you concluded your report. One of the other bits, as well as looking at the accountability, is that there was a verbal briefing that was last said for Transport Scotland. I'll just share it. The minister had received a verbal briefing before he went on annual leave. I'm just wondering whether your record keeping—there are more questions that will be asked later on in record keeping, but have you improved your procedures? Are all verbal briefings now recorded somewhere so that, as far as accountability is concerned, we actually know who said what to who when? I can maybe usefully comment on that, having come back into Government after two years. I can see quite evidently that there are more record keeping issues around verbal briefing. You'd have a note that I've met such-and-such, and we've briefed on such-and-such, et cetera. It's quite evident to me that there is an improved record keeping process. Again, we say that in response to the committee. I think that the new permanent secretary has made it quite clear that, across Government, not just in this area but across Government, there needs to be improved record keeping of everywhere. I spend a lot of time clearing minutes of meetings, if I can reassure you of that. I've got more questions in record keeping. I might come back in later on. The evidence that we took from Mr Mackay was that the letter that he signed to Mr Macmillan had been prepared by his officials. To Mr Wilcock, the request for that information was made by the committee of Transport Scotland in November 2022. It finally saw the light of day in March 2023, but following an FOI trawl, not because the department had been sufficiently adept at finding it for us when we first asked for it back in November. It wasn't a one-off, and there was a pattern there, which Mr Beattie will speak about. I think that draft press lines are not necessarily the same as meetings of decisions, etc. I can see how that might have happened, but I think that record keeping of everything is of significance. What is of significance in terms of decision making and who knew what when, etc? There is far more acute awareness of that now than there would have been previously. Okay. Those things we shall return to. Graham Simpson has got some questions to put. Thank you very much, convener. Good morning. I just want to follow up briefly on Sharon Dowey's line of questioning around this builder's refund guarantee and Kevin Stewart's response in which he mentions the UK Government's… At the time he wrote the response in May, the UK Government was planning to introduce a home shipbuilding credit guarantee scheme. Mr Stewart said in his letter to the committee that he awaited the final details. He would work with industry to establish how best to utilise the scheme and maximise its potential. Well, it was actually launched two months after he wrote the letter. My question is, has the Scottish Government engaged with the UK Government on its shipbuilding credit guarantee scheme? In terms of that, I might refer to officials as to what sort of official engagement there is. In terms of his letter in 23 May, you are saying that in terms of that timescale, in the past few weeks, we should have been engaging with the UK Government on the shipbuilding guarantee scheme. I personally have not, but I would expect my officials to do that either very promptly, or I have already done that. I do think that it is quite a helpful intervention. I suppose it is how it is used. I think that the issues and I think that they will tie in. In fact, both you and Colin Beattie will be aware from the time on the economy committee subsidy control issues have been developing in terms of what can and cannot happen, particularly in a post-Brexit situation and how we can have support for procurement and support for domestic entities. Therefore, it is a welcome intervention, but it will have taken some time to develop. We need to work out what we do in terms of that and the operation and the underpinning, because it is an underwriting issue. Therefore, a lot of that will depend on where we got capacity as a Government to do underwriting and where is the source of that funding. In relation to borrowing, we know that we have had improvement for borrowing for revenue purposes. Some of those issues might be in relation to capital, which will have challenges for us, which will be different from the UK Government. That is the sort of thing that we will need to explore. If the officials have had or intend to have those discussions with the UK Government on that issue, it would not be my part of Transport Scotland, but I suspect that the yard or economy colleagues might have… Those issues might be in relation to future procurement and what could happen in relation to that, depending on who had that. Therefore, you are looking at the bidders. You are looking at the people who are bidding for the work having that underpinning and guarantee, in which case it would be a yard or whatever yard. The scheme was launched in July, so the Government has had a bit of time to engage with its UK counterparts, at least to find out the details and how it could help in the future. In terms of your recommendations, that is a good recommendation. We want the Government to respond to it. Certainly, in my detailed examination of your report going through what is the conclusion, what is the recommendation and what we have to act on, that was something that, certainly in my new position in post, because I would not have looked at it at the time that you produced it with that level of detail, but I think that that is a good and useful recommendation and my officials will act on it. That is good to know. Now I have alerted them to the scheme being in existence so that they can make contact. I will move on to something else. I am sure that you watched, as I did, the disclosure Scotland programme around this whole issue a year and a day ago that it was broadcast. The allegation in that programme, essentially, was that the whole procurement process was rigged. That was the word that was used in the programme. Then we had the appointment of Barry Smith KC, who was appointed to look at the allegations that were made in the programme. However, it has been reported that Mr Smith has not been asked to look at whether the contract was rigged but was instead asked to look at whether there was fraud. That is not what I am saying, it has been reported in the press. Is that accurate? What has he been asked to do? I cannot comment on what has been reported in the press. What I can tell you is that, quite rightly and appropriately, the CML board had appointed Mr Smith to carry out that investigation. I think that they have got responsibility to do that. My understanding is that they were looking at all the allegations that were made in that programme by the BBC. It is important that the review has to be presented to them and they have to review that and publish it, and they were committed to doing that. I think that that is the appropriate thing to do. Has he been asked to look at whether there was fraud because nobody has alleged that? It is the issue about what the allegations are. That is an issue for the CML board that they have asked them to look at. They have entitled to commission that, which they have done. I think that it is their responsibility to do that, which they have done. As you do, I would be interested to see the report when it is published. Do you or your officials know what his remit is? What CML has asked Barry Smith to undertake is to do a review of all the allegations made in the BBC disclosures programme. The focus is on whether or not the process was arranged or influenced in a way that was dishonised or fraudulent. To my mind, while it is a matter for CML, that sounds to me like an all-encompassing review of the important issues that were raised in the BBC report. When are we going to see this report? That is a matter for the CML board. I think that it will be fairly soon. I am not responsible for the timescale for that. Is the CML report to you or your colleague Neil Gray? The report is to the Government. It is a CML report to the CML board. Do we know when we are going to see the report? The minister says soon, but that could mean anything. We are not part of that. We know that KC has undertaken the interviews that they were looking at, but we have not seen any form of finding from that. That is right and proper, because that report is going to be directed to the CML board. Depending on the findings of that work, it will depend on what actions are taken next. Will the report be made public? I think that the intention is that it will be published in some form. I think that the CML chief executive was pretty clear that they intend to publish as much of it as they possibly can. They will also need to take into account any relevant personal information or any other elements there, but certainly Kevin Hobbes has been pretty clear that they are keen to publish as full on account of it as they can. I guess that the other thing that I would add in relation to that is our relevant point. Both ourselves and CML and a wider Government have said that, understand the auditor general, he will review that report when it is completed in the findings of that work to identify whether any further audit work is required. We are absolutely committed to engaging with that if further work is identified. Would that, for example, once it is published, be a ministerial statement? I think that it is up to the board to publish the content of the report. We need to review the content of the report and then that would be judgment at the time whether that is merited. I cannot prejudge what the content is, so I cannot tell you what happens after it is produced. I underscore that the recommendation of the committee was that that investigation should be carried out thoroughly but also urgently. As Mr Simpson said, it is a year since the programme was broadcast. I will go to another question that was identified in the report that we produced that we did not really get a response to by your predecessor minister. I wonder now whether you would respond to the concerns that the committee expressed about the decision to publicly announce the preferred bidder on 31 August 2015 when the expression used while significant negotiations had still to be concluded. This is a conclusion and a position taken by the committee, which is part of your responsibility to set out what your position is and what your view is on that. In terms of the appropriateness of that, I think that that was something that you went into some detail with the former First Minister as well. You have got good evidence as to where that was. In terms of that timing, I think that that has been laid out a number of times as to when that was in terms of the appropriateness of that. What is the Government's response to that? We did not get a response from Mr Stewart, so we are asking you this morning what the Government's response to that is. I think that the Government's response is that it was appropriate for the Government to make an announcement because that is something that would have happened in previous context. It would have happened in relation to allocation of contracts elsewhere. For example, when CalMac received its allocation of that tender, it would be appropriate for the Government to make that announcement once the process had gone through. I think that the issue is and what your report tries to set out is that you had everything concluded or was that a premature announcement. I think that it was appropriate at the time, but in terms of the evidence that you have had, you have had different views and different opinions, and that is going to happen on the hindsight as to where that was at the time. The Government's position is that you would just do the same all over again? No, that is not what I am saying. You obviously have to judge it at the point in time when the work that has been carried out has been assessed and the procurement process has gone through. This is a point about looking back to something that took place a significant time ago. The changes that have taken place since then, prior to the recommendations of REC and your own recommendations to improve the processes of procurement, it also means that investment decision making is in a different process than it would have been at that point. It is quite difficult to view something retrospectively with the lenders that we currently have as a Government as to what is appropriate. I am saying that we would, looking back at the types of processes that we have now, would have been in place at that point. Obviously, it was not because we have learned from that, and that is why we have improved processes going forward. I think that we have been quite open about that. We will come on to the business investment framework shortly. Can I ask you then about another issue around transparency? The meeting that took place between the former First Minister and Jim McCall on 31 May 2017, at which there were no permanent civil servants present, does the Scottish Government have a view on that? Again, in terms of the evidence of that, that was responded to by the Government at the time and by the witnesses that you had at the time. What we have also said in the responses, in the May responses, is that it is important to keep minutes and records of all meetings on what does happen, and that is appropriate. You accept that there was no minute produced or found of that? It is a record of the decision because my understanding is that, again, it is from the evidence that was set out and you have that evidence in your report and in your sessions that you had. It was an email exchange following that that made it quite clear what the result of that meeting was. The record of it was there, but not in the form that you would normally have as a minute of a meeting. It was an exchange afterwards. Does the Scottish Government have a view on a minister meeting a private contractor at which no permanent civil servants are present? Well, as you know, there was an official there. A special adviser, I think, we were told. A special adviser. But not a permanent civil servant. So, in terms of how we would normally operate, clearly, and I think, actually, to be fair, as was set out in the evidence sessions, that the Scottish Government has been as accessible and approachable to interests as it can be, but in an appropriate way. And as long as things are documented, clearly this was documented, but not in the form that would probably currently happen, which should be an official minute. The former First Minister said to, as I quote her, officials have been unable to locate a note of this meeting. Okay. I'll maybe just reflect that my understanding was that there was, and as given to the committee and a lot of the extensive documentation, that there was an email exchange that reported that, so we could again, I think, you've got it in the evidence that you have, but we can obviously make sure that, if we want to refresh the committee's memory of it, we can provide you that again. Okay. Well, that would be helpful, but it just sound a bit like we would do the same again. I don't think I've said that. I think I've been at pains to say that, when you're part of the response that you have had, and what I've said is, I'm quite clear that there has been improvements in record keeping. There have been recommendations, particularly from the new permanent secretary, about how decisions and how things are recorded should be made, and in terms of minute-taking, I have observed that improvement in my recent weeks coming back into Government. Okay. I'm going to move on just to another area where there has been some public interest. That is about who, in the end, was responsible for signing off the contract, because we've seen in Mr Wilcox's saludes to the 200-nod documents that have been released by the Government, which included email exchanges where John Swinney's officials spoke about banana skins and all the rest of it. There still appears to be some confusion over who, in the end, signed the contract off. Was it Derek Mackay? Was it Keith Brown? Was it John Swinney? Has the Government drawn any lessons from that observation of the committee? I'll provide initial response, and then I'll bring in Alison in particular about what happens now, but also in reflection. Clearly, the contract itself, and it's really important to set this out, was between CMAL as the procuring authority and the private company Ferris and Marine Engineering Ltd. It was obviously a use of public funds, so in terms of the decision to approve that, that would need to be provided by the relevant ministers. Obviously, the minister for transport would have a degree of authorisation or approval, but they would not be partied to the contract. In terms of any major spend, especially in very tight physical circumstances, the authorising officer currently has a key role, but clearly the finance secretary in any major spend has to identify whether we have got resources to do this, not from the merits of the individual case, but from the points of whether the Government can afford it in terms of its wider spend. I hope that that gives you the shape of it, but Alison, do you want to reflect on anything either then or now in terms of that process? If I take the then piece, I'm aware that you heard quite extensive evidence from Mr Brannon when he appeared in front of the committee about the role of decision making with ministers and the difference in the relationships between Mr Mackay, Mr Brown and Mr Swinney, so I'm happy to clarify anything specific that you're seeking further clarification on. However, just to reiterate the position, as it would be now, that for the decision associated with the procurement of a new vessel that would be something that would be considered, that would be presented by CMAL to Transport Scotland in terms of a business case, we would consider that business case as a senior management team and off the back of that put advice to the minister for transport and it would be the minister for transport who would give the authorisation subject to sufficient budget to recover for that procurement to proceed and that information would be passed to CMAL and they would remain the contracting authority. I know that Mr Brannon was absolutely clear to pin responsibility on Mr Mackay. I think that our observations as a committee were that there appeared to be more hands on the tiller than just Mr Mackay's at the time of the decision and it was, as you say minister, we know that it wasn't a ministerial name on the contract but it did require ministerial authorisation which makes it quite important to us to understand who was responsible and as I say we are interested to find out what lessons have been learned from that and how we can get more clarity into what is actually a very important decision and has become more important as hindsight has progressed. The process that is followed, the responsibility for the decision on the procurement of vessels is for the minister for transport subject to the financial provisions being in place. I just want to check that you are comfortable with that. But it is not even clear, Mr Mackay was on holiday and so Mr Brown signed it. All I am saying is that there continues to be a degree of confusion about that process and where the authorisation lay. I am going to bring in Mr Beattie who has got a number of questions which I think develop this theme on transport Scotland's role. Thank you, minister. I would like to explore a little bit about the role of transport Scotland. From the report it will be clear that the role of transport Scotland was seriously called into question in the course of the report. Just to mention a couple of things, the project steering group which was led by transport Scotland was seen to be weak and ineffectual. Transport Scotland officials failed to communicate some quite important information to Scottish ministers on Seamall's behalf. No references made in the Scottish Government's response to those concerns. Would you be able to take the opportunity now to respond to those concerns about transport Scotland? Again, the comment that obviously there are clear recommendations from the report and the clear asks of governments and that is what the response from Kevin Stewart on May 23 identified clearly throughout the report. There are statements made by the committee quite rightly in terms of what your view is of and what your conclusions of certain situations are and you have taken a view on transport Scotland. It is the clarity of understanding that is sought about what was the role then and what is the role now of transport Scotland. In terms of that work, it clearly transports Scotland's advice government and they provide information. I think that there was information being provided but we have formalised that far more. For example, in relation to Seamall's advice and information to us about what is happening in Turkey and the four vessels, I hear that directly and I have regular conversations directly with Seamall. I have obviously worked with transport Scotland colleagues on that. However, in terms of the management of that contract and the parties to that contract, that was quite clearly the private for Perkis and Marie's energy and engineering limited and Seamall, as I have said previously. In terms of that information, it does flow. They are far more formalised and probably far more direct now than they were previously. In relation to the project steering group, I suppose the issue is what was their role then and also in relation to what is their role now. Again, to help to unpick that in detail, you can have criticisms of what has happened before. That is perfectly possible. That is what you have set out in your report. In terms of government, we were not asked to comment on that, so I have given you a view just now. Alison, can you maybe explain what was the role of the project steering group then and what is the role of the project steering group now in relation to that type of work? Minister, I will probably start with the reflection of how we have a very different process now and how we alert ministers. I think that the observations and criticisms picked up in the WREC report, and I alluded to it here, where the NSPSG was receiving reports and not passing them to ministers. We would probably dispute that we did not share information with ministers. There is a question about how that was recorded and the timing of that and the point at which we formally escalated that. In December 2017, I cannot remember the exact date. Forgive me for that. However, there is a very different process around sharing information with ministers, so the minister will get the quarterly reports along with Mr Gray for 801 and 802, or whichever frequency those reports come in. We also share immediately, as we receive the reports from CMAL on the Shembury vessels, again those go directly to ministers whether things are going well or otherwise, so that we can see how things are progressing. NSPSG, we are still working on the reform of that group, but it is fair to say that we have made significant changes since the 2015 period, trying to move that into a more functional, focused decision making rather than an information-sharing space, perhaps with some other groups below it. That is still a work in progress, but it is something that we are looking at. I think that it would reflect on some of the more recent decisions that that group has taken in the strategic space around the recommendation to ministers despite the Sky Triangle, the recommendation to retain a resilience vessel and to have 801 and 802 working on the Arran route. That is how we like to shape and see that group working and the future is taking those high-level strategic recommendations to put to ministers. I am pleased to hear that we have learned lessons from this and that improvements have been put in place, but we are looking back here to see what happened. Do you agree that ministers were left somewhat blind to what was going on during the initial stages because of the lack of reporting from Transport Scotland? Well, I will ask for Scotland to review that. Having looked again and read your report and read the REC report and read through it, I think that information was shared, but you will have improvements made. Yes, but I think that you wanted to direct that question to Transport Scotland. I am not sure that I would agree with that characterisation. I think that we set out an evidence to the committee when we appeared just to reflect on some of the reports that we are going to NSPSG suggesting that there were challenges with the project. We are also setting out that, certainly at the earlier stages, the yard and Seamall were working on solutions and there was the point of recovery. Again, in reflection, would we share more detail with ministers now? Yes, we absolutely do, whether things are going well or whether challenges are appearing. Would you agree that the project steering group, which was led by Transport Scotland, was in fact ineffectual? You expect its role to have been, as probably how that would be. That could be answered differently depending on what you think its role should have been. I think that we were clear that it was not parted to the contract. It did not have the opportunity to intervene when things went wrong. Again, I think that we set that out in some of our evidence. It was never intended to be a conduit to manage those difficulties. I think that the observations and the issues that have been brought in the role of NSPSG was that escalation point to ministers and could that have been more formalised or improved? I think that that is almost a moot point given, as I say. I can repeat the point that we now directly report as we go along the issues to ministers and the progress, good or bad, with the current best. Is there any expectation among the participating stakeholders that the project steering group had a strong role in that, which did not exist? There might be expectation from the contracting parties, because clearly there was a breakdown in how that was working, the contract between those two contracting parties. However, in terms of Transport Scotland not being partied to the contract, what they were looking at is in terms of support for a process that needed support. During the whole process, Transport Scotland obviously had a member on the board or attending the board meetings of CMAL. How would that reporting line work back to Transport Scotland from that individual and then feed back to the Scottish Government? It is important to note that that individual was on the board in the sponsor role, rather than directly discussing issues on the vessels. There would have been incidences where someone was attending the board and those matters would be discussed, but equally so, that person would have been very clear, and I know that because I was in that role at a point in time, that if there were issues with that, those had to be discussed with Transport Scotland formally, and that is where those discussions and decisions were taking place, with my predecessor in my current role and the director of Ferries, or AMFC, as it would have been then. That is just in the sponsorship role of attending the board to engage on that basis. It would not be directly discussing those issues. The board papers would also be shared with other members in the team, but, as is evident, there were focused discussions, and the CMAL of Transport Scotland liaison space was where those issues were being taken forward. Do you consider that Transport Scotland's role in providing the sponsor team support? Do you think that that was successful? Can I pick this up to try and take it into that? How have we learned the lessons territory from that? The sponsorship role in Transport Scotland is that there are a number of bodies that we are the sponsoring authority for. I became the interim chief executive in March of this year. Subsequent to taking up that post, what I have done with the sponsorship team is to try to bring all that kind of sponsorship and liaison work together, so that I am hearing directly from the sponsors on a monthly basis of the issues that are raised as part of that sponsorship process, as a way of driving improvements in the way in which both information is shared within the organisation and the point at which the level of risk is then shared with ministers. Again, that is not to take away from the criticisms and comments that have been made about the performance of Transport Scotland and the various different structures that we had in place, but I hope that you will take that as a degree of assurance that we are continuing to improve on the way in which we manage some quite important and valuable assets for the country. It is encouraging to see that improvements have been made and lessons have been learned, but we are looking at the historical situation and the role, for example, of Transport Scotland as a sponsor in this particular instance. Do you think that that role was successful? I think that we need to say that the sponsorship is of CMAL as the organisation, so the issue is the sponsorship of CMAL as the organisation. The issues around CMAL surely in the sponsorship role you would be picking that up, and where necessary feeding it back to ministers. I think that, as Alison has pointed out there, we now have clearly distinct separate roles where the sponsorship and the policy functions sit in two different directorates in Transport Scotland. Previously, those sat together within the same team, and we have now separated that out. It is the same issue that we have been raised, the issues that were being escalated by the policy team, either via the NSPSG or those direct engagements with ministers, as we have set out in our responses and in the papers that we have published. It is the same message that would be communicated, whether it be from the sponsorship side or the policy side, where you would be reporting the same issue, which we did. During the scrutiny, Transport Scotland came in for some criticism in terms of the attendance at times to give evidence, but also late and incomplete information being received from Transport Scotland with little explanation as to why that is. That led the committee to, and I am quoting, question the level of respect in regard for accountability in parliamentary scrutiny. It also issued important evidence to the committee on the day after the report was agreed, meaning that it could not be used to better inform the report's conclusions. Does that show evidence of respect in regard for parliamentary scrutiny? I took that part of your report very seriously to look at what had happened. Again, in my detailed examination of the process and asked what happened, I have made it quite clear that I always expect—I am sure that across Government we must expect—that there is co-operation when required and attendance. It seems to be that the situation boils down to one absence at a request. That was for the interim general, who had already, his evidence has already been referred to, so he had appeared before the committee. I understand my reading of it and the explanation is that you had two previous interim chief executives appear and other senior officials. Chris had appeared before you as well. You had one session that was very long and extensive, and you decided to have a second one, and it was at the point that the interim director general couldn't come to that second meeting that you had requested but said that you could come to another one and try to get alternative dates. That is one instance. You refer to some—I am not sure that there are any other instances where an official did not appear. That was one instance, and that was the explanation. On the issue of the not providing complete information, I think that we have already addressed with Sharon Dowie's questioning, there were two issues. There was the letter exchanged between the former transport minister and the regional MSP, and the identification that there was a paragraph for formatting that had been left off. That is an admin mistake that should not have happened, and I think that the apology was given. The draft press lines were subsequently found through another route and were surprised. Obviously, I cannot understand the committee's point of view if it arrived the day after you finalised your report, but Transport Scotland would not have known the date that you were finalising your report, and as soon as it was found, I accept the explanation that it was sent to you. Those are the instances. I do not know if there are any other instances. That is seen as the generalisation that a number of officials are not appearing or far more pieces of information than those that have been identified and referred to, but that is my understanding of it. However regrettable it was and the apologies were given, I do not think that it was in any means a way of obfuscation or anything like that. I certainly, as minister, would not expect that from any official at any point, and I respect that officials did not do that at the time. Clarification leads me on neatly to issues around record keeping. The committee concluded in part 47 of its report that record and note keeping of meetings throughout the Vessels project involving Scottish ministers was, I quote, weak and fell well short of the standards of transparency and accountability that we would expect. The Government in its response noted that further guidance has been issued, I believe, and that all parties continue to make improvement in the record keeping and so on. Can you provide any detail of what those improvements have involved in terms of record keeping since the report was published? I have already addressed the issue and another questioning that record keeping has improved. It is not that there were not records that obviously were not to the satisfaction of the level, and there was specific identification of meetings that were identified in your report, as they were with the Wreck Committee report. I do think that ensuring that records are not just of meetings but of decisions taking, I think that that is the critical issue that has improved. I do not know whether there is, in terms of what the permanent secretary has issued to the civil service themselves, I understand that there has been communication that that should happen. I think that it has happened in improving over a number of years, and it is quite difficult to reflect on what happened eight years ago as to what is happening now and improvements along the way. However, I think that the new permanent secretary, as I said in answer to another question, has been quite clear as to what the expectation is. In terms of the production of that, I do not know whether any officials want to reflect what the changes are and how that has been communicated. I can pick up and add a bit more detail. The minister has already talked through the minutes of meetings and the impact that that is having on record keeping, etc. The other important aspect comes from when officials provide advice up to ministers, and when we get response back from ministerial teams and private offices, there is very clear statement at the top of the response back that says that this—I will not get the words exactly correct—forms part of a ministerial decision and so should be part of the official record. It is the responsibility of officials to store that appropriately. That is part of what I would call a very detailed and helpful way in ensuring that officials are really clear about what should be kept as contemporaries and significant record keeping for prosperity. I personally have a strong view on that, because I was the minister that took forward legislation on record management systems for public bodies. That was stemmed from a specific purpose in relation to a very sad situation that affected children who had been in care and their records had been lost. I felt strongly about that, that we should always have records. That was in a different circumstance. That has implications for all public bodies, and that management system is for retrieval, which is one of those issues. You have to have a record management system that enables that retrieval. Again, in relation to that legislation and that implementation, that would be across all public bodies. Thank you. I am now going to bring in Willie Coffey, who has some more questions to put to you. Willie Coffey, thank you very much, convener. Good morning Fiona and colleagues. I wonder if I could ask a couple of questions on the issue of written authority. The committee, as you will know, made a recommendation in its report that Transport Scotland and SEMALE should clarify in writing the procedure for seeking reassurances from Scottish ministers. The Government's welcome response to that, I think, was to accept that and to look forward to incorporating that process in the next revision of the framework agreement with SEMALE. It is just to ask you for an update on progress with that. Is that in progress? Is that being done? How is that progressing? There are specific requirements on the Scottish Public Finance Manual for notification. It is one of the areas that I want to seek clarification on in terms of what is shared when. It is published and it goes to the Auditor General. My understanding is that the latest written authority, the Kindwell officer, wrote to the Auditor General when the latest written authority was provided. I would say that written authority is very rarely happened in terms of what we would call ministerial directions are few and far between. I have never given a ministerial direction in the period of time that I was a Government minister and they can be appropriate for appropriate reasons, but I would emphasise that. There is a process there. I suppose that the issue is in the bit that I wanted to query, which is one of the areas that I said that I wanted to look at. Is that routinely sent to the public audit committee, which I think was in your recommendation paragraph 408, paid to 77 of your report, by understanding that the last one was? I have said that that would not necessarily happen that often. Is there anything that I have reflected that correctly in terms of process? That is the process. I think that there are a few things tied up in this. We are working on a new framework agreement that oversees the relationship between the Scottish Government and Ferguson Marine. That is very close to being completed and it has clarified a number of issues around the Government's relationship between ourselves and that organisation. In terms of the written authority, that was specifically prepared by the Cabinet Secretary for the Economy in relation to the projected increase in costs reported in September 2022 and he did so in relation to 802, where he took a view on the value for money case that was presented for that particular projected increase in costs. Thank you for that. In accepting the committee's other recommendation about publication of written authorisations on the Government's website, is that a commitment to publish not only this one but any that may have occurred in the past. The committee was clearly interested in seeing any examples of any such written authorisations that had been sought and given. Written authorities, as you know, can happen not just in this area but in any area within ministerial control. In terms of the process of that, one of the questions that I have got is is this currently in the current edition of the Scottish Public Finance Manual, or will it be and when will it be, was the question that I wanted to ask, because it has an impact on other areas. That is why I wanted to check on that. So I had gone through your report identifying what was not fully responded to, it was partially responded to, but is it fully and clearly in terms of that area that is certainly something in terms of the response that that would be drawn to the attention of the Auditor General and going forward we accept the committee's recommendation to publish confirmation of written authorisations on the Scottish Government website. The difference I saw was that you had a specific request about your committee and the clerk's committee automatically getting it, which is obviously it can be on the website, you can find it, but I think obviously you've got duty and responsibilities as the Audit Committee and I just wanted to check that that has happened and will happen at any time in the future should there be a written authorisation. I think that the committee were keen to broaden that just to see any governmental written authorisations that have occurred with that would be part of what you might consider doing. I mean there hadn't been a I think we've had this discussion at previous committees there hadn't been a written authority for many years. What I can say as the sort of head of the team that prepared the underpinning advice for the written authority that was issued was that the experience and the guidance and the knowledge of civil service colleagues in the Scottish Government enabled that to happen in an appropriate way. So all of that support and expertise was available to anybody who was preparing advice for ministers or would be available for anyone who was preparing advice for ministers that could lead to a written authority in the future. Okay thank you for that I wonder if I could just ask a slightly broader question to you minister. I mean from the outset of the committee's work on the ferries investigation it's became clear to me that the key problems were probably built in from the start of the project and you've mentioned that quite specifically in your comments to the committee. Constantly changing design specifications as you build the ships certainly a recipe for cost and time overruns that we saw. If you look at the performance of all Governments past and present you'll see perhaps a litany of public procurement cost over runs occurring in our experience and the public can see those too. Can you offer the committee in the public your perspective and why some public procurement projects, some not all, do go wrong and do you agree that it's absolutely vital to plan projects carefully at the outset to deploy recognised quality management standards and so on and processes to give all projects no matter what they are construction IT whatever a fair chance that they can be completed on time and on budget and how can you assure the committee in the public that that approach will be taken from now on with any procurement projects that the Government might So I'm not the minister responsible for public procurement policy but I think you're inviting me to give a general response as a as a Government minister and obviously this specific example you talked of public procurement issues and listening I can probably also just make it clear that the Scottish Government have embarked on a number of major transport projects which have been on time and on budget and this one clearly hasn't and that's why not just yourselves but others have had inquiries into it so I want to make it quite clear that actually the general practice in the Scottish Government has been good in that way and actually in terms of transport Scotland however and this is the point of your committee is the point of your committee's report into this issue clearly this has not been the case in this instance and in terms of therefore what type of improvements are and I think this is a point maybe to reassure you in terms of that lessons learned we'll be pulling that together so we can actually document some of its processes we've heard about the Scottish Public Finance module some of it will be some of practices that SEMA are doing and a lot of the practices and changes they're doing are already affecting in the four vessels that are being built in Turkey in terms of the issues around governance and I think you're right so my reflections on you is important to get processes right at the beginning absolutely I think anybody who's involved in any major project knows if you get things right at the beginning there's less chance that things will go have a difficulty later on so I understand that in terms of some of the things that I can give you an indication of and changes from transport Scotland that in terms of improvements some of this has happened and have already in progress even before the rec committee's report and your own but I think it will be helpful to draw them together at the end of this project to make sure that we can itemise all the changes and improvements that have taken place there's now enhanced governance around vessel projects with dedicated project groups for projects and programmes there's improved focus on use of existing risk registers for each project or programme the scrutiny and sign of of all vessel and major port projects by transport scotland's investment decision making board and that's at chief executive directors level greater use of independent gateway processes and approval and now requires accountable office template to be completed by the relevant cab sec and the cab finance which again I think Alison had set out in her area so the issues around the lessons learned from this in terms of issues around design faults at the beginning having consequences and we've seen those consequences even more laterally in relation to some of the processes so I think you're asking asking for an opinion as a post and I've tried to provide not only opinion but responses to where Governments already taking changes in this specific area but I would want to reinforce the fact that actually when projects go well you take them for granted in many ways and that some of those have and you've seen that in relation to the you know the M8 improvements and also the Queensferry crossing and you know so I think there's other areas that I want to just be quite clear that I absolutely accept there are severe overruns in this project which is why you're doing what you're doing but the challenge is when you're auditing something that is some historical time away from eight years ago some of those processes and changes will have taken place along the way and I want to reassure the committee that I will keep on top of that as the minister to make sure that that continues. Thank you very much for that minister. In the interest of time convener I'll hand back to you. Thanks very much and in the interest of time one of the areas that we suggested there could be a revision of the public recording of decisions which is something which occurred in this case where the CML board was kind of overridden by a shareholder authorisation which has got an equivalence with a written authority. I wonder whether you could respond in writing not right now minister as to the Government's position on the recording the public recording of instances of shareholder authorisation being required? So I think there's quite a lot to that because the difference between ministerial direction, shareholder authorisation and letter of comfort which the letter of comfort was what was provided but in the interest of time I'm quite happy to try and give an explanation of what that was and what you're asking for. Yes well the government was the only shareholder involved so that's it anyway but that would be helpful. I'm going to turn now finally to Graham Simpson who's got some more questions to put to you. Thanks very much minister you'll be aware because you've read it in the committee's report that the Auditor General has been frustrated the lack of powers he has in order to get to the bottom of where £128 million was spent by FML and he has asked for more powers and the committee has indeed written to Neil Gray about this issue so just wonder what your thoughts are and whether the Auditor General should have those extra powers. So clearly the government will reply, Neil Gray will reply in the timescale that you've asked for to that request so I can't, I don't want to second guess that. I think that in terms of the responsibilities of the Auditor General they obviously are going to speak to you and give evidence to understand themselves and in terms of I'm not sure if they've asked themselves to have that power asked to you or asked the government directly so in terms of that obviously the request is to look at the accounts of a private company and in this case the private Ferguson Marine Enterprise, sorry engineering limited and in terms of their request to do that that's a matter for the cabinet secretary Neil Gray to respond to. I think in general there are issues around private companies working with the government in any shape or form being subject to the Auditor General at any point in time being able to investigate them by request of a special order that has risks in terms of what that might mean in terms of investment or partnership and whether companies would want to enter into any arrangement. I think that that's a risk element, there's nothing actually to do with this specific case but I would reflect that I think that that's worth exploring as to whether that the unintended consequences of doing this in principle as opposed to the merits, demerits of this particular case and also reflect on my point that you did have feedback from evidence from David Tideman as to where he thought the spend and the problems were and also from CML which you actually have evidenced in your own report so I know you want me to say yes or no that's not my decision so I'm not going to take up behalf of somebody else but as a I mean you'll know this from the experience you've had you deal with public bodies and the issue is can you then have the Auditor General investigating technically you probably could do but what would be the consequences in the future for other situations and other private companies if there was a risk that the Auditor General would be able to seek and secure powers for investigation but I mean that statement fairly obvious I think to use a committee. Okay so essentially we're going to have to wait and see. Yeah I mean I'm not going to give you that I can't give you that. What Neil Gray says. Okay so moving on you know so from what Willie Coffey was asking about about the written authority and the the whole the whole cost issue the costs of these vessels just seems to go up and up and up and that's why we ended up with Neil Gray giving that written authority. I mean is there a point at which in your view the government should say no more? I think the issue then is what is what is it that is in the public interest and is it in the public interest to make sure the vessels are completed for the islanders as the transport minister who have spoken to island communities I want these vessels all six of them completed because we need that resilience which is the the risk element we've got just now and so therefore I think the issue also then is about the yard and the capacity for shipbuilding jobs in the future and also that point about how do we ensure that the the yard can be successful which is obviously the responsibility of Neil Gray so in this instance there's a lot of different aspects in terms of decision making about spend. I understand that you know once we've got through the and I think that they're progressing well the issues for the two vessels in relation to the safety approvals that will be reported to the net zero energy committee hopefully by the end of the month and the next update but then the vessel would go into to sea trials and then you start getting one being launched and I think actually I think that would be a great relief to to the islanders and then of course my job as minister for transport is to help support island communities receive the vessels so you know you can make a judgment all all MSPs will make a judgment of when you say yes or no but I think the importance here and I think the cabinet secretary for the economy Neil Gray set it out very very clearly as to why he wanted particularly on NATO 2 which is obviously a challenge as to why that should progress and be delivered. But I'm not I'm not really clear what your view is on the question. Well at any point in time should a government say stop funding something the answer is obviously across the piece there'll be decisions that are taken where sometimes a decision may be not to continue with something and all I'm saying is I think the the cabinet secretary Neil Gray made it quite clear and he was very open and he came straight department to report that in a very forthright and I think very open way and I think that's where government should do do business if there's a major decision like that and there'll be maybe instances where the answer is to do the reverse and that could happen in any ministry of portfolio at any time so it depends on the circumstances at the time. So I've just got one more question and that is about the future of the yard because you mentioned it and the chief exec Mr Tideman has recently asked for more money for the yard. I realise it's probably Neil Gray's responsibility but you are here and you did mention it. So he has asked for more money I don't know how much money in order to modernise the yard that would in my view that could make the yard commercially viable. So is that something that's come across your desk and are you sympathetic to that request? So again it's clear delineation of responsibilities and I understand that the First Minister, the Deputy First Minister and the cabinet secretary met with the chair and the chief executive of the nationalised fergus marine port Glasgow to discuss his issues clearly in relation to any investment decision as you would expect because that's exactly what your committee has been doing is identifying what are the processes. There's got to be proper processes and due diligence to make sure that you value for money, public interest etc. All those matters are addressed and that's what the process is. I can't comment all I can say is that I think that there's a general and I think that this is cross-party that there is a willingness for fergus marine to be successful and in terms of the report and maybe going back and reflecting on the convener's point about the workforce. I think that the irrevidence that you got from the workforce is that they were positive about the chief executive and that he'd been talking about the need to get into a profitable situation to secure more work etc. So I'm pleased that that's the agenda that's being discussed but I can't give comment as to how that can and when the decision will be made on that matter. Colin, I'm changing your chair. Just to confirm that we are carrying out due diligence on the request from the CEO, we have to look at it in relation to subsidy control rules and we need to obviously ensure that it represents value for money for the taxpayer but we will be open and transparent and we'll obviously report to Parliament when a decision on that is taken. We've slightly run over our time and I suspect that we could go on much longer minister but we've got another evidence session this morning so can I take this opportunity to thank you very much indeed for your time and your input this morning both Fiona Hyslop's minister of transport, Colin Cook, Alice Nervyn and Chris Wilcox. There may be things that we will follow up in writing with you but I thank you very much for your openness in answering the questions that we've been putting to you this morning. Thank you very much. I'm now going to suspend the meeting to allow for a change of witnesses. I welcome everyone back to the second session of this morning's evidence taken by the Public Audit Committee and that is to consider the section 22 report by the Auditor General for Scotland following the audit of Scottish canals. Can I welcome our witnesses this morning which include representatives both from Transport Scotland, the Government but also from Scottish canals. We have got with us this morning John Patterson, the chief executive of Scottish canals and sitting alongside Mr Patterson is Maureen Campbell, who's the chairperson of the board of Scottish canals. We've also got Sarah Jane Hanna, who's the director of finance and business services at Scottish canals and Richard Miller, who's the chief operating officer at Scottish canals. Alongside Mr Miller are three representatives from Transport Scotland, the interim chief executive Alison Irvine. Alongside Alison Irvine is Kerry Twyman, who's the director of finance and corporate services at Transport Scotland and Gary Cox, who's the interim director aviation maritime freight and canals in Transport Scotland. We've got some questions to put to you about the report but before we do that, Mr Patterson, I'd like to invite you to make a short opening statement. Thank you very much, convener. On behalf of the leadership team, thank you for the opportunity to attend today. I joined Scottish canals as a accountable officer at the end of May this year. My priority was clearly to continue the momentum in the project plan to address the issues raised in last year's public audit committee. There has been significant progress made, which I can report to you now. First of all, I do need to highlight that Grant Thornton's external audit report for both years provides an assurance that there are no matters of significance identified outwith audit testing of property, plant and equipment. As a result, whilst we were accepting of audit Scotland's section 22 observations, we were wholly disappointed to receive a full disclaimer opinion to our accounts. The issue was and remains confined to the valuation of the canal infrastructure. We were not made aware until very late that such an extreme sanction was likely. Right up until March this year, we had expected a modified ring-fenced opinion. As a reminder of how we got here, Scottish Canals has been on a 250-year journey and has existed in various forms. A series of unconnected private enterprises built and funded the canals in different times since the late 1700s. In the 1940s, the canals were nationalised and then reformed as one entity under British waterways. In 2012, English and Welsh canals separated from British waterways, leaving Scottish canals to operate as a public corporation. The canal infrastructure value since 1960 has correctly, at that time, been written down to a net value. All the new additions, such as the Kelpies, Bowling Harbour, Claypits and Glasgow, were valued at depreciated historic costs. That is in line with international reporting standards. Between 2012 and 2020, there remained no requirement to place a financial value on our 2,700 canal assets. The new additions are predominantly from 2012 until to £51 million. Those were already held under our financial fixed asset register, which existed. That had been accepted by our others right up until 2020, including Grant Thornton in previous years prior to 2020. When Scottish canals became an NDPB, there was a change in the rules with regard to the way in which we had to value our canals assets as a public corporation. From that point on, we had to comply with Frem. That required a full valuation of the canal infrastructure covering over 200 years and 141 miles, not just those additions since 2012. That is clearly a huge and complex project. We needed to take a number of steps, including analysis of our canal infrastructure engineering records, benchmarking the historic costs of key components and structures against modern equivalent assets, developing a methodology for the very first time for our varied assets with external team of specialists. We reported to committee last year that that was a substantial and multi-layered project with ambitious timescales for such a small organisation. Following the proof project plan with our best endeavours, I fully agree with the statements made by Auditor General and external auditor in June of this year when they stated that we have made significant progress. Since June last year, our team have worked hard to provide evaluation for over 2,700 assets of canal infrastructure to give you a flavour of the range and complexity of these, 52 aqueducts, some of the longest in the UK, 19 large reservoirs, many in remote locations, 186 bridges of all varieties, spans, swing-fixed and 164 lock gates of varying sizes and materials, the Falkirk wheel and the Kelpies of course, as well as an array of other items along our canals and embankments. All of those assets are at various stages in their life cycle, making their valuations unique and specific to each of them. The extensive audit finished in May and since then we have continued to focus on our action plan addressing recommendations. Due to some cost records relating to over 30 years ago, now that's predating our digital records, we have had some limitations to our audit of evidence for obvious reasons, but we have worked to address this. We have also reassessed additions and capitalisation dates for all assets completed over the last three years, reviewed and verified the classifications of all structures and waterways, reconsidered our methodology and residual values in useful economic lives. We have reviewed key assets and their components to ensure the sufficient detail in the fixed asset register. We have ensured that judgments and records on historic costs are clear and transparent. In addition, we have introduced an extensive new project management procedure and associated policies for going forward to support the accurate recording of any future investment in our assets. We will now be able to provide the auditors with all asset information in one concise report in time for the audit for the last financial year, which is scheduled by Audit Scotland to commence in November. We wholly agree with Auditor General that this is a serious issue. We are entirely focused on resolving it. Noting the Auditor General's observation that we should consider alternative options to address this issue, we have revisited the matter both internally and in a recent workshop in partnership with our sponsor, Transport Scotland. We concluded collectively that forming a fixed asset register with the valuation of assets remains the best and only viable option at this time. We have full engagement with and support from our board in Transport Scotland to continue with its complex programme of work. I continue to personally chair a multidisciplinary project board to ensure that we achieve all stage milestones that are necessary to reach our goals. The valuation is well under way and advanced for the external audit commencing in November. However, until we understand the extent of the evidence that is required to meet the new auditor's bar of satisfaction, it remains possible that there may be an additional level of evidence required to meet the external audit approval. Our experience today has been that finding where that bar of audit satisfaction lay has been one of our main challenges. In summary, valuing the historic canal network is difficult, but we have made huge improvements. We remain fully focused in continuing this journey. We are committed to working positively with our new auditors, our sponsors and colleagues to meet the requirements and provide a true and fair valuation in our annual reports and accounts. I welcome any questions from the committee. Thanks, Mr Paterson. Just to clarify, when you speak of new auditors, that is because there is a rotation process, is it not? You have a new, it is no longer grant thawnt and it is a different firm that is now auditing your accounts on behalf of AuditScotland. I am going to invite the deputy convener, Sharon Dowey, to put a question or two to you. The committee has noted the steps that Scottish Canals is taking to address the disclaimer opinion on its annual report and accounts for 2021-22. We have also noted its commitment to delivering a set of accounts free from a disclaimer opinion and to laying its annual report and accounts in the new year. It appears that Scottish Canals faces a significant challenge to be able to meet its public accountability responsibilities and comply with financial reporting manual requirements. I think that we have heard that in your opening statement. What contingencies do you have in place should you fail to do so? Thank you, convener. Our plan A is very much to comply with frame and continue on with the work that we have at this point in time. We feel that it is within reach, we feel that it is valuable and we have aligned all the resources and priorities to achieving that goal in forming a fixed asset register, which we believe would resolve that issue. As I mentioned in my statement, we are not aware or it is difficult to find where the banner satisfaction of the external auditor may rest at risk with the external auditor. We believe that it is a tenable. It is a very difficult project, but we believe that it is a tenable and we are fully committed to resolving that. That is our plan A. Plan B will be to revisit the options assessment that we looked at at alternatives again, because part of the conclusion of the exercise that plan A is still the way to go is that we do believe that it is achievable. You mentioned, obviously, that there are new auditors and you were talking about the bar that they expected. Have you managed to have any engagement with the auditors to see what that bar will be? It is early in the process. We have touched with Audit Scotland, who are doing the audit directly on this occasion in our new external auditor. We have had early preliminary discussions with them with actual audit processes scheduled by them for November, unless Sarah Jane, if she wants to expand on that. Yes. We found out early in the year that it was Audit Scotland themselves that are going to be doing our audit. We look forward to working closely with them. They have already gathered a huge amount of preparatory information on the organisation. A couple of weeks ago, at our Audit and Risk Committee meeting, they presented their plan. They have assessed Grant Thornton's external audit recommendations and assessed, on a risk basis, what they think is important for this year. They will be concentrating on the valuation, because that is a very high risk area. In order to address the disclaimer for 2021-22 and the 2021 year, they will look at all the balances for all three of those years. This is not going to be an easy audit, either. It will be quite complex. They are auditing us over November-December, which means that our annual reporting accounts will be a bit later, usually the statutory reporting deadline is 31 December. We are hoping to have the annual reporting accounts signed and sealed by February by the board. However, we are working closely with them. They have done preliminary inquiries over the past couple of weeks. However, the massive part of their audit will not start until 1 November. Are you getting enough support from Audit Scotland and from Transport Scotland and sitting in the room just now? Is there anything else that they could do to help and assist? Is our set of annual reporting accounts, I am sure that Transport Scotland would say that, and John is our accountable officer with regard to that. If I may convener, Transport Scotland has been very helpful to us, and they have observation status at our board, and we are in regular contact on a regular basis. They did fund the initial exercise of supporting us financially to undertake the massive valuation of the canal infrastructure and continue to be very supportive in our role. That is fine. Thank you. I will go back to what you said about the timing. One of the comments that was made to us when Auditor General gave evidence on 23 June was that timeliness is relevant to scrutiny, because there was some concern about the late approval of your accounts. Are you going to be on course and on schedule for this year's account? I have already said that we will not be meeting the statutory deadline, so we will not. A late approval of accounts does not automatically warrant a section 22 report and a late lodging of accounts does not have any additional negative consequences. Over Covid, if you look at the UK Government-wide, there are many NDPBs who have registered their accounts late, so that is not our main issue. Our main issue is to get the work done and get it done right. Mr Patr, do you want to comment on that? To that, convener, the issue is entirely correct. Due to the timetable that we have been given by Audit Scotland to commence in November, it is not actually related to section 22 in the current work that is underway. I will go back to the substantive point, which is the fact that a disclaimer has been issued, which again on 23 June, when Auditor General paid before us, he emphasised that, in his words, it is a serious matter. Mr Patr, you issued a note to accompany the papers today in which you spoke of a demanding timeframe. That was your expression. When I look back to the evidence that we took last year, Sarah-Jane Hanna confirmed that, even back in the 2012-13 audit, although you were working there at that point, Audit Scotland had flagged up the possibility that a requirement to have this fixed asset register was something that you might be required to do. Again, when I look back to November 2019, Scottish Canals looked for a years delay at that point. We are nearly four years on and it still is not completed. Do you want to comment on that? Why are you still seeking an understanding about the demanding timeframe that you are facing? It appears to me that you are facing it for quite some time. Thank you, convener. Clearly none of the panel here were around at that time in 2012 in the positions that we represent today. My understanding is that we are researching historical records of the organisation and discussions between the organisation transport Scotland at the time. The organisation was very clear that it wanted to remain as a public corporation, and therefore it did not have to comply with the framework. That was not the sole reason for it. The aspirations of the organisation at the time, the leadership of the organisation, was to have a financial strategy that would encourage further revenue generation through the canal and the associated infrastructure activities. That remained, again, the organisation's firm intent. I think that there was lots of discussion back and forward with the O&S about becoming not a public corporation or qualifying for a public corporation. The organisation was very confident that the financial strategy would still result in a revenue growth that would keep us as a public corporation at that time. I understand closer to 2019 that discussion became more intense, as it were, and a form of protest was put in with the organisation to ask for a delay. At that point, it became obvious that if we had to comply with the framework, the whole process that we are going through just now could not be done within the timeframe at that point in time. That is the only explanation that I can afford the committee. Unfortunately, we are not here to hear that first hand. What is your reaction to November 2019 onwards? The director of finance left the organisation in December 2019. There was no director of finance until I joined the organisation in March 2021. I think that it was in May 2021 that we first received our accounts direction from Transport Scotland. We had received some preliminary advice from Grant Thornton in December 2020 with regard to the necessity to value our assets. At that time, it was valuing the assets that were on our books and records. That is exactly what John Lennon was saying earlier about the £51 million worth of additions of assets in the infrastructure. That is what we targeted to do as soon as I arrived in June 2021. It was only when it transpired that we did not have a choice to value the entire infrastructure. Grant Thornton found it uncomfortable. For example, we had spent some money on reservoirs, so we had spent capital on reservoirs, but there was no underlying valuation of the existing reservoir. How could we determine that capital was enhancing the asset and adding value to the asset without the underlying infrastructure? The position that we were in from the 2021 point of view where we spoke in March 2022 to the Public Audit Committee is very different from the position now. Moving towards the 2021-22, we had to do evaluation of the entire infrastructure. Audit Scotland mentioned it in the 2012-2013 report, and I think that the impetus was absolutely to ensure that we would not be categorised as an NDPB and to build the portfolio of income so that we were not so reliant on grant and aid. It has been a very different journey the past year, since March 2022, valuing 250-year-old assets, 141 miles of canals and the complex set of assets that John articulated as a very different journey from just valuing £51 million worth of additions. Do you accept the findings and recommendations of the Audit Scotland report? We do, convener. We accept that. We accept that this is a serious matter, not complying with Frem. The magnitude of the implications that could have to the public purse, I think, I wouldn't share the same views of the general for the simple reason that we have always had a fixed asset register. We maybe didn't have a pound sign in front of each asset's name at that point in time, with the exception of the assets that were added from 2012. The important thing is that there are a number of tiers of controls over how we invest in public infrastructure in Scottish canals. We have an asset register and we have an asset management strategy, which looks at the condition, the age and the serviceable life of the asset and the cost of returning that asset back to a good serviceable standard. Our investments have always been focused on the right places, they have always been risk assessed and they have always been targeted to the appropriate investment. From that side of things, I don't share the gravity of the potential consequences of not complying with Frem. We were an organisation that never had to comply with Frem right up until 2020. The canals have survived 200 years, we have successfully repurposed the canals, we have reinvented their uses as health and wellbeing, economic regeneration tourism, instead of moving coal as we used to be predominantly. Yes, it is a serious matter, not complying with the Frem manual itself, but the potential for misdirection of public funds is absolutely negligible. It is important to reflect not just on the section 22 auditor general's report, but on the external audit report and the detail of the external audit report from Grant Thornton. I am going to quote a couple of things. In their evidence, they said that there was no evidence of management override of controls, there was no indication of fraud or inappropriate management bias in accounting estimates, there were no exceptions in relation to the currents or accuracy or completeness of revenue at all, there were no exceptions with regard to the cut-off of either income or expenditure and investment properties were properly valued like they always have been. The audit options for Grant Thornton were an unqualified clean opinion, they were a qualified opinion and a disclaimer opinion or an adverse opinion. An adverse opinion is not what we have here, that is when an auditor says that it absolutely does not reflect the books and records, so that is not what we are talking about. What we, as John said, thought up until March this year is that we would have a qualified opinion. A qualified opinion is usually when we do not have the information or we do not have the information within a realistic timescale. We employed our expert valuation team in July and then they completed the valuation in November. We have been audited from October to May, so that is eight months' worth of auditing. In May we decided and we spoke to the Audit and Risk Committee, we could extend the audit for another two or three months additional audit testing, trying to get Grant Thornton to get comfortable around some of our judgments and estimates, but we are a very small team. I have one technical financial accountant, I have one systems accountant and I have two management accountants. We have not had a head of finance since February, so to add that additional two or three month burden on to a very small team when we are needing to work on other aspects of the business, business as usual, would have been quite a burden. We do believe that that qualified opinion, we did not have the information and we could not get the information within the right time, would have been more appropriate rather than the disclaimer of opinion. Let me quote back to you then, Mr Paterson, Ms Hanner. If I look at paragraph 15 of the Auditor General's report, there are expressions in there that could not be supported by evidence, lack of data, potential errors, there were errors, lack of documentation, several errors and so on. There is quite a catalogue of criticisms of your methodology and all of which has led to a decision that has been taken not to issue approval of your accounts, and it is, as I mentioned earlier on, described by the Auditor General as a serious matter. From my point of view, I do not want us to be here again in a year's time, as I am quite sure you do not, but it feels as though we are hearing the same arguments that we heard a year ago and I think that we need to persuade them that things are moving forward. Graham Simpson wants to come in, so I am going to bring in Colin Beattie. I just want to follow up on that. Sarah-Jane Hanna, when is this exercise going to be complete? Whether you think that it is worthwhile or not, you are doing it. When is it going to be finished? We are due to receive a revised valuation this week for the year end of 2022, and then we will do additional work and receive the revised valuation for 31 March 2023 in the next three weeks, so that we can meet the Auditor General's deadline of giving them an annual report and accounts on 1 November. I thought you said earlier that it was going to be late. The lodging of our accounts is going to be late. They are going to be after 31 December, but the audit starts in November, so we are responsible for handing over all that information. The information that you will get this week, will that be the valuation of all your assets? We have done quite a significant amount of work to revise that valuation, to address some of the external audit recommendations. We have reassessed all of our auditions, and we have reassessed our capitalisation dates. That removes the issue with regard to the audit report of possible duplication of assets. We have reviewed and verified the classifications of all of our structures and waterways. That accounts for 93 per cent of our £1.9 billion historical cost. We have already reconsidered some of our methodology, which Grant Thornton pointed out, in particular with regard to residual lives, although with regard to residual values, in particular the overall potential error that Grant Thornton identified was somewhere in the rain of £20 million, and we are talking about £1.8 billion infrastructure. There is a materiality level that the audit has to abide by that does not necessarily reflect the full value of the assets. We are looking at judgments and estimates that Grant Thornton could not get comfortable with, and trying to embolden some of our justifications is very difficult. In a letter of representation, any accountable officer will speak to the external auditors with regard to the judgments and estimates of any annual report and accounts, any set of annual report and accounts. There will always be judgments and estimates. It is up to us to better articulate them and work closely with Audit Scotland to see whether that helps the process. However, it is a complex valuation and there is no guessing on it. I completely understand that it is complex and difficult, but you need to do it. Have you been in discussions with Audit Scotland telling them how you are going about this, asking them at every step, is this the right way to do it? You do not want to be in the position where they say, sorry, you have done that the wrong way, go away and do it again, and we are back here again in the years time. We have given them all our planning documentation and this is our approach. What we have never done before is to produce an actual fixed asset register, a one place where all the assets are in one place. We have the very detailed engineering asset register, but we have never had it on a financial basis in one place. To be fair to Grant Thornton, that makes it very difficult to audit without having that transparency. Richard could probably talk more about that evidence as well. This has been, as we said, very challenging. As SJ says, we had four months so after the March committee last year, we took it really seriously, but we had to go through public procurement at the scale of getting the right experts on board. We got the right experts on board and brought E&Y on board and got involved and worked very closely with them during July, August and September right through to getting the fixed asset register in place. Some of the challenges were around rights and obligations that come through in the report, but of the 109 things that were sampled by the auditor, 107 of them were absolutely clear and two of them were related to partnership structures that had been built previously. In the past few months, we have been working extremely hard to refine, to learn from what GT showed us, to deliver that and to develop that and to mature the fixed asset register. We are in a good place now in regard to the fixed asset register into one single document. That was always a challenge because we had a plant on one side, we had a property on the other and then we had this task of understanding the engineering side of the business. As John says, we had an asset management strategy, so we had everything in sight. What we needed to do was to take it from an engineering purpose into a financial and accountancy purpose and that is the task that we have been doing over the last few months. We are moving definitely in the right direction here and the fixed asset register will require to mature over years, but, for the first of November, we are heading into the right direction to be able to put one comprehensive piece of database on the table for Audit Scotland to have a look at. Just so that I understand, you will have a list of all your assets and will there be a value attached to each of those assets? Every single asset. That is a challenge as well because, as we said and as the convener said at the start there, those are assets of 250 years old. The majority of them, 75-80% of them, were built between 1768-1822. We could have gone back to Thomas Telford's accounts and we could have taken it straight-line from there, but what we did was to develop it and look at it from a depreciated replacement cost because, actually, Scottish Canals has done a lot of work. In the last 25 years, £200 million of investment has gone into the Canals. The majority of that third party funded and a lot of it European funded as well, so you can imagine how audited that was. We have that data and we have evidence for each of these different structures. The challenge is then taking them and applying them to the older structures and getting the depreciated value, but we are in place for that. I have just got one more question, convener, if that is okay. Short one? Yes, short one. It is for Mr Paterson because he mentioned financial strategy. I think that he said something about the ability to earn money from the Canals, which I think is really important. Are there any restrictions on what you can do in order for Scottish Canals to earn money? I think that the potential of the Canals has still gone untapped. I think that there are massive amounts of improvements that we could make. We have invested heavily to become an active transport provider, in effect. The towpaths are now very active, in sickle ways and such like. We have attracted to third party funding from such trans and others to do that. We would like to grow our revenue further. Things are very tight. Part of maintaining the Canals network is not just capital to replace lock gates and the likes, it is actually revenue to dredge and cut trees and we would cut and such like. The revenue position is something that we are very tight on and it is something that we are looking to work with others, the public sector organisations and the shared services agenda, to see if we can reduce our overheads and share in that space. It is something that we want to do to develop the potential of the Canals further in terms of investing in revenue projects and investing money into projects that would hopefully unlock that potential of the Canals. I am thinking of accommodation, play a role in housing. Living by water is a theme of our corporate plan. Temporary accommodation is well for tourism and quality accommodation. I think that there are a number of areas that we could grow our revenue potential and there is a number of yet to be discovered opportunities across the Canals network. I think that one of the frustrations that we have as a public body is that we have to quite rightly invest very wisely. We are not allowed to speculate to the same degree as a private sector organisation might. We are not necessarily risk appetite. We need to be low and we need to be sure that our business cases would be very robust in doing so. I think that there is more to come from Scotland's Canals. Thank you very much indeed. We are pressed for time but I am going to turn to Colin Beattie to ask a series of questions. The first question is really for Transport Scotland. Sponsorship. You are the sponsor team for Scottish Canals. Can you maybe describe a little bit about the support that you are providing to them at this time? I was pleased to hear that John confirmed that they are content with the level of support that they have been getting from my sponsorship team. I think that I would quite like to focus on some of the key things that we have done over the last 12 months since the last time that we were at PAC. I think that it would be a good place to start. I will bring Gary in to see if there is anything additional that he thinks would be helpful for you to be aware of. We have supported the team in reviewing their valuation methodology and their plans. We have sought agreement from the Cabinet Secretary to bring in Ernestine Young to help with that work. We have provided advice on how Transport Scotland values its assets in case of any learning that the team could take from that. We have obviously been partied to some of the meetings between Scottish Canals and the auditors and we have helped where we can to provide advice to the team on some of the questions that have been asked. I would hope that you would take from that quite an involved role in the sponsorship team here, particularly to pick up on this really important issue, because we want to support Scottish Canals in order to get to position where we do not have to come in front of your committee and answer questions like this. Gary, is there anything else that you would like to add? I suppose just to say that there is a clear role set out for me as AMFC director and for the sponsorship team in my directorate in the Scottish Canals framework document. That is the basis for the relationship, but it is a very close one. I have two people who work on a day-to-day basis with Scottish Canals. A lot of that is the day-to-day problem-solving, the financial monitoring and the sharing of information that is relevant to public bodies. We have a good team working with a good team at Scottish Canals, and my job is to make sure that that relationship stays positive and that Scottish Canals are continuing to work in line with the Government's broader agenda. That is what I would add to Alison's comments. If you have asked for additional support from the Scottish Government's public bodies unit and made use of any of the various tools that they provide to support you in your role as a sponsorship team. Again, there is lessons shared across all public bodies and your public bodies unit and Scottish Government identify common themes, identify common problems across the public bodies and have a mechanism for sharing that. Again, that is part of our role as a sponsorship team, making sure that Scottish Canals are aware of those broader initiatives or common problems and the solutions that have been identified. That is an important point in relation to the work that Scottish Canals is going through just now. I would see at the end of this, when it is all put to bed, there will be lessons from this process that Scottish Canals will want to share with the wider public sector, with other public bodies, indeed with other parts of Transport Scotland. That is something that we want to try to pull together once the heat has been taken out of this and the accounts have been settled. We will share lessons from this process with other public bodies to see if that is useful. Just to be clear, have you asked for support from the Scottish Government's public bodies unit? No, I am not aware of that. You have not. You have the skills and expertise within Transport Scotland to be able to give that level of sponsor support in what seems to be a fairly specialised area? It does. That is just a note of the role of the sponsorship team. We are obviously bringing expertise from other parts of the Scottish Government to help Scottish Canals, in particular the expertise that exists in Kerry's team and the finance team in Transport Scotland. The support that we have given as a sponsorship team has been supplemented by support from other bits of Government, in particular finance colleagues. The public bodies unit does not have dedicated finance support. If I am understanding what you are asking, what we have done is engaged closely with the Scottish Government relevant finance teams, so we have engaged closely with the governance and risk team on the accounts direction questions and where we need to implement FREM and this idea around not being able to ask for exemptions from FREM. We have engaged closely with our Scottish Government finance business partner support team, again looking at any other instances where public bodies have gone through similar classification changes, how they have applied valuation and things of that. As I said, that level of expertise does not rest within the public bodies unit, so we have gone straight to the source basically on the finance support, but where there has been, as I said, high level governance questions, that would be for the public bodies unit. As Gary said, we work very closely with them, disseminating information and best practice across all of our sponsored bodies via our sponsored units in TS, so that will have all gone to the canal's team. Of course, you have gone outside to get consultant support, but at least Scottish canals have. They spent £500 million on that with another £100,000 in this past financial year. Just quite a lot of money. Indeed. Sarah-Jane can probably answer more on that. I think that is what we did initially. We looked quite closely at the trunk road network, which was the closest infrastructure asset we had, but that is a very, very complicated valuation model. I won't go into details all about layers of concrete and things. When we did the comparison, we were able to share high-level principles and understanding, but that didn't have the direct read across. When we looked at the actual hours and hours of work that it would take and the technical expertise, it was felt that that wasn't on hand within either the Scottish Government or Transport Scotland. We didn't have that level of dedicated resource, and it was felt that, in order to get this done quickly, as we've said, and at the level of expertise and dedication needed, that in this particular instance an outside consultant would offer value for money. It's not as quick as you might think, is it? I think that, for all the reasons that I've mentioned, Mr Beattie, that this is an incredibly complex project. The asset base is huge. No-one had ever evaluated a canal before. There was no methodology. The experts would consult, even challenge them in terms of coming up with that methodology. We did test that methodology with our external auditor. The methodology itself was agreed. I think that it was the level of comfort of evidence that was available to the external auditor that proved that bar of satisfaction that we were yet to satisfy. That's been our biggest challenge all along, being that bar of satisfaction. It's felt throughout the process a bit akin to the teacher marking your exam paper telling where you got it wrong, but we did hear that it's not the job of the external audit to teach Scottish Canals how to devalue the canal network. We found ourselves unable to pass the exam question and having to teach ourselves in effect. With regard to the amount of money, we would rather not spend £600,000 of the taxpayer's money on anything like that. Is there going to be more this year? No, it's just an extra £100,000, so the £500,000 plus another £100,000. That finishes it. What we will have to do in future years is to go out and tender. What we will be provided is evaluation for the year end of 2022 and for the year end of 2023 by our expert valuers. We will provide the fixed asset register for going forward. They will be providing us with enough information so that, because I think that it said somewhere in the Auditor General's report that we won't own the model, we will own enough of the information to be able to go out to tender, so that in future years we can do a proper tender process and the valuation, because it's already in existence and the fixed asset register is already in existence, it should be much smaller exercise. However, that happens at the end of every single year. To provide a set of annual report and accounts, you have to value your investment properties, which we already do. We'll be valuing them as well. We have to do an actuarial valuation. We have to do a corporation tax computation, so those are all provided externally. There were only about four, well, really the big four, accountancy firms that could provide the RICS valuers that had enough experience. Actually, they did have canal experience and they did have experience with waterways and utilities and massive infrastructure projects, but that mix of the valuation experience and the technical accounting experience. There's a very important point that you mentioned there, which is about ownership of the model. The current consultants own that, so you're going to have to presumably pay them. No, we will have that going forward, so we can go out to tender to other organisations. Okay, that's good news. I'm really sorry to interrupt you, but we're really up against the time. I know that Willie has got some questions that he wants to put, so I'm keen. The truth of the matter is that we've been very busy this morning and it may be rather than give you lots of oral questions, we can maybe put some of the questions that we don't get to in writing to you and you can perhaps respond or we can consider as a committee how best we think that that could be prosecuted, if you'll pardon the expression. But Willie Coffey, I want to come to you. Thanks, good morning, John and colleagues. John, you covered a lot of ground in your opening statements there and I've been a member of the audit committee for more years than I can probably remember and dealt with reports from audit Scotland section 22 and 23 and so on, but I feel I have to say to you that the response that you're giving the committee doesn't appear to me to be cognisant with actually accepting the recommendations in full, you did say that, but the impression I've got from some of your responses don't suggest that. I mean, you said that you didn't share the gravity of the situation, you said that the potential for misapplication of public funds is negligible, but are you aware, do you accept that you are absolutely required to comply with the Treasury's guidance on this? If you don't do that, where is the public assurance coming from? So, just to be clear, Mr Coffey, we fully accept the Auditor General's recommendation that the point of disagreement is perhaps the level of sanction applied given that it was a matter confined purely to our fixed asset register and that there was a clear plan and that was work in progress, so it's the sanction perhaps that we disagree with, not the actual recommendation in section 22. We felt it could have been a ring-fenced opinion which would have not triggered the section 22 report and the adverse comments that we did receive. We were on track for fixing the issue, but we remain very much on track and fully focused on fixing the issue, so we very much take it seriously. We keep our board fully appraised at all times, and Transport Scotland is also fully appraised at all times, and all parties are aligned to the fact that we are fully resourcing, prioritising this and that we will remedy this matter in due course. So, just to clarify, we fully accept Auditor's opinion. We took issue with the level of sanction, and we felt that that could have been a more appropriate, alternative ways of addressing that. Do you get what I'm saying? If you don't comply, there is therefore no public assurance, and surely that is a grave matter. I mean, I know that it's a difficult and complex process to get there, but it certainly has to be regarded as a grave matter if you can't give the public assurance on the matters that we seek assurance on. Absolutely, it is a grave matter. Had all the general used potentially serious, I would have fully aligned with that statement. It is very potentially serious, but, as I mentioned previously, there are tiers and tiers of controls of how we target and make sure that we fund our investments into assets very carefully. There is a clear methodology for doing so, so the suggestion that we could be misappropriating funds in any way or misdirecting funds is wholly unsubstantiated, and that basis would disagree with the level of sanction. One of the things that you didn't mention, John, was the amount of money that your health spend in consultant fees, and I think that it's now £600,000. Is the public getting value for money from that exercise? Is it allowing you? Is it helping you to understand what this bar of audit satisfaction actually is that was mentioned earlier? Is it allowing you to get there? Because, if you do come back next year, this absolutely has to be sorted, surely you accept that? We do accept that. To be clear, we had no choice. This was a crash course that we had to do, and the crash exercise within a very short period of time, obviously, our intention had been to avoid the section 22 disclaimer for a second year in a row. There was no choice. This was the only way of doing it. There was no methodology in existence. Even the experts in surveying found this a challenging exercise. There was no alternative. As mentioned previously, most organisations would do this over a sustained period. They would do a five-year rolling programme of revaluing assets. In all probability, they would cover the same ground over five years. We had to do it in a very, very short space of time. Therefore, going forward, it would be once we reached the point of an agreed fixed asset register and we passed the test of external audit and the balance satisfaction. I would foresee a sustained programme over, say, a five-year cycle of revaluing the evaluation of our canal assets in the way that many other public bodies would do. You also mentioned the separation between English and Welsh canals and Scottish canals. Was there any opportunity taken to consult with that organisation about how they went through this process? Are they in the same boat as you, literally? Or have they completed this exercise and do they comply fully? My understanding is that the Canals and Rivers Trust are a charity, and therefore, Frem does not apply to the same as us. However, Richard can explain his lots of contact with his former colleagues, and they were fully involved in the process that they are trying to assist as well. In 2012, Scottish Canals remained in the shell of British waterways, and we became under Scottish Government, where in England and Wales became Scottish Canals and Rivers Trust's complete charity. We are in regular contact with them. We are in contact with other global organisations as well to talk about canals. We know Waterways Island and they are going through a similar process, but they are behind us in this process, and we have spoken to a number of European and other organisations. We cast a net wide to try and see if there was a methodology out there for waterways and for this sort of work. We are actually at the very front of this, and that does cost money, and that is taking time, but we are convinced that the team from EY, as SJ said earlier, has the experience of building these from the ground up, and they are working in the Middle East and in places like Africa, where they are starting from the absolute ground up building these fixed asset registers. Unfortunately, it is not cheap, and it is very expensive to do, but it will be at the core of our business moving forward. The connection between the fixed asset register and our asset management strategy and the ability for government to see what is sitting on the books in these heritage infrastructure. As was said earlier by Transport Scotland, there is a lot to be learnt across the public sector for other organisations that will probably follow us in this process. Just for assurance, that was one of the initial things that we did. The joint Transport Scotland and Scottish Canals finance teams, we set up meetings with our counterparts in the English and Welsh body and had a really fascinating discussion on technical accounting and what they were doing and what we were doing, but it became very clear, as Richard has outlined and colleagues have outlined, that they are still, because of the way that the decisions were taken over control at the time in 2012, they remain a charity in a completely different government type of body, no ONS reclassification, and therefore they do not need to abide by the frame, so they have stuck with the historical nil valuation. They were interested in what was going to need to be done up here, but a completely different set of rules applied to them. It is very, very helpful, thank you all for responding to those questions, convener. Thank you very much. I do not know whether Graham Simpson has got any further questions to put, but if he hasn't, that concludes the session this morning. I thank all of you from Transport Scotland and Scottish Canals for your time and your evidence. There are some things that we may want to follow up, and we will need to consider as a committee what our next steps are, whether we need to bring you back in again before next year or we are not going to see you again for a long time or whatever. All of that is not entirely in our hands, of course, you understand. I thank you very much for your time and your patience this morning. We will, as I say, consider what our next steps are, and there are certainly some things that we might want to follow up in writing with you. I now draw the public part of this morning's committee to a close.