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Ferguson Marine - Quarterly update

Letter from Ferguson Marine to the Convener, 30 September 2021

Dear Mr Lockhart,

Update on Hulls 801 & 802

I write to provide the quarterly update on the progress of Hulls 801 and 802. As the ferry project progresses there is increasing focus on future work for the shipyard, and I have also included some information in this area which I hope you will find interesting.

Financial

In previous letters I have advised that, treating COVID-19 costs as an exceptional item, we are on track to deliver the project for the original budget of £110m to £114m. I confirm that this remains the case.

Key Issues

Skilled Workers

In the update in March, I highlighted the constraints placed on the schedule due to the availability of skilled workers and in June described actions taken to introduce overseas workers to the shipyard to alleviate the problem. I am pleased to report that the overseas workers, who are in fabrication trades, have integrated well into the working of the yard and are delivering high quality work. Fabrication trades are flexed between 801 and 802 as appropriate and the scope of hot work (ie welding and cutting) on 801 is now reducing, giving the opportunity to increase the fabrication activity on 802. The number of overseas workers is being increased from 60 to 90 in early October, with the potential for more if required.

COVID-19

The working practices developed with the support and involvement of our Trades Unions have continued to give good protection to Ferguson workers as infection rates increased in Inverclyde during the summer. We continue to operate to Scottish Government Manufacturing Guidelines which have eased some of the social distancing requirements and we have maintained a strong emphasis on temperature checking on arrival, mask wearing and where appropriate lateral flow testing. Our workers have continued their diligent and responsible approach to COVID and although the total number testing positive since the start of the pandemic has reached 88 (from 18 in June) we have only had a total of two cases of in-yard transmission. In common with many businesses, Ferguson has recently experienced some disruption due to self-isolation requirements, but these remain at a manageable level.

System Integration

Ferguson uses 7 separate data systems to run the business, and these do not communicate with each other. In order to have technical information and material available in the right place at the right time it is necessary to link 3 core systems and achieving this has proved more challenging than expected. The 3 core systems manage engineering information; stock control, procurement and work order processing; and project planning.

Manual controls have been implemented to link the systems and improve workflow, but these are complex vessels with over 16,000 different parts currently held in stock and it is necessary to create active links between the systems. A programme of work is underway to create these links which will allow improvements to the release of work to the shopfloor; the ability to run Material Requirements Planning to give more effective procurement of material and systemise the control of works orders; and to allow improved visibility of the verified inventory position and simplify material allocation. This programme will also integrate and upgrade the systems for progress reporting.

This programme is progressing well and starting to deliver improvements in the processes. The programme will be completed during October and its full benefit will be in felt from November.

Schedule

The delivery of 801 remains in the range 25th July 2022 to 25th September 2022. The delivery of 802 remains in the range 3rd April 2023 to 3rd July 2023. These delivery ranges are unchanged from the June 2021 update.

Review

Ferguson Marine's Board of Directors has reviewed, discussed and agreed the substance of this update. They have considered current risks and have identified two areas of note:

1. The successful implementation of the systems integration improvements described above is critical to the success of the ferries project and in providing predictive reporting on progress. If these improvements are not successfully implemented as planned this will present a risk to the planned delivery window for 801. The Board noted the significant challenge in concluding the systems integration.
2. Much of the equipment for the ferries has been installed since 2016 and may have deteriorated since then. Although surveys, remediation and replacement have taken place under Government ownership there is an unquantifiable risk that equipment problems may emerge during commissioning. I would reassure Committee that the Board, management and the workforce are working hard to eliminate these risks and to ensure successful delivery of the vessels.

Future Work

We have assessed the market that is available to Ferguson and concluded that the business can compete effectively for complex vessels, built to high standards, in the 40m to 110m range. The upper end of this range is limited by the size of the shipyard, with the lower end a guideline intended to exclude the smallest vessels. While under Government ownership Ferguson has completed two vessels for the Scottish aquaculture industry, both below 30m and built to the workboat construction codes, and we have concluded that the business cannot effectively compete with specialists in these markets. We will of course compete for work below 40m where it is a good fit with Ferguson's capabilities.

Our focus for future work is as follows:

Complex Commercial & Government vessels

• Ferries
• Service Operations Vessels (SOVs)
• Lighthouse Tender Vessels
• Research Vessels

Complex Patrol vessels excluding warships

• Fishery Protection Vessels
• Coastal Patrol Vessels
• Offshore Patrol Vessels (OPVs)

There is market activity in each of these sectors and we are actively pursuing the opportunities that best fit Ferguson capability.

Yours sincerely, Tim Hair Turnaround Director