We are to blame, says Swans boss

Dec 6 2007 by Graeme King, The Journal

THE boss of Swan Hunter today held up his hands, saying he took full responsibility for its last ship contract which came in £130m over budget.

A damning report on the massive cost increases suffered on the last vessels built at Swan Hunter has condemned both the company and the Ministry of Defence.

But Swan Hunter owner Jaap Kroese for the first time admitted full responsibility for the debacle on the Landing Ships Dock (Auxiliary) – LSD(A) – project saying his company was out of its depth.

Costs for the two Swan Hunter vessels – the Largs Bay and Lyme Bay went up from £210m to £342m.

The National Audit Office (NAO) makes it plain that both Swan Hunter and the MoD were to blame.

On the charge sheet for the company are “weak” management of suppliers, vulnerable finances which were too reliant on the LSD(A) contract and late delivery of design data to BAE.

Against the MoD, the NAO says the ministry should take responsibility for under-estimating the costs of the LSD(A)s, failing to expand its management team when the number of vessels required went up, and not managing the programme properly.

Mr Kroese told The Journal: “At the end of the day, we are to blame for it. We were going to build it for a price, then it changed into something much bigger.

“We should have said ‘stop’ because it was getting so that there was no way we could build it for that sort of money.

“The original price was realistic for the vessel we offered, but once it changed, we should have acted then. As far as I’m concerned, the customer is always right. We should not share the blame around. We were the builders, so we are taking the blame.”

The NAO says the MoD should carry responsibility for how the project began.

The report says: “Many of the problems on the project stemmed from the way it was initiated, in particular the commercial and project management, budget under-estimation, and over confidence in contractor competence.”

The NAO report also criticises Swan Hunter for being too reliant on the LSD(A) project for its financial health, saying the company was given the contract on the understanding other commercial contracts would be won, but this never happened.

Mr Kroese said: “We could not handle anything else. We were building the ships, and that was all we could handle. We did some offshore work early on and that was successful, but there was nothing else.”

He concluded: “We had a final settlement with the MoD and that was the end of it. We kept the yard open for 11 years, and a lot of people made good money out of it. It’s all water under the bridge now.”

Last night, an MoD spokeswoman admitted failings in how the LSD(A) programme was handled.

She said: “The selected contractors and the MoD were over optimistic about the maturity of the design of the new ship and costs. Since that time the Department has introduced new processes to prevent over optimism in setting budgets.

“We now know the project was over optimistic on several fronts; budget; design maturity; risk assessment. The NAO report actually confirms that MoD paid the right price for the ships.”

A further two vessels were built at BAE in on the Clyde and these also came in over budget.