ScotGov award of new ferry contract to CalMac is 'preferred option'

Transport minister Fiona Hyslop has confirmed that the direct award of the Clyde and Hebrides and Ferry Services contract to CalMac was the "preferred route".

Industry insiders have been expecting CalMac to get a direct award when the current deal expires in September 2024.

But Ms Hyslop said a final decision after a due diligence process was expected by next summer.

She said a direct award should be a "catalyst for change" with a new management culture emerging, "one that is more supportive of the community's customers and passengers served by the network".

She ruled out a break up the network to private other providers but is still considering whether the award will be open to tender.

Transport Scotland officials have been examining how to make the award without leaving itself open to legal challenges through a breach of the UK's version of the state aid rules.

The idea behind state aid rules is to avoid financial assistance given by a government that favours a certain company or commercial group and has the potential to distort business competition.

The First Minister Humza Yousaf has previously indicated that he wanted CalMac to get the job indefinitely. 

A Holyrood 'future of ferry services' inquiry gave the nod to keep the operation of west coast ferry services with CalMac in the shorter term despite the Scottish Government-owned ferry operator receiving some £10.5m in poor performance fines in the six-and-a-half years since it took the franchise – nearly eight times more than in its first nine years in charge of the west coast fleet.

But Ms Hyslop warned:  "The status quo of the current service levels is not an option. I expect the direct award  to be a catalyst for change, leading to a more efficient flexible model in the delivery of this public service alongside the construction of new vessels and infrastructure. 

The Competition and Markets Authority has previously warned about the "potential risks" of state control over the way ferries are operated, run and paid for in Scotland.

The announcement has come around eight months after a deadline for re-tendering the Clyde and Hebrides Ferry Services contract was believed to have passed.

It is estimated to take at least 18 months to draw up specifications in the contract and to launch a tendering process for Clyde and Hebrides Ferry Services.

Ministers have been taxed with the vexed question of unlawful state aid since being found guilty of doing just that in relation to two airports.

It is the pain of that past reprimand from the European Commission that is understood to be in part making the Scottish Government tread carefully as it considers whether to ditch the usual tender process, and give Scottish Government-owned ferry operator a direct award of the Clyde and Hebrides Ferry Services contract when the current deal expires in September 2024.

Unlawful state aid was found to have been made to Sumburgh Airport on Shetland and Inverness Airport between 2012 and 2017 after both received taxpayer support that had not been approved by the European Commission.

Under EU rules, member-state governments are expected to notify the European Commission – which is in charge of treaty compliance – about proposed state aid moves.

Since the 1970s, the EU adopted legislation to ensure that the EU public procurement market is open and competitive and that suppliers are treated equally and fairly.

Now that the UK is out of the EU, the procurement principles that exist in Scotland are still derived from EU law.

Earlier this week, the wellbeing economy secretary ruled out ploughing further millions into the nationalised Ferguson Marine shipyard as part of a new business plan to secure a sustainable future quoting concerns over complying with UK subsidy control rules fearing it would left open to legal challenge.

Transport Scotland officials examining how to continue west coast ferry operations are known to have been looking at the potential to provide a direct award to CalMac using what is described as a Teckal procurement exemption to avoid what some would see as unlawful state aid.

The exemption removes the legal obligation on a public authority to tender public contracts when it can be proven that the public authority can provide the services itself, subject to certain ‘control’ and tests.

The exemption was originally developed through EU case law to allow contracting authorities to award a contract to a supplier without the recourse to a regulated procurement procedure.

First Minister Humza Yousaf, when he was transport minister, indicated in 2017 while considering the Teckal exemption that it was his intention to scrap future tendering processes for the Clyde and Hebrides ferry services and appoint the contract to CalMac "indefinitely".

Experts on procurement have said that the difficulty with a direct award was it left the door open to non-competitive expensive contracts paid for out of the public purse which would not give value for money.

But the advantage in the immediate term was that it would allow ministers to concentrate on getting ferry services right, rather than get "bogged down" in a lengthy and expensive tender process.

The Scottish Government has estimated that the costs of tendering the 2016 to 2024 west coast ferry contract was £1.1m.

While the Holyrood ferry inquiry earlier this year gave its nod to retaining the status quo in terms of operating ferry services in the shorter term, the idea of CalMac getting the award, without seeking any competitive bid, has not gone down well with some islanders.

Ms Hyslop said: “I am acutely aware of the vital importance of these lifeline services for our island communities and that is why we must look at the optimum model for the next contract to ensure improvements across the network.

“A direct award to CalMac would help change the ethos of the service by shifting the focus from a commercial arrangement to a model more focused on the delivery of a public service. This would help drive service improvements, deliver better communications with communities and introduce meaningful performance indicators that better reflect the experience of passengers using the services.

“It would also provide us with the opportunity to consider adding CalMac as a relevant Authority under the Islands (Scotland) 2018 Act, strengthening the ability of communities to feed into Impact Assessments to inform future changes.

“This contract award will sit alongside important policy measures to improve our ferry services, such as the Island Connectivity Plan and Fair Fares Review, as well as our significant investment in new vessels and infrastructure.    

“I want to be very clear that this will not be an extension of the status quo. I expect a direct award to be a catalyst for positive change on the Clyde and Hebrides network, based on a more efficient, flexible model in the delivery of this important public service.” 

CalMac chief executive Robbie Drummond welcomed the news and added: "With under a year remaining on the current contract, we welcome the opportunity to work alongside Scottish Government and Transport Scotland to ensure continuity of lifeline ferry services and a focus on continual improvement for communities across the Clyde and Hebrides. Taking the uncertainty out of the contract would allow us to focus all our efforts on improving service delivery, without the distraction of a highly resource-intensive procurement process.

"We have a highly skilled, committed and experienced staff, who care deeply about island and rural communities and are passionate about delivering the best possible service.

"We will continue to work in partnership with local stakeholders and communities to ensure the best possible outcomes for all who rely on our services. We are also looking forward to welcoming six major and 10 small vessels into the fleet in the near future, which will build capacity and resilience across our network.

"This announcement by the Minister will be well received by all staff working at CalMac. All of us at CalMac are committed to working together to focus our efforts on improving the service we deliver to our customers."