Scottish Ferries

I’ve just read through the report from a Scottish Parliamentary Committee (SP Paper 879 – “Construction of Procurement of ferry vessels in Scotland.”) At over 100 pages it’s not short but that’s what happens when a contract is (currently) estimated to be running more than £100m pounds over budget – original fixed price £97m- and a completion date two years late. In fairness to the committee, it’s a decent report and features almost everything that I would expect to be asked in such an investigation. I don’t agree with all of their recommendations (more in a different post) but make the following provisional observations.

1. Contractual expectations may not be met and a budget may have been exceeded, but this project is neither late, nor over budget. Don’t worry, I haven’t gone mad, let me clarify. When buying something that has never been built before (“a prototype”) there is no means to accurately forecast either the cost or the timescales. The First Minister announcing a budget and a desired completion date is no guide to a project outturn.
2. The tender process looks wrong for a “prototype” vessel. A design and build contract on an unproven design can only ever be attempted if the buyer is able to put all the risk on the contractor (almost never possible in my experience), or if there is at least two design phases. High Level and Detailed Design with these tasks being substantially completed before the build phase. In this case the design and build phases were not properly project managed, and financial strength of the proposed contractor was low (although there was an expectation that the Scottish Government would “guarantee” this), and, as anticipated, there were significant reductions in contractor guarantees, as “discussions” continued in the preferred tenderer/pre contract signing phase.
3. The contract form (BIMCO – NEWBUILDCON) looks wrong, and (I need to check this) almost certainly suggested by the tenderers, and not the Employer or his agents. At all events the contract form may be better understood by the contractor than the employer/customer.
4. It’s a contract form with (at first sight) inadequate project management, dispute resolution and quality sign off provisions, unlike an NEC contract.
5. The contract was assessed on a 50% quality/50% price – typical in public procurement but almost always disastrous.
6. The contract was awarded before the key issues were finalised, with an understanding that a “collaborative” approach would be taken – a word commonly used in public procurement which makes no difference in smooth running contracts and never improves delinquent contracts.
7. The customer did not know what they wanted at the contract outset, or it seems during the design phase of the contract. They are still arguing about high level design today!
8. The Scottish Government were wearing too many hats having just nationalised Ferguson Marine, and there was no strategic thinking about the ferry building business before this contract was awarded.
9. Project Management looks poor, and relationships broke down between the Government representative CMAL and the shipyard: this culminating in the assertion from the procurement body that they were hoping that the contractor would go to court with respect to an outstanding claim. I have plenty of experience of disputing claims from contractors but a well put together contract should have crystal clarity about the dispute resolution process. Additionally, project management must have understood that a failure to address this issue timeously would almost certainly affect the cash position of this contractor and that the work going forward would be affected. At this stage there should have been a closer (not more distant) relationship between the customer and contractor, and serious consideration given to contract termination at that point.

I could go on but that’s for the next post, suffice to say that arriving at this place is tediously predictable. This entire exercise seems to break almost every basic rule of procurement and the project (as designed) is a perfect storm of design risk, financial risk, and project management risk. Public procurement is typically expensive, ineffective and is heavily slanted towards large established companies rather than market newcomers. It needs to change and I will talk about how in future posts; the hard pressed taxpayer would surely welcome cost reductions without quality reductions and risk increases which can fairly easily be achieved.