A Catastrophic Failure

Calmac's £42m ferry hit by new problem | HeraldScotland
Caledonian MacBrayne ferry MV Loch Seaforth at Ullapool Harbour.

The ALBA MP Kenny MacAskill stood up to in the House of Commons to make his speech about Scotland’s ferry scandal and every member of the Scottish National Party walked out. This is how keen Scotland’s elected representatives are to listen to sound argument on the squandering of public money, delayed ferries and a call for a Public Inquiry into the decisions leading up to the administration and eventual nationalisation of Ferguson Marine shipyard at Port Glasgow. This includes ongoing issues involved in the procurement of vessels, and the Caledonian MacBrayne (Cal Mac) and the subsequent CMAL *shenanigans. (*The only way to describe events without getting into litigation.)

The last remaining shipyard on the lower Clyde was taken over by the entrepreneur Jim McColl in 2014 but delays and cost pressures with regard to ferries 801 and 802 led to Ferguson Marine Engineering Limited  (FMEL) being put into administration in 2019 and eventually nationalised by the Scottish Government in December 2019. The Scottish Parliament’s Rural Economy and Connectivity committee inquiry concluded in December 2020 that the management of the procurement of the vessels at the yard was a “catastrophic failure”. 

If you care to, write to your MP and ask how they intend to fix things and see the return of ‘missing’ money. We publish part of MacAskill’s protest, and we publish in full, clinical analysis of the story written by Scotland’s pre-eminent spokesperson on maritime law and development, Professor Alfred Baird.

A CATASTROPHIC FAILURE

by Kenny MacAskill MP

This debate goes to the heart of two Scottish institutions. Firstly, Caledonian MacBrayne (Cal Mac) who provide lifeline services to the Scottish Highlands and Islands, and whose ships are acquired for them by Caledonian Maritime Assets Limited (CMAL), both Scottish Government agencies. And secondly, Ferguson Marine Engineering Limited (FMEL), who operated the last shipyard on the lower Clyde, a river that made ships admired around world. Yet a yard which has been excluded from the most recent CMAL tender to build Cal Mac ships and where orders are going abroad.

Cal Mac and Fergusons are part of Scotland’s story, but they’re also vital to Scotland’s future. Communities devastated by incessant breakdowns and cancellations need a fast and reliable service, to maintain them and allow them to grow. For that new ships are needed. Not only should Fergusons be building them but others from elsewhere and indeed, not just in Port Glasgow but on other sites that can be revitalised the length of the Clyde. Instead, Cal Mac is floundering, and Fergusons future is threatened. In 2014 Fergusons was saved by the intervention of Jim McColl and all looked rosy. What’s gone wrong?  Why have vessels 801 and 802 been so delayed, costs overrun so massively, and Ferguson Marine Engineering Limited gone into liquidation?

At the core are procurement and administration both issues reserved to Westminster. I hope that Ministers may be able to provide answers, if not an inquiry, into what’s a scandal that needs resolved. Firstly, let me rebut suggestions that the yard or workforce were to blame. History shows what the Clyde can do, and the same skills still remain at Fergusons. Moreover, research by RMT Union has shown, of the 8 ships that have broken down recently only 2 were built on the Clyde and they were amongst the oldest, where difficulties could be expected. CMAL recognised the skills when placing the order there for ships 801 and 802. In evidence at the Scottish Parliament’s Rural Economy and Connectivity Committee inquiry Jim Anderson Director of Vessels stated: “The Shipyard was already building ships for us. It had a good history of building these type of ships.” Even more convincing was Commodore Luke Van Beek, a Dutch maritime expert, appointed by the Scottish Government: “I was in no doubt it had the management expertise. Having rebuilt the yard Ferguson Marine had a good shipbuilding system in place.”For sure there’ll have been mistakes made and more that could perhaps have been done. But it was and remains a skilled workforce and Jim McColl and his company have a global reputation for engineering prowess. His initial intervention was lauded by the Scottish Government. The suggestion that he can succeed around the world but not in Scotland is absurd.

Procurement and liquidation lie at the heart of this mess. Responsibility rests with CMAL and the Scottish Government. Dealing first with procurement there are two aspects. The contract specification and the requirement for the vessels to be dual fuel – that’s operating on both marine diesel and LNG. Dealing firstly with the contract it’s clear what was signed off by CMAL was lacking in specification and from that most problems arose. A design and build contract for a ship at an initial price of £97 million but many other critical factors weren’t clear. That was a recipe for discord, indeed disaster. Costs rose as changes kept being made, just what was to be built never entirely clear. As Jim McColl said: “Price was based on the specification that were had at the time. As we have said it was not detailed at that time, there were still some open ends that we had to resolve collaboratively with CMAL.

The second issue was fuelling. Leaving aside why environmentally you even consider LNG, there remain basic engineering concerns. It’s a relatively new technology. Normally used on larger vessels than on smaller ones like ships 801 and 802, where other options such as batteries or hydrogen are preferred. It’s also not surprising that Cal Mac didn’t want LNG ships as there’s no LNG infrastructure in Scottish ports. I asked CMAL what consideration was given to onshore supply systems, what was in situ at the time of requisition and what the situation’s now for LNG? This is the answer: “At the time the only load out facility in the UK was the Isle of Grain. There were 3 projects looking at the bulk storage in Scotland 2 on the East Coast and one on the West Coast – so far none of these have been built out.” Cal Mac operates in the Hebrides and on the Clyde which lie on Scotland’s west coast. The Isle of Bute’s in the latter and the Isle of Lewis the former. But the Isle of Grain is in Kent on England’s East Coast. No wonder Cal Mac didn’t want it.

Having messed up the tender CMAL proceeded to make a bad situation worse. When cooperation between ship builder and vessel procurer was needed CMAL refused to cooperate. That’s confirmed once again by Commodore Van Beek who said: “CMAL had no interest in compromising… most damningly adding: “the people who I met from CMAL were adamant that they did not want to discuss ways to make the situation better.” FMEL offered mediation. CMAL refused. This was the modern equivalent of the Titanic racing into the iceberg.

So, knowing all that what did the Scottish Government do? Remove CMAL? No. They forced FMEL into liquidation. As Jim McColl said in evidence: “The Scottish Government didn’t save the yard from administration, they forced it into administration by repeatedly refusing to instruct CMAL to engage in reasonable requests for mediation, an expert witness process or arbitration.”

The Scottish Government’s Inquiry opined the contractor was at fault, yer ScotGov kept funding them. No wonder the Scottish Parliament committee concluded: “that there has been a catastrophic failure in the management of the procurement of vessels 801 and 802, leading it to conclude that the processes and structures are no longer fit for purpose.” Liquidation followed but the questions of this whole sorry saga only increase.

Our Islands are still bereft of services, communities and businesses threatened and the yard’s worried about its future, as CMAL tenders orders abroad and other orders have been lost. What needs done? There needs to be clarity on CMALs actions and the role of government ministers responsible. Hold a Public Inquiry. Will the Minister consider seeking to establish a joint inquiry with the Scottish Government?  We need clarity on what went wrong. But fundamentally we need to secure a ferry service for our remote communities and provide a future for our shipyards.     

A RESPONSE BY PROFESSOR ALFRED BAIRD

The ongoing decline and collapse of CalMac ferry services to what might well be considered third world levels, coupled with the possible impending collapse of commercial shipbuilding on the Clyde, seems increasingly and inextricably linked to one organisation – CMAL – and the latter’s civil service ‘handlers’.

What exactly is CMAL and who runs it?

CMAL (Caledonian Maritime Assets Limited) was initially conceived by the handful of Tories still running Scotland back in the early 1990s as a VESCO (Vessel Owning Company), the maritime equivalent of a ROSCO (railway Rolling Stock Company). Such organisations were given respective industry supply monopolies as prelude to full privatisation and where the monopolies extended would be exploited happily ever after by non-transparent offshore private equity owners. In effect, the aim was much the same ‘regulatory-capture’ model now applying to most former UK state-run utilities generally. Post 1997, New Labour duly continued with broadly the same policy approach, including PFI schemes, the latter also applying to Scottish ferries, in particular NorthLink’s Orkney/Shetland fleet, which is also owned by CMAL.

Whilst CMAL was established as a state entity, its anticipated privatisation and that of ferry operator CalMac never occurred, largely due to political opposition from members of the new Scottish Parliament. One might therefore surmise what would probably have transpired had Holyrood not existed, with Westminster enacting sales of state ferries and other entities still in public ownership, including Scottish Water. In England, the Tories sold off several former state-run ferry companies such as British Rail’s Sealink, Red Funnel and Wightlink, and Isle of Man Steam Packet followed suit, with most of these operators subsequently bought up by offshore private equity groups/funds.

The pile on

However, this did not stop private equity types being appointed (by civil servants) and piling onto CMAL’s board, the sharks apparently circling in readiness for the bigger pay day to come. Several CMAL board members had direct involvement in other state ferry and maritime/port asset sales elsewhere, and some had personally gained large cash windfalls from these sales; they were clearly looking for another ‘opportunity’.

The standard British Tory state sales modus operandi was to dispose of state assets cheaply and, by ensuring the new private entities/utilities held monopoly supplier privileges and powers, the real asset value would in time be duly inflated to reflect this ‘advantage’, allowing for substantial financial gains to be made after any subsequent sale of the asset to private equity funds.

As CMAL was never sold off, this means its continued existence is rightly questioned, though now for reasons related more to its effectiveness and competence. There is no fundamental need to separate assets from operations in the ferry sector. A shipping company, even state-owned CalMac, is perfectly able to manage its own fleet and port affairs, much as it did previously. Hence the purpose and management rationale of the CMAL ‘model’ might rightly be questioned. Interestingly, no other country has opted for this sort of approach.

Veering to the private

The present CMAL board today still has a slight private equity look about it, though there are perhaps fewer hungry sharks waiting around for a bite of the action. Until recently, CMAL’s board also included a director who had connections with a shipyard outside Scotland, the latter inevitably having an interest in bidding for the building of ferries, and fleet repair contracts, and which coincidentally is now in receipt of the latter.

The two newbuild ferries are currently several years behind schedule at Ferguson’s due in large part to frequent changes in the design and build process made by CMAL. This is not normal practice in shipping. Normally an order is placed where both owner and builder are well aware of what is being built. One does not expect a total breakdown in communication, as occurred between CMAL and Ferguson’s, the buyer also subsequently refusing offers of mediation.

A litany of ‘accidents’

CMAL’s present CEO is a ferry industry veteran albeit primarily in the Irish Sea cargo sector, not the more complex passenger sector. He ended his previous ferry stint back in 2008 and hardly in the best of outcomes, or so it appears. In his final year with his former employer Seatruck Ferries, the accounts showed that a loss of £10 million was made. The company also ‘lost’ a ship on a beach near Blackpool, with the subsequent MCA report critical of its safety management systems. In addition, new ferries the company had ordered from a Spanish shipyard were years late, resulting in high charter costs being incurred. Altogether this hardly seems a managerial track record which might imbue confidence that Scottish ferry procurement would be in safe or capable hands.

Aside from the subsequent fiasco at Ferguson’s, the board of CMAL also instructed its CEO, with civil service approval, to purchase several second-hand ferries over recent years. These ship procurements have been undertaken in a rather irregular manner for a public body, primarily through ‘negotiated’ deals, i.e. without any tendering process. Two of the ships subsequently acquired by this method, NorthLink’s freight ferries, were at one time owned and operated by the CMAL CEO’s previous employer. Individuals holding a financial interest in these ferries at the time of purchase by CMAL is not known, another of the less than transparent aspects of equity funds. This leaves important questions unanswered, not least of which is a lack of transparency, and whether ‘negotiated’ prices paid by CMAL’s CEO for second-hand vessels represented value for money for the taxpayer?

Deteriorating standards

The strategy and competence of CMAL has also been called into question by numerous island community ferry user groups, as the CalMac service continues to deteriorate to levels previously unseen. This criticism includes poor and yet at the same time very expensive vessel procurement decisions, such as the design of three smaller ‘hybrid’ ferries each of which cost three times as much as ‘standard’ ferries of the same capacity. There are also several expensive port investment projects with design failings, such as the new pier at Brodick which has berthing issues in certain weather conditions. The specification of LNG for the two new boats still under construction would also be considered of dubious value given the rapid shift of the ferry industry to far superior lower-emission options.

Refusing common sense

The urgent need for a ferry led the Mull & Iona ferry community group to identify a new 80-car capacity catamaran ferry which was available for little over £10 million. CMAL refused to buy it, and instead purchased a much smaller second-hand 36-car capacity ferry from Norway for £9 million (inclusive of modifications); it was subsequently found that the latter boat is unable to operate in wave heights much above 2m and, due to its unusually deep draft (3.7m) the vessel will be unable to berth alongside the overnight pier at Craignure, a key requirement requested by the community. CMAL and civil servants briefed the Transport Minister Graham Dey to state on BBC Radio Scotland that the new Lloyds Register classed catamaran was rejected because ‘it would not be MCA compliant’, despite no concrete evidence to this effect, and with similar catamaran designs operating across the Pentland Firth for more than a decade, the latter necessarily fully MCA-compliant.

Meantime the Arran Ferry Group had arranged with CalMac to undertake berthing trials for the excellent and high sea state capability-proven Pentland Ferries award-winning and low-emission catamaran ferry mv Pentalina, which was undertaken successfully. As Arran islanders were expecting one of the new vessels currently delayed at Ferguson’s, they had recommended to Ministers that mv Pentalina be chartered or purchased to serve the island in the meantime. The islanders were even prepared to set up a company to buy the ship and charter her to CalMac themselves, if need be. However, CMAL and civil servants, and also it has to be said the RMT union, stepped in to block the deal, again on spurious grounds.

Islanders always the losers

These continuing rather mischievous actions as well as other similar missed opportunities, coupled with poor procurement decisions by CMAL and civil servants, are what is leaving island communities further exposed to an ageing, outdated, and increasingly unreliable fleet. The continuing two-ship disaster at Ferguson’s is therefore merely a symptom of a wider malaise surrounding CMAL and its various activities, supported by civil servants.

As someone who has studied the history and operations, success and failure of many shipping companies throughout the world, analysing their strategies in depth, and holding a PhD in strategic management in shipping, plus having developed and taught modules in the discipline, what might I conclude from the brief history and record of CMAL? Well, in this scenario, and based on all the evidence I see, also being closely involved in the matter, it is not difficult to deduce that something is pretty rotten within CMAL and, it may be added, its civil service backers.

The bigger picture

Though these events are set in Scotland, this is not necessarily a specifically Scottish malaise and industrial/economic tragedy, for it remains the case that senior officials leading ferry policy in the civil service, leading CMAL, and now also leading Ferguson’s are not Scots. These are people and hence a meritocratic elite mostly brought in from outside Scotland to manage Scottish institutions, which occurs for reasons Alasdair Gray well explained. There may also be a degree of British exceptionalism at play here; as disasters and missed opportunities continue to unfold before our eyes, with horrendous impacts for island communities, the response from those responsible seems little more than what appears to be arrogance and denial.

From an international shipping management perspective, it would seem difficult not to conclude that these state entities are effectively dismantling and destroying Scotland’s ferry sector, to the severe detriment of island communities and Scotland’s economy. They are also jeopardising any real prospect for serious advancement in competitive commercial shipbuilding at Ferguson’s and elsewhere in Scotland.

Regrettably this may well be intentional, and to some extent political, remembering that public bodies are political institutions, and that repeated failure of this nature is not simply about incompetence; there is a pattern of failure evident here.

We should also remember that Jim McColl not only wanted to develop Ferguson’s, he wanted to expand into nearby Inchgreen drydock, the largest drydock in Scotland, which is owned by Peel Ports, the latter rejecting any deal. Peel Ports also owns the Port of Liverpool and has interests in the Cammell Laird shipyard at Birkenhead. It is with the latter that CMAL has placed its ferry repair and maintenance contracts, in which drydocks are a critical feature, and remembering that CMAL also had a board representative with Cammell Laird connections.

A conflict of interest

There appears to be at least scope for conflicts of interest here and perhaps even a motivation to damage Ferguson’s. A further conflict arises where two major competing port areas – Clyde and Mersey – are both owned by the same entity, Peel Ports, which also happens to be the (private) port ‘authority’ and hence maritime traffic regulator for both.

This is therefore a situation that needs to be dealt with now, without delay, and at the highest political level in Scotland. Unfortunately, to a large degree the present SNP political elite simply appear to be part of the same public sector malaise and dysfunctionality, Scottish Ministers now allocating to CMAL, despite its repeated failings and ‘catastrophic failure’, a further £600 million, presumably to enable it to continue to make more mistakes.

In summation

What is essential now is to bring the current failed model of ferry service delivery and operation and the apparent conflicts of interest and unsavoury practices that persist to a rapid end. Scotland needs to develop a sensible national maritime policy and strategy based on sound theoretical understanding, global industry knowledge and strategic insights, and to introduce the right management expertise and skills, which do exist, if you know where to look. Scotland also needs to look carefully at who owns and regulates its strategic estuary seaports and the critical infrastructure there, including ship building and repair facilities, and work on fixing the often obscure yet dysfunctional Tory legacies which inhibit economic growth and development.

The right skills exist among us Scots, as does a passion to do much better, and arguably marrying the right skills with passion to do the very best we can for our people and country should be a winning combination. The prevailing mediocre meritocracy and deceitful nature of British Tory legacy policies, of which CMAL is an example, ports another, is hardly a high bar and Scottish Ministers would be well advised to throw both overboard.

NOTE: Alf Baird is an appointed voluntary non-remunerated member of the Scottish Transport Ministers Ferry Industry Advisory Group (FIAG) and writes here in a private capacity.

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13 Responses to A Catastrophic Failure

  1. Richard Robertson says:

    What an interesting read.

  2. Grouse Beater says:

    I hope it is informative – we are a small nation of island communities making essential we should not squander public money on ferries by making poor decisions and following that with worse.

  3. tombkane says:

    Ah… Really? The SNP walked out on Kenny MacAskill’s speech? That is an utter disgrace. I have just about no words for that… When Kenny MacAskill is critical of a lifeline, ferry service reserved matter at Westminster and the SNP walk away? I have sympathy for some SNP supporters, but the party is no longer fit to be the independence trailblazer. KMcA lays out a rivetting perspective here.

    And as for this, just this from Alf, regarding CMAL and the Tory get-richer-quick QANGOs “From an international shipping management perspective, it would seem difficult not to conclude that these state entities are effectively dismantling and destroying Scotland’s ferry sector,”

    We saw the Tories do this before, with oil, gas, utilities and England’s water. We saw Labour collude with the process. And now we are seeing the SNP walking away from an inquiry to establish what’s going on with these ferries, in a huff?

    I hate to say this, but they are finished. Their disrespect for the lower Clyde and the island communities of Argyll, Hebrides and Northern Isles brings them unforgettable disgrace.

    It’s incredible to me that we have such a distinguished maritime expert here, and yet we are still in this political morass surrounding public private partnerships, simply because government is not listening to expert advice attentively, and they are not leaders enough to act decisively.

    People along the Clyde are not happy that the ports of Greenock and Port Glasgow and the container terminals are owned by a Liverpudlian company… All profits leave the area and the shareholders have no allegiance to the people of the Clyde. Why Ferguson’s has not been provisioned with that dry dock is a scandal.

    I am imagining that they would not be given the dry dock that’s in Greenock for the same scandalous reason.

    To see what the Clyde was in the 60s and 70s before Thatcher… A Merchant Shipbuilding Centre… to see what Thatcher did… there were 12000 workers shipyard workers in the Clyde at one point .. to see the tugs and small boats and large boats moving up and down to the Islands… And to look at the silence of the river now, is heartbreaking. At one time there was a pleasure boat going from the Broomielaw to St Kilda…

    That this SNP is not paying attention to Kenny MacAskill when he comes to criticise Westminster and Holyrood over this ferry debacle is the most egregious, collusive, deriliction of duty that I have seen from the Westminster SNP MPs. And I think there is no coming back from that.

    The SNP have left the building.
    They’re all in the members bar.

  4. ngataki5 says:

    I would like to know the names of all the SNP MP’s who walked out. That is absolutely disgraceful.

  5. Nick Dekker says:

    Thank you Alf Baird for your devastating description of how even now,with devolution, the London Tories still seem to rule.

    Thank you also for the decades of effort you have put in trying to expose the underlying problems, especially arising over the 1991 privatisation of the Clyde and Forth Ports Trusts by a Tory government that led to the creation of dozens of multi-millionaires being the beneficiaries; while, by the way, the ‘docile’ Scottish Labour party of the day looked the other way.

  6. I can’t believe the SNP politicians don’t understand the situation. Surely they’re not that lacking in concern and intelligence! Looks like they’re trying to destroy Scotland. Well, the wise ones had better change direction and give their backing to the ALBA PARTY. They are our only hope these days.
    Thank you to Alf for all his work on Scotland’s behalf.

  7. Votefor Poodles says:

    I’d be interested to know why you have blocked me on Twitter. Donny MacBarker

  8. Correction: Ronnie Cowan (SNP MP for Inverclyde) spoke after Kenny MacAskill, and said –

    “It is good to see a debate taking place in this House on a company based in my constituency of Inverclyde. In fact, the three companies —CMAL, Caledonian MacBrayne and Ferguson—are all based in Inverclyde. It would have been nice to have been notified that this debate was going to happen. I would have expected that courtesy to be extended to me by the hon. Member for East Lothian (Kenny MacAskill).”

    This was a half-hour adjournment debate, almost all of which was taken up by Kenny MacAskill, Neale Hanvey, and replies from the Parliamentary Under-Secretary of State for Scotland, Iain Stewart.

    Kenny’s full speech (not exactly as quoted above), and the other contributions, are here –
    https://hansard.parliament.uk/Commons/2021-11-02/debates/973F9010-13B5-4E40-A0BD-92D250C5D781/ShipbuildingAndFergusonMarineEngineeringLtdInsolvency#contribution-4B563C83-7695-4AAF-94FD-13D441560185

    It’s clear that the purpose of Kenny MacAskill’s debate was to get the UK government to agree that several aspects of the affair are reserved to the UK government. Indeed, Kenny goes on to ask the UK Ministers to intervene with an inquiry –
    “At the core of those questions are procurement and administration, both of which are issues reserved to Westminster. I hope that Ministers will be able to provide answers, if not an inquiry, into a scandal that needs to be resolved.”

    The UK minister Iain Stewart replied –
    “Indeed, the framing of company law is a reserved matter. I would need to take advice from officials, if the hon. Gentleman will allow me, as to whether a breach of that law was a reserved matter or, as I suspect, more a devolved one.”

    So even if you (and I) agree with much of what Kenny MacAskill said, it seems likely that nothing was achieved – unless you count Tory glee, exemplified in Iain Stewart’s concluding remarks –
    “as I say, these are matters primarily for the Scottish Government to answer, and the hon. Member for East Lothian should pose them to his former colleagues in Holyrood and the Scottish Government. From the UK Government’s perspective, we are investing in the future of Scottish shipbuilding. That demonstrates the strength of our Union, and I hope to see many more ships built on the Clyde.”

  9. Grouse Beater says:

    Ah, no love lost between the self-crowned heads of Scotland and the new legitimate resistence to British rule. One day, MacAskill and Hanvey should resign to stand for re-election, the next put their view to the party that publicly loathes their very existence and excommunicates dissenters.

  10. Pingback: Ferries: Scotsman To the Rescue | Grouse Beater

  11. Graham Taylor says:

    Alf is right that CMAL, the “VESCO”, was set up as “the maritime equivalent of a ROSCO”. They differ dramatically now because the ROSCO’s are not owned by the government and operate in a competitive market. This is confirmed as there have been several new entrants to the ROSCO marketplace and Train Operators have a genuine choice when funding new fleets. This is not at all true of the single entity that is CMAL. There is also a significant difference in the role that Train Operators have in the specification of new fleets vs the almost “hand’s off” role that CalMac appears to have in the specification and delivery of ships they will be required to operate. The ROSCO model is far from perfect but operates much more satisfactorily that the VESCO we have in Scotland.

  12. alfbaird says:

    Thanks for that clarification Graham. I had slightly lost ‘track’ of what happened in rail transport. I understand that CalMac may however begin the process with a (approx. 400 page?) specification of the boat it wants, which CMAL then ‘procures’ (funded by SG loans etc) and thereafter charters to the operator.

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