First Minister Nicola Sturgeon has defended the salary of Tim Hair, who was appointed to turn around nationalised shipyard Ferguson Marine in 2019.
He was in post until February 2022, on a reported annual pay package of £790,000, including fees and expenses.
New documents suggest that the costs of hiring Hair, plus “reasonable expenses” and the cost of living in Scotland from Monday to Friday, would be £2,850 per day for two to three months, followed by a rolling contract afterwards, with him expected to stay for nine to 12 months.
It also confirmed that Hair’s company would be paid £50,000 for his appointment on top of the salaried contract.
Officials noted that they “can expect significant criticism of this remuneration package”, but said it was within industry standards and that there was “extreme urgency” around filling the post.
Responding to questions around the contract, Sturgeon replied: “These decisions were taken in line with proper processes and procedures, and people paying the market rate – I don’t set the market rate for what people are paid.”
“I don’t think the experience of this contract has been acceptable in any way, shape or form, but the focus now under the new chief executive of the shipyard is to get the ferries completed in the interest of island communities and secure the future of the shipyard.
“We should not lose sight of the fact that but for government intervention this yard would no longer be open and nobody would be employed – right now there are more than 400 people employed in that shipyard and we intend to do everything we can to ensure it has a bright future.”
The Scottish Government was warned that the contract for Hair could have been terminated, resulting in fines for failing to tender the contract publicly under the competition legislation, if challenged later.
The report notes that under the EU procurement laws, the government was required to publish a contract award notice within 30 days, publicising the fact it awarded a contract and identifying the contractor and the value of the contract.
Liz Ditchburn, directory general for the economy at the Scottish Government, wrote: “Normally, and to comply with procurement legislation, we would run a competitive tendering exercise prior to awarding a contract, but we are confident that the urgent need to secure a turnaround director allows us to rely upon a derogation from competition permitted by the legislation to award make a direct contract award.
“In addition, the sensitivities around the operating position of the business would have been exposed had we entered into a normal and open procurement process.”
Ditchburn then warned the Scottish Government in an email: “Once the existence of the contract becomes public knowledge, a company or individual that feels it could have performed the contract may challenge the decision not to put the contract out to tender in the first instance, possibly on the basis that the derogation test that the need for a contract for a turnaround director was unforeseeable by Scottish Government until a point where there was no time left to run a competition had not been met.
“In those circumstances, the worst case scenario could be a legal challenge where the court finds that Scottish Government had insufficient grounds to rely upon the derogation from competition and requires that the contract be terminated with immediate effect and Scottish Government could also be fined”.
The report reveals that the Derek MacKay, former Cabinet Secretary for Finance, Economy and Fair Work, took into account the notes regarding the “high cost”, but stated that the government “need to do this now”, while adding “we must look to get permanent management in at a lower cost at the earliest stable opportunity”.
Ditchburn noted that due to the “extreme urgency”, the procurement process being done under a “non-competitive action”.
It also revealed that adviser PwC had “serious concerns” that it would end up in a position to conclude the transaction on 14 August, 2019, but would “not have an appropriate and credible individual to run the business”.
Explaining the individual needed to be briefed on various matters before being able to take on the role and that there was “insufficient time to conduct this fully at this stage and no scope to delay this any further”.
Scottish Labour leader Anas Sarwar brought up the issue during First Minister’s Questions on Thursday: “The waste of public money – a quarter of a billion pounds so far – by the government at Ferguson’s does not end with the award of the ferry contract.
“Emails obtained through Freedom of Information, show that appointment was rushed through – without the usual competition – in just a few days.
“Hair was selected from a shortlist of only three people, all recommended by corporate advisors PwC; that in the process of negotiating his salary, he started by offering a rate of £2,000 a day but ended up being paid just under £3,000 per day plus expenses.
“And that the First Minister was informed about all of this, and didn’t raise a single objection.”
Responding, the First Minister said: “Decisions were taken at the time in line with proper processes and procedures and people paying the market rates.
“I don’t set the market rates for what people are paid.”
The government is now concentrating on completing the ferries, she said.
Sarwar replied: “Market rate, £3,000 a day? Were you signing Lionel Messi?
“Government advisers actually suggested Tim Hair needed a decent pay package so that life wasn’t and I quote, ‘unnecessarily painful’ for him while he swapped Hampshire for Port Glasgow.
“Shocking and out of touch,” he added.
Sturgeon also said that the Scottish Government would not repeat mistakes made in the procurement of two delayed ferries.
Ferguson Marine was awarded the contract for two vessels in 2015, but recent cost estimates by Audit Scotland have put the price of the ferries at more than £240m– two-and-a-half times the original £97.5m quote.
But the original agreement was made without a refund guarantee that would protect public money – and an Audit Scotland report said there was no paper trail explaining why the contract was signed off without the clause in place.
The Scottish Government-owned ferry procurer Caledonian Maritime Assets Limited (CMAL) also raised concerns over the lack of guarantee.
Under questioning from Scottish Tory leader Douglas Ross, Sturgeon would not say if she considered the contract to be a “bad deal”, but she did say that such agreements would not be repeated.
“Obviously, we would not repeat what has happened – I think that is self evident,” she said.
Last week, Luke van Beek, a former shipbuilding adviser to the Scottish Government, suggested that the final cost of hulls 801, now known as Glen Sannox, and 802 could rise much further. He told The Times that the eventual cost could be as much as £400m.
Ross urged Sturgeon to guarantee the Scottish public the price would not rise that far, but the First Minister rejected the estimates, saying: “I simply don’t recognise those numbers.
“The cost estimates are set out by the Finance Secretary and those are the cost estimates that we stand behind and I’ve been very clear about that.”
She added: “Our focus now is on ensuring these ferries are completed in the interest of our island communities and also on ensuring that Ferguson shipyard, and all those who work in it, have a bright future.
“We will learn lessons from this – I’ve said several times today I deeply regret the experience of this.”
Ross said the yard has become “iconic, but for all the wrong reasons”.
Sturgeon reiterated her “deep regret” for the delays and cost overruns, but insisted that, had the contract not been signed, jobs at the government-backed yard would be at risk.
“I still believe the Scottish Government was right to do everything to save Ferguson’s shipyard,” she said. “But for those decisions, Ferguson’s shipyard would not still be employing significant numbers of people as it is today.
“Douglas Ross may well take different views on this, but I do think it was right for the Scottish Government to protect and save jobs and protect that shipyard.”
Ross replied: “The deal that (the First Minister) is so proud of has become a disaster.”
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