The Scottish Government’s lifeline ferry services are essential transport links that make a significant contribution to our nation’s social, cultural and economic wellbeing. The Government recognises our responsibility to ensure that those essential services remain at the heart of island and remote communities. That is clearly evidenced by our record levels of investment—in the order of £1 billion in vessels, ports and services—since 2007.
We continue to seek innovative ways to protect and improve the delivery of the ferry services in the future. That is why I am today announcing a review of the legal, policy and financial implications that are relevant to the future procurement of those services and setting out my reasons for doing so.
Members might be aware, and might even have first-hand experience, of the fact that, since the turn of the century, this and previous Administrations have made successive approaches to the European Commission that have covered a range of questions on our obligations to tender ferry services. In 2005, the Scottish Executive published its in-depth report “Consideration of the Requirement to Tender”, which ruled out alternatives to tendering.
In 2009, the commission concluded its own in-depth investigation of Scottish ferry service subsidies. The conclusion was that the services did not meet the Altmark criteria and were therefore covered by state-aid requirements. With the exception of the Gourock to Dunoon route, the aid was considered to be compatible aid, only due to the tendering of the services. The Commission also decided that the Gourock to Dunoon route had to be subject to competitive tendering.
In 2012, the then Minister for Transport and Veterans, Keith Brown, wrote to Commissioner Joaquín Almunia to give encouragement for a further review of the requirement to tender ferry services. The commissioner replied:
“The Commission is, however, convinced that a transparent and non-discriminatory tender for public services is the best way to ensure that the public is afforded the best possible services in terms of both quality and price at the lowest possible cost to the taxpayer. Consequently, the Commission strongly advocates the widest possible use of open and transparent tendering procedures when public authorities entrust companies with a public service obligation.”
The Commission emphasised similar points in its published guidance on the maritime cabotage regulation, which is dated 22 April 2014. Paragraph 5.4.2 states that
“launching an open tender procedure is in principle the easiest way to ensure non-discrimination ... The Commission believes that a direct award fails to respect the principle of non-discrimination and transparency enshrined in Article 4 of the Regulation”.
The Commission has consistently advocated the widest possible use of open and transparent tendering procedures when public authorities entrust companies with a public service obligation. That view has consistently been based on the premise that tendering satisfies the requirements of the European Union legislation that applies to ferry services, including the maritime cabotage regulation and, importantly, state-aid rules.
We take very seriously our obligations under European and domestic law. We are confident that we currently satisfy all European and domestic requirements for public ferry service contracts. That has been achieved through a number of successful competitive tendering processes over the past 10 years or so, including, most recently, the award of the Clyde and Hebrides contract to CalMac Ferries Ltd last year. That award was made in full compliance with the legal requirements and all the advice that was available to us from the Commission at that time. The tendering of those services has guaranteed their future and a programme of investment and improvements until 2024.
Following a debate in the chamber on 25 November 2015, Derek Mackay, the then Minister for Transport and Islands, wrote jointly with the National Union of Rail, Maritime and Transport Workers to the European Commission on 1 April 2016. The letter followed numerous approaches by the Government to seek the Commission’s view on the legal requirement to tender the Clyde and Hebrides ferry services. In particular, it sought clarification on the application of the Teckal exemption, which it was argued could allow the services to be operated by an in-house provider without the need for competitive tendering.
The Commission responded on 22 September 2016 to formally state its view that the Teckal exemption should be capable of being applied to the maritime cabotage regulation, under strict conditions. If those conditions were met, and subject—importantly—to compliance with state-aid requirements, that could allow the direct award of ferry services contracts to an in-house operator. That response, when considered alongside the Commission’s published guidance, suggests that it is appropriate that we take time to consider this important issue further.
I should emphasise that the Commission’s response—I will place it in the Scottish Parliament information centre so that members can see it for themselves—makes it clear that, in addition to meeting the particular requirements of the Teckal exemption, any award to an in-house operator must comply with state-aid law, and the Altmark criteria should be considered in that regard.
I welcome the Commission’s response and I have used the time since then to consider the complex legal and policy questions that it raises. The Commission’s response was received during preparations for a live tender exercise for the next Gourock to Dunoon contract. We had already concluded the pre-qualification assessment and were in the process of informing the participants. It was therefore necessary to give careful consideration to the full legal and policy implications for the tendering process and the current contract before making a public announcement.
I have concluded that a policy review should be conducted to identify and consider in detail the legal, policy and financial implications that are relevant to the procurement of ferry services, including the possible application of the Teckal exemption in the light of the Commission’s letter, the requirement to ensure compliance with state-aid rules, and all other legal, policy and financial implications that are relevant to alternative models for procuring ferry services, including examining the organisational structure and governance of David MacBrayne Ltd and Caledonian Maritime Assets Ltd.
The review will draw on expertise from across Transport Scotland and the Scottish Government to look objectively at the options and make recommendations to ensure that ferry services are affordable and sustainable and provide confidence to ferry users, communities and employees. Our overriding priority is to provide the best service possible within the framework in which we are required to operate, and the review will consider a range of options.
Given the number of strict tests that relate to the application of the Teckal exemption and state-aid rules, all of which would need to be satisfied, no assumption should be made about the outcome of the policy review. Nothing can be ruled in or out at this stage.
I do not prejudge the outcome but, should the review conclude that it would be possible to apply the Teckal exemption and meet state-aid rules, the Government would be minded to provide ferry services through an in-house operator, taking account of the communities that they serve. That would be subject to wider policy and value-for-money implications and, crucially, the views of the affected communities.
I am fully committed to keeping everyone informed about the purpose and progress of the review, including ferry users, local communities, local authorities, ferry operators and trade unions, as well as members of the Parliament. As a first stage in that engagement, I will today speak and write to a broad range of key stakeholders. I will also arrange an early meeting with the trade unions, in particular the RMT, with David Stewart MSP, who has previously raised the issues with ministers, and with other MSPs who have a constituency interest, to discuss the purpose and remit of the policy review.
The review will require a specific and urgent focus on the current tendering of the Gourock to Dunoon services, to be closely followed by a focus on the implications for the planned tendering of the northern isles ferry service. There is less time pressure to reach a definitive position on the Clyde and Hebrides services, as the current contract has more than seven years to go before it would be subject to any potential further tendering requirements.
The review will clearly require detailed consideration to be given to a number of complex legal, policy and financial issues, which will take time. I am therefore announcing a pause in the current Gourock to Dunoon tendering exercise to allow time for the review to be conducted. That will require an extension to the current Gourock to Dunoon contract of the order of nine months, which we have concluded is justifiable under regulation 72(1)(e) of the Public Contracts (Scotland) Regulations 2015. Transport Scotland will work closely with the current operator, Argyll Ferries Ltd, on arrangements for the intended extension. The review will also consider what, if any, extension period might be justified and necessary for the northern isles contract, which is due to end in April 2018.
I assure the people, businesses and communities that rely on our ferry services that safe, efficient and effective services will continue to be delivered and that continuity of service delivery, both now and in the future, will remain my top priority during the review.
The final report will set out recommendations for the sustainable delivery of ferry services. It will be made available to Parliament and will be published on Transport Scotland’s website.
Ministers will engage closely with key stakeholders when considering the review’s full findings. The final decisions on the best approach to improve the delivery of the ferry services will be based on objective and robust analysis of the evidence that the review provides.
Our lifeline ferry services are essential to the economic and cultural life of our islands and remote communities. I ask Parliament to join me in supporting the pause in the tendering for the Gourock to Dunoon contract and the policy review as the best approach to delivering our essential and iconic ferry services now and into the future.