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Agenda item 4 is consideration of the Scottish Executive's proposals for the future of the Highlands and Islands ferry service network. We will take evidence today from the Highlands and Islands strategic transport partnership, the Scottish Trades Union Congress and Caledonian MacBrayne ferries.
Frequent, but I hope not too unwelcome.
Absolutely not.
We feel strongly that the tendering process for the Caledonian MacBrayne network should go out in one block. Most of us represent areas where ferries are lifeline services and we are frightened of the consequences of the service being broken up.
Thank you. There is a common purpose, which you expressed, in relation to the eventual result.
One of the issues that several people have raised with the committee is whether the Executive could, or should, seek some form of derogation from the state-aid requirements. Should more work be done to explore whether that would be possible?
We were initially concerned about that and examined the matter in significant depth. We are now of the view that there is no alternative. It became clear during our representations in Brussels that there was no alternative, as European law had to be complied with. It was made clear to us that the derogation issue could have applied a number of years ago, but it would have been of limited value, because even those who have had derogation must now comply.
If a tendering process is to be put in place, should Parliament establish a legislative or regulatory framework prior to that process? Parallels have been drawn with many other organisations that have gone through a tendering process. In those cases, a legislative framework was put in place to ensure that the public interest was defended.
The regulative aspect must be considered in depth. We recognise that the Executive is examining that aspect.
I am interested in some other issues, but I believe that other members will ask about them.
I understand what you have said about the future and whether CalMac should be split into two. I am not saying that I accept the minister's proposals, but let us assume that there will be a vessel-owning company. That company started off with the role of securing essential and lifeline services and as a provider of last resort. Recently, however, the language has changed and the company has been described as a procurer of last resort. What are your views on the vesco being the procurer? How could essential and lifeline services be maintained while the procurement process was gone through?
A situation that required an operator of last resort is far less likely under a single network bundle. Such a situation is likely to happen only where there is fragmentation of the network and a number of different operators; it would result only from a breakdown in the agreed contract between the operator and the Executive. If, for example, a vessel were to break down on a short-term basis, the operator of last resort would not be an issue and would not have to be dealt with by the operator—whoever that may be.
The committee has received a fair amount of written evidence from a number of people who have views on that. If a private sector company won one of the bundles or one of the routes and the contract were to break down, how would the difficulty of procuring the operator of last resort through the vesco be overcome?
First and foremost, the Executive has responsibility for providing those lifeline services.
I understand that.
Whether through the vesco or through some other arrangement with another private company, the Executive would have to have a mechanism in place to safeguard the services. I am not sure whether building in that mechanism and designating the vesco as an operator of last resort is the best way of approaching those circumstances. There is no doubt that, when the tender specification is produced, we will want to ensure that a mechanism is put in place whereby the Executive provides those lifeline ferry services if the contract between the private operator and the Executive breaks down.
I understand that the Executive is responsible, but recently it said that the vesco will not be the provider and that it will procure the services of the provider. That concerns me, and I seek your views on the procurement process for essential and lifeline services. We have a period in which to try to bring in a particular organisation to perform the services, but the services may fail. What is your reaction to that?
In such a scenario, our clear view is that there should be one bundle of services. There are specific and justifiable reasons for that approach and we believe—we hope—that the European Commission will accept those reasons.
My suggestion makes that argument anyway. The shops want their goods, and there is no point in a bond sitting ready to be used if no one is able to provide the service. I realise that I am giving my view, convener, rather than asking questions, but we must consider such matters carefully if we are to understand their implications.
If a vessel-owning company were established, the Executive would ensure that a service was put in place. I have no doubt that the quickest solution to the problem would be a state-owned, vessel-owning company that had the capacity to provide the service in the short term until the contractual arrangements were sorted out.
The committee has discussed the fact that many of those arrangements will have to be subjected to scrutiny to ensure that the scenarios have been played out and that there is confidence in the complicated arrangements that we hope will arise out of the European settlement. We are aware that that agenda involves big issues.
What will happen if CalMac becomes the vesco but cannot secure a licence from the Maritime and Coastguard Agency because, as it is a vesco, it is not an operator?
Any takers?
That could be quite a difficult situation. The question is probably best answered by the CalMac representatives, who I understand will give evidence later.
That is fair warning to the CalMac representatives.
As you know, most public industries have official independent regulators, such as the Office of Water Services and Ofgem. Is there a need for such an independent regulatory body in the new circumstances that we are looking towards, and should that body encompass not just customer service in terms of fares and service frequency, but the safety aspects of service delivery?
We are not sure that we need a regulator. If the tender is tight enough and specific enough, the service should run itself. It has run itself as a single block for years. If the tender were written tightly enough, we would be happy that that was controlled.
The MCA has responsibility for safety for all our ferry services, and its track record has proved that it is the best body to deal with that. I do not think that it is necessary to have a regulator for that specific aspect of the service.
If safety is taken care of by the MCA, service delivery in terms of fares and frequency could be covered by the tender specification.
If the Highlands and Islands strategic transport partnership and the local authorities are involved with the contract specification, that will make the tender tighter. Whatever happens, we want a better service on our island routes at the end of the tendering process, because those routes are lifelines.
One of the things that I was trying to touch on was the requirement for a degree of flexibility. If a tender is accepted on the basis that there is to be no change to it, that could have significant knock-on effects for the development of transport and transport infrastructure for the next five to 10 years.
Councillor King suggested that the Highlands and Islands strategic transport partnership should have more teeth, rather than being simply an advisory body, and that it should have an almost statutory position. How could that be secured?
If the Highlands and Islands strategic transport partnership is to carry on, we would like it to have a far greater role in deciding matters that relate to CalMac. We made that point to the minister when we met in Inverness.
Bearing in mind the fact that local authorities already run services in geographically isolated areas, would the authorities wish to see the routes that they presently run incorporated in the tendering process?
To an extent, that comes back to the flexibility that we talked about earlier. An example of what you are talking about is a route in the Sound of Barra. We are developing infrastructure in relation to that and, although it is not currently within the undertaking, we would like it to be built into the tender specification. That would allow it to be considered at a later date.
We run four services, two of which are vehicle services. When we are refitting those boats, we have to hire a vehicle ferry from CalMac on a one-off basis for two or three weeks as we do not have a standby vessel. The new arrangements might make that harder.
You have made it clear that you are in favour of putting the routes out to tender as a bundle for reasons of security and continuity of the service. Supposed benefits of competition include reductions in prices, increased customer focus and increased flexibility of the services. Are you arguing against those supposed benefits, or are you arguing that they should arrive in a different way?
We are not arguing against those benefits. We hope that putting the routes out to tender as a bundle will bring the prices down. If the routes are bundled, promotion and marketing will be easier. Through-ticketing and the island hopscotch system would also be easier. It would be hard for separate companies to promote such a system and market the routes. We hope that the tendering process will sharpen people's pencils.
The comments I have heard from service users centre on issues such as pricing and the lack of service flexibility and customer focus. Are not those issues important enough? What mechanisms in a single tendering process will be used to generate improvements?
The desired improvements, including growing the routes, could be built in when the tender specification is initially developed. That would fix the pricing and the five-year delivery period.
The consultation process prior to the letting of tenders—which has not involved local authorities to any extent before—will be critical. Local authorities could play a vital role in that process. If the tenders are allocated for five years, we will barely be halfway through the period before we have to consider retendering for the next five-year period. Although the tenders are for a single network, the fact that the network is going out to tender will make it more competitive and will make the operator—or aspiring operator—more responsive to the wishes and needs of the communities served by those lifeline services.
So you are saying that the consultation process and the development of the specification are two mechanisms that will deliver improvements.
The consultation that will be carried out prior to the tendering process and the consultative arrangements mentioned by Councillor King, which will be introduced as the services are rolled out, are two vital aspects.
Both aspects sound as if they will involve more public subsidy. In the consultation, people will say that they want more services and they will choose a higher-level specification over a lower-level one. What kind of value-for-money mechanisms will be introduced to stop that happening and to substitute for competition? I have not really received an answer to that question.
Better services does not necessarily mean more services. It might mean that services are run at a more appropriate time for service users, but it does not necessarily follow that people will demand more services all the time. They will certainly ask for more appropriate services—and quite rightly so. The single network system provides a better opportunity for economies of scale and to build in the consultative process without it costing a great deal of money. That is a fundamental part of the process on which we are embarking; even if costs more money, it will ensure that the services provided are the services that people need to continue living in the communities concerned.
Are you saying that, although you cannot specify it exactly, the single tendering process will provide a mechanism that could harmonise people's aspirations for an improved service and for the management of that service?
The consultation process and the representations that are made to local authorities as the tenders are rolled out will go a long way towards achieving that aim.
Councillor King and Norman MacDonald in particular have mentioned efficiency in relation to reducing customer prices. It would be useful if you could provide examples of how that would be done in the tendering process. Although we have a fair idea, we would like you to tell us how costs would be brought down as a result of the bundling strategy.
If I may, I will make a point that goes back to a point that was raised earlier. We are talking about public service obligations. If the bundles are put out on individual routes, a public service obligation will be imposed on them. If that is the case, we will be stuck with whatever comes out of that. The smaller the route bundling, the higher the total cost, because a lot of the economies of scale and the cascade mechanism with the vessels will be lost. Higher costs could be associated with smaller bundling, in particular individual route bundling.
I want to examine through-ticketing, because it is about working as a network as opposed to having individual routes and about the cascade of vessels required to keep services running.
Highlands and Islands strategic transport partnership hopes to promote the integration of transport services and enhance the ability of people to travel intermodally on a single ticket. Those are the sorts of things that eventually will deliver growth to services. The more the network can be kept together as a single network, the better the chances of promoting single ticket and intermodal concepts. For example the Barra connection, which is also available from London, consists of an aircraft, shipping vessel and train ticket. It is encouraging growth in the number of people who go to the Western Isles, but it requires significant marketing input, which is difficult with a multiplicity of operators.
Once savings have been made, what should they be spent on?
They should be spent on service improvements.
I could have predicted that answer.
To take one small example, four islands were served by a boat, which has been replaced with a new boat. That boat now does two islands one day and another two islands the next day, so the people there have a greater service that does not cost the company any more, because the boat was going out every day anyway. The service is much more reliable and the figures on the route have gone up, because people have easier access to the mainland. A small rejigging of the timetable brought savings to the company.
That is good to hear. You talked to Des McNulty about consultation. What is the depth and scope of the consultation you want to undertake on routes, pricing, strategy, through-ticketing and special offers?
We would like to play a positive role, which we have been promised and which we would be willing to do. Then we should go to the local authorities and let the local authorities go out to their communities.
I go along with that. It is important that there is consultation when devising specifications, but as was mentioned, it is also important to consult throughout the duration of the contracts. To a lesser extent, consultation will be required for modifications, because inevitably things change throughout the life of a contract. It is important to have input from Highlands and Islands strategic transport partnership and local authorities.
I presume that the work done by the Highlands and Islands strategic transport partnership and the local authorities is transparent and that the organisations are accountable to the public.
The paper from the local authorities did not address what Sandy Ferguson's evidence referred to as the loss of experience if CalMac loses the tender. He is concerned about the loss of "vastly experienced people" and of the knowledge of the current work force and about the potential social and cultural impacts on the island communities. I invite you to take a couple of minutes to tell us what the impact will be if CalMac is unsuccessful. What losses to the Highlands and Islands would result?
The important thing to recognise is that we have no alternative. The public service obligation will have to be imposed. At the moment, it is a question of what the shape of that obligation will be. Our view is clear: it ought to be in the form of a single bundle. As long as the specification and pre-tender qualifications are done properly, so that the appropriate companies are put on the tender list, there should not be a significant issue around the existing work force. The people are there, they have the experience and they will be required.
From the work that you have done, are you happy that the Transfer of Undertakings (Protection of Employment) Regulations—TUPE—will apply fully, that the existing work force will be protected and that all the local knowledge and skills will be in place, whoever wins the tender?
We have not gone into the minutiae, but we hope that the Executive will do some work on that prior to the contract going to tender.
That is why I was asking about local knowledge and experience. I would have thought you would want to take the opportunity to underscore this point as heavily as you could: that, whatever happens—apart from the economic impact on the islands and the social effect if people lose their jobs—there is a considerable body of knowledge and experience that must be preserved at all costs. I feel that I am giving the answer rather than asking the question.
We would take all those things into consideration; we agree with them.
There is no doubt in our minds that CalMac is best placed, in terms of the management of the company and of the experience that its employees have built up over many years serving the west coast communities, to provide our ferry service—it is the prime operative. We would certainly support it, but we cannot come out and say that it should get the tender; it has to embark on the tendering process, the same as any other operator that is deemed fit to do so has to.
I agree entirely with Norman MacDonald's view. Given the type of waters in which we work, it is terribly important that local knowledge be continued wherever possible. TUPE has to be applied, not only in theory but in practice. Conceptually, TUPE has been said to apply to previous contracts but when it comes to the crunch, it is not applied. However the Scottish Executive writes TUPE into the contract, cast-iron conditions have to be built in.
I think we would agree with that. The Scottish Executive has control of the contract and the specifications, so we would want it to take a robust attitude on the extent to which existing employment and conditions can be preserved. How do you see your role in that area? Will you consult staff and unions? Will you get involved with the trade union movement in employment-related issues? We would like that to emerge as a big part of the whole campaign. I suspect that we would be interested in being closely involved in that through our committee investigation.
I see lots of nods.
I do not think that there is any doubt about our role in that area. We have been in dialogue with the unions on the whole issue of the tendering process and whether it was necessary in the first place. We have now moved on from there. Engaging with employees and their representatives is in the interests of local authorities as much as it is in the interests of the wider community in our islands. That goes without saying, but it needs to be repeated.
We are not TUPE experts by any manner of means, but we are in a position to ask questions, make points and apply leverage. If people want bullets to be fired, they should shape them.
The big issue is the pre-tender qualifications, in terms of the capabilities of the companies and in terms of technical ability, which is a separate but related aspect. We would want fairly stringent hurdles to be built in to ensure that human resources issues are well covered in the pre-tender qualification stages.
Social dumping is a big issue for seafarers. The regulations that exist in European law are not quite black and white. We see a lot of replacement seafarers—not, obviously, on all the routes that you are talking about, but in the North sea, for example. Will the tendering process be robust enough to avoid such problems? Will a change in legislation be required?
We would certainly look to the committee to do what it could to reinforce the concerns in our communities. Many people have merchant seaman capabilities but now have to compete with people who are very much inferior.
We will pursue the matter later with the trade unions.
Good afternoon, gentlemen. In our discussions today and previously it has been obvious that we are trying to achieve an efficient and cost-effective ferry service for the whole of the network. I was pleased to hear the suggestion that the partnership would prefer the network to be tendered as a single entity. From my own previous discussions—and even from a visit to Brussels—I know that it has been pretty well accepted that that would be the most efficient method, but it has yet to be agreed.
Over the years, many representations have been made on infrastructure, some of which is currently owned by CalMac. Clearly, the Executive, the vesco and the operators could be held over a barrel by virtue of a trust port increasing its dues out of line with the rest of the ports, for example.
If that sort of arrangement or negotiation took place, there would be an opportunity to have a level playing field. I imagine that there would be an economy of scale.
Yes.
In your discussions with the Executive and with your colleagues in Brussels, were you made aware of any impediment to a single block tender for the service?
The view we gleaned from Brussels is that there is sympathy for the single block tender. There was understanding of the potential difficulties that arise from cherry-picking and having a multiplicity of individual PSOs, which eventually would have to be accepted on the basis of the lowest tender but which, as an aggregation, could result in higher cost. It was indicated to us that, from the Brussels perspective, opting for a single block tender would have to be a clearly defensible position.
My instinct on this is that the less detail there is in discussions in Europe and elsewhere, the better it is for everybody involved. The case has been well made through negotiations, visits and representations. It is in the system and we should wait to find out what comes out of it.
Briefly, bearing it in mind that we want to maximise the time available for questioning, I will say just that the STUC has an interest in how any issue affects the workers who are involved. My colleagues will speak specifically to that. We have another interest, in that we represent nearly 750,000 trade union members throughout Scotland who use public services, including those under discussion. We have been involved since the issue first arose. We have had meetings in Brussels—I am happy to speak about them—and we have been involved in other areas, including gathering a 10,000-signature petition of concern and support for CalMac.
I declare a registered interest: I am a member of the TSSA, which has a constituency agreement with Livingston constituency Labour party.
I will give a quick answer to that point—my colleagues can supplement my answer if necessary.
Would our other witnesses like to add anything to that? Is that a fair reflection of the position?
When the TSSA was preparing its response to the Government's consultation, it examined with great care the submission that was made by Caledonian MacBrayne. We argue that the Scottish Executive gets good value from CalMac, which has the expertise, resources and commitment that are necessary to provide a first-class service. I believe that my colleagues hold the same position. It is worth recalling the high level of punctuality that was reported in CalMac's submission. We do not support any review of the regulation that could lead to CalMac's being thrown out through a tendering process and to an unpredictable future for these lifeline services.
If, as seems likely, the Executive proceeds with tendering, should it back that up with appropriate legislation and regulation, rather than leaving everything to the contract?
We have not taken a definitive view on that issue. Whatever approach is taken should guarantee the continued delivery of the service and protect the interests of the work force. I say that not just as a trade union official whose job it is to look out for the interests of the work force. The service is important to its users who are resident in the islands and it is vital to the tourist industry and to perceptions of Scotland and its efficiency. The work force is absolutely central to that. We are currently considering the role that a regulatory mechanism could play. We need to examine the impact that the absence in the UK of route licensing might have.
It has been suggested that the Maritime and Coastguard Agency could serve as a regulatory body, but that is to misunderstand the purpose of the MCA. The equivalent body in the railway industry is the Health and Safety Executive. We know what problems are associated with that.
That is a fair comment. I am not sure what we can do about that at this stage, except take cognisance of what you have just said.
Perhaps our witnesses could expand on that. Do you think that protection of employment standards could be written into tender conditions or regulations? I am talking about protection in addition to the Transfer of Undertakings (Protection of Employment) Regulations.
Our organisation does not see TUPE as a panacea, as it does not protect conditions of employment in the longer term. I would be extremely concerned if it were part of any deal or contractual arrangements that are made in the context of what one could argue is the commercial sale of the service. I do not view TUPE as a remedy. I am prepared to expand on that in response to questions on industrial matters. I have serious reservations about TUPE.
The committee has covered this issue before, and certainly understands that TUPE is a fairly slim form of first defence. For economic, technical and organisational reasons, the company can change things fairly dramatically.
I suppose the issue comes back to the complexities of what we are getting into. We keep trying to anticipate what the European Commission might or might not accept in the tendering documents. It is not the Executive's job to tie itself in knots looking for the worst-case scenario from the Commission. The highest-possible specification for the protection and quality of the work force should be written into any tendering document and we should deal with any difficulty with the Commission as it arises.
We have all been convinced that that is the best route forward. As far as this process is concerned, the devil will be in the detail and the more transparency there is and the more input that the committee and the unions have, the better the safeguards will be for the whole network.
If CalMac were unsuccessful in its bid for the contract, workers would have to rely on the TUPE regulations to transfer into the new company or companies. Advice that we have received about the applicability of TUPE leaves the question open. If CalMac does not win the contract, our members will not know whether they will have employment. Furthermore, I understand that that issue is in doubt for the seafarers. The entire work force might be put in a position where it has no clear entitlement to transfer under the TUPE regulations. The Executive must be aware of that at the outset.
You are absolutely right.
I thank Bill Speirs for bringing us back to some first principles by reminding us that CalMac has provided a very good service. Its remarkable record of continuity of lifeline service provision over such a long time is obviously a prerequisite. I am concerned about what will happen to that continuity. Furthermore, I am concerned about what will happen if CalMac is split and about the vessel-owning company's position and the potential for a private company to win some or all of the available contracts. What thought have the trade unions given to the whole issue of the vesco being the procurer of last resort and to the way in which services can be maintained without any future interruption? That is what the community wants from its service.
There has been a certain amount of ministerial wriggling over nomenclature—for example, the use of terms such as "procurer" and "supplier". Will the vesco carry staff over or will it merely bring in consultants if what you suggest happens? This is really just a get-out situation. The MCA says that there is no way that it will relax its safety regime as far as compliance documents are concerned. I know some of the individuals involved and they are very able men, but what resources will they have to perform that function? The only counterbalance is that, as the ships—which are publicly owned—and crews will still be there, it will not be enormously difficult to tide things over in the short term. However, it is farcical to suggest that the vesco could be a procurer of last resort; it will not have the necessary resources and the situation will be unworkable. The company would have to be given access to experts. If it is going out into the marketplace, it will have to use the public purse to buy services. What instructions will it receive in that respect? That device simply removes the Executive from performing such a function, in the same way that the present corporate structure of CalMac insulates the Executive from the public.
If the Executive or CalMac procured a provider and a private sector company failed in its contractual obligations and was no longer running the route, what impact would that have on the negotiating perspective of any potential new provider coming in? What sort of levels of—I am trying to find a word other than "blackmail"—leverage do you think—
Leverage is a word like blackmail.
What level of leverage could be used by the private sector in those circumstances, given that the Executive or CalMac, the vessel-owning company, would then be in a bit of a quandary in trying to procure a new provider?
Ship owners talk to one another and, in such a situation, they would have us over a barrel. For example, when we fought the gulf war, we bought foreign ships at vast expense. That is a matter of record, and that is exactly the situation that we would be in.
Of course, the Chancellor of the Exchequer will ensure that the ship owners go to jail if there is any price fixing. Seriously though, that is a central question and some of my colleagues may want to comment on it. Whatever mechanism we come up with for the provider of last resort, there are people in this room who know better than I do—although I use the service from time to time—that we cannot hang about for two days, never mind two weeks, to get things sorted out. If something goes wrong with CalMac at present, somebody will get on the phone to the minister and action will be taken to ensure that things are done. If a big company decides to walk away or if a small company goes bankrupt and we have to scrabble about to find a way out of the situation, that is not an academic question for the communities that the ferries serve.
I would like to take that point a little further and talk about independent regulation of the new set-up, however it comes about. I was interested in something that Norman Martin said and would like to pursue it, but I shall start with a general question. At the moment, there is no talk of having an independent regulator in the new set-up, but all other former nationalised organisations that have become companies have regulators, such as Ofwat and Ofgem. When do you think we need an independent regulator? You said that you have started to go down that route. Can you tell us more about where that is taking you?
Safety is the reason for the existence of the MCA; that is its job. The term "regulator" has been used to encompass all sorts of things in addition to safety, but you have to remember that the MCA is a very small organisation, as is the marine accident investigation branch. They have small budgets and a limited number of surveyors, so there is only so much checking that they can do. They have to deal with all the small craft, fishing boats, visiting foreign vessels and ordinary commercial traffic. I do not think that anybody has said to the MCA, "By the way, you're going to have to utilise your entire resources up in Scotland just to check up on the Western Isles ferry services." If they had, the MCA would have told them to get lost.
I have no complaints about the MCA, which provides and insists on minimum standards. We have not discussed a regulator in great depth, but that has certainly formed part of our discussions. I hope that you will allow me to express a personal point of view. With regard to tendering, we have all experienced problems recently with Railtrack. I have concerns about CalMac tendering every five years. The commercial pressure to reduce standards would be immense and would affect security of employment and the standard of employment for our members.
Do you have direct experience or evidence that a similar scenario has been played out elsewhere in British waters?
In respect of what?
I cannot remember your exact words, but you talked about safety coming down to the lowest common denominator and the fact that commercial pressure is reducing the level of safety on boats and ships.
It would be inappropriate for me to mention other companies in the course of this meeting, because they are not here to defend themselves. I do not say this as a complaint, but it is a measure of the situation that we have had to debate manning levels. If I say "tug companies" that is near enough to telling members who the companies are—the tug company on the Clyde has, believe it or not, just been bought over again.
On independent regulation, I think that it is important that you separate the functions of safety, fares and frequency of services. Safety should never be compromised by anything else—that is my personal view. Could you say more about the need for an independent regulator to monitor levels of the services' frequency and fares? Given the fact that the Government will have an element of ownership of the new company, can it set the regulations on fares and frequency of services? As was implied in evidence, can that be left to the contract tendering process that we set out to determine, which would mean that the regulations were subject to commercial pressures, and to the adherence of the company that won the contract to the conditions of the tendering process?
Fiona McLeod mentioned fares and frequency of service: those are the easy things to specify. The unquantifiable things are more difficult. There are all sorts of ways of cutting corners on ships, which will not be terribly obvious in advance. That is why we need a regulator to check that nothing untoward is being done.
That is a point very well made.
I will finish off on what Norman Martin said, and ask the others about this. Would we risk losing that safety record? Would an independent regulator give us hope that we would not lose that?
As soon as the profit motive is brought in, that changes the culture. At the moment—this might be the wrong thing to say—we do not operate commercially. We do not think, "How much is this going to cost?" We just do it—if something is necessary, it is done. That is possibly why the subsidy arrangement is as it is. People get what they pay for. If they want a cheaper service—
Committees have been set up in the company and on the small ferries with trade union representatives, which deal with timetabling. They will not necessarily deal with the price of tickets, but they will take into consideration the commercial realities of each of the ferry ports. One of the strong points of that is that, not only are the union people representative of the work force, but each representative on the committee comes from the community. The committees have expert and detailed knowledge and they tell us about the need to be more flexible. I have used the phrase customer-friendly. I do not wish to use that phrase, but I cannot think of a better one. The committees allow us to respond in relation to the small ferries.
We have certainly not turned our face against an independent regulator. The question is how to provide regulation for safety and beyond into quality of service, regularity and delivery. That is not just a debating point.
I caution members that the committee has a fair work load today. We need to make some progress.
Can Bill Speirs keep us informed about his deliberations?
There is a difference between Railtrack and CalMac. The Health and Safety Executive was responsible for safety issues in relation to Railtrack, but the regulator was responsible for prices and service. The Strategic Rail Authority is now also involved.
Perhaps we could reply in writing.
That would be useful.
Is the way forward to tender as a single bundle within the framework? That is implied in all that you have said. Dan Sharpe and others made points about addressing issues of flexibility, customer focus and pricing, which are common concerns. How should the process be taken forward? What space is there to go forward on tendering as a single bundle and to address those issues constructively?
If there is a tendering process, we are certainly in favour of single bundling. I will leave my colleagues to explain how the rest will work.
In the past year or so, a positive industrial relations framework has emerged in the company. That gives us an opportunity to talk to CalMac about how innovative means to make the company competitive can be introduced. Certain recent developments in Stornoway have prompted the trade unions to express concern to the company and to ask what can we do to help. Our employees want to be competitive and successful in the operational sense. We represent the people and we are able to bring out their knowledge and experience and to deliver commitment to CalMac through a good, positive relationship with the company.
This might sound like an unfashionable thing to say, but we have held the view for a long time that it would be helpful—in the spirit of partnership—to engage the work force more in the company. It would be helpful if a nominee of the work force was a director of CalMac.
Des McNulty asked about the implications of fragmentation from the work force's point of view. It would be much more difficult to operate several smaller companies. I can currently go and master anywhere on the network. If that network were broken down into three or four bundles, it would become much more unwieldy to manage when people were sick or at college.
Would it be valuable for the trade unions to be engaged actively in the tendering process, rather than their having to wait for the tender to be agreed before working out the industrial relations implications?
One could take a pragmatic approach to the likelihood of tendering taking place. That is why we have great fears about the tendering process. The implication of the tendering process is that if Caledonian MacBrayne was competing with—possibly hostile—outside bidders, it would have to do one of two things to be competitive: it would have either to cut back its work force or alter its terms and conditions of employment.
If I was being asked whether I would rather wait until after the tendering and rely on TUPE, I would grasp the nettle and say that I would like to influence the tendering wherever possible.
We all share that view.
Do you mean consultation with the community and the work force?
I was interested earlier, when the Highlands and Islands strategic transport partnership and the local authorities said, "Yes, consult with us". Should there be additional consultation?
The point that I express might be the wrong one, or I might express it in the wrong way, but I understand that consultants are involved and are being paid for by the company or by the Executive. I would like the opportunity to meet those consultants and to hear the company's comments on the appropriate steps that are being taken in relation to tendering. I would like to influence those areas of the tender in which we have a legitimate right to do so—I am speaking about security of employment, conditions of employment and safety, in particular. I would like to meet those representatives of the company and to have the opportunity to come back to speak to the committee about those meetings.
We will follow up in writing the issue of efficiency gains. It is a large issue to which we might not be able to do justice today, particularly given the points that you might wish to make.
It is for the communities to lead the specification debate. We will assist in any way that we can—we would like to take part in the debate. I am sure that the councillors who are present are heavily involved, but I must tell members that the islands are not on fire over the debate—the amount of apathy out there is amazing. People have heard it all before and nothing happened and they think that, again, nothing will happen. However, we know that a radical change of course is taking place.
The question is probably less complex than I understood it to be. The STUC takes the view that there should be the widest possible consultation, although I know that that is a cliché. We are engaged in discussions with the Scottish Executive on how the model of social partnership should operate in Scotland. It seems to us that this is a classic example of a situation in which we should seek the involvement of the community, the employer and the employees in finding the best way forward. It should be a win-win situation for us all, not least because so many of those who work for CalMac live in the communities that are served by the company and because wider Scottish society is looking for the best possible quality of service in order to develop the economy and the image of Scotland.
I notice that the final point of your written submission is that the STUC, along with the relevant unions,
We have met the minister before and have an outstanding request for another meeting with her. We have received a response from her that indicates that she thinks that it would be better to wait until the Executive has finished its discussions with Europe, because, if we had such a meeting now, she might merely repeat what we have heard previously. In our view, it would still be useful to have a meeting, not least because we reckon that we have some ideas to bring to the table that might help to inform the discussions with Europe.
I will pick up the point that is made in your written submission about the experience of CalMac crews and employees in dealing with difficult local sea and weather conditions. How important is it for that local knowledge and experience to be carried forward into the new arrangements?
Norman Martin will deal with the safety issues.
Mr Tosh is right: all seafarers are qualified to operate anywhere in the world, but the waters that we are discussing are extraordinarily difficult. One can be about a place for years before experiencing a certain set of circumstances that might occur only once in a while. It takes literally a lifetime to acquire that knowledge. I do not want to suggest that we are cleverer than anybody else is, but we have been exposed to those conditions more than others have.
We have been through such a process already with the trunk roads contracts; we found out afterwards that the people who were transferred had had their pension rights diminished. If we move a bit faster than the Executive does, this time we can ensure that all such issues are addressed beforehand. We want to build specifics into the process.
I am sure that some of those issues will come out in our discussion with the minister next week.
I want to make two points about TUPE in response to the question. The first one concerns what safeguards the Executive can build into the tendering process. As I understand the legal position, it is not possible for the tendering process to enforce a bidder to accept a TUPE transfer of any employees. A successful bidder could challenge that in the courts if that company thought that it did not fit with the TUPE regulations. The Executive can express a view that there should be a TUPE transfer, but it can do no more than that.
I am conscious of the time, but I have an important point to make, which I am sure we can follow up with some detail. Essentially, we want a document that will protect the provision of service that is needed including, for example, the quality of the work force that is required. Reference has been made to questions of language—something that we have raised—length of service, quality of training and knowledge. We should take into account the importance of those services for the wider tourism industry. There is an economic impact in having people who are adequately trained and who know the area. When such people first meet an incomer, they are able to do more than simply tell them where to go on the boat; they can provide a wider range of information. Those are the kind of matters that it would be useful to pick up, but we can follow them up in writing.
We all agree that that would be useful. Do you want to add anything, Murray?
I do not want to pursue any matters, other than to ask that we get that information reasonably quickly so that it can inform our meeting with the minister.
Will the witnesses throw into that letter, if possible, the issue of the Treasury rules on pensions, to ensure not only that it is brought to our attention, but that it is germane to our thoughts when we talk to the minister?
As there are no further questions I thank the witnesses for coming to the committee.
Meeting adjourned.
On resuming—
After that short break, I welcome Dr Harold Mills, the chairman of CalMac, and Lawrie Sinclair, its managing director. You have seen the manner in which we have conducted our business so far. I offer you the opportunity to make a short opening statement.
First, I will introduce Lawrie Sinclair, who is—as the convener said—our managing director. He became our acting managing director last November and his post was confirmed in April, so he has been with us for a comparatively short time. His background is in ship repairing and shipbuilding.
I congratulate Lawrie Sinclair on his confirmation in his new role.
I note that you believe that, if the tendering process is to proceed, the routes should be taken as a single entity. Should the Executive seek derogation from state-aid rules?
I have nothing to add to what was said earlier. When the directive was first agreed, there was probably an opportunity to secure derogations, as other states did. As I understand it, the last derogation—that of Greece—is about to expire. I am not sure that that route is open to us at this stage.
We should probably pursue that point when the minister gives evidence. Before a tendering process is introduced, should a regulatory framework be put in place by statute?
I do not think that that would be necessary, although we would comment on it if the Government decided to follow that route. My view is coloured by the fact that I was involved in the later stages of the bid by the company and the Royal Bank of Scotland for the services to Orkney and Shetland and I have had a chance to consider the various stages of that process. I believe that that process provides a model for the exercise that we are discussing today.
Do you believe that the tendering process can protect the public interest?
Yes.
I will not go through the matters that I have discussed with the previous witnesses, as you have listened to our discussions during the meeting. How does CalMac go about procuring a provider of a service to ensure continuity of the essential and lifeline services?
Caledonian MacBrayne has provided continuity of service for 150 years. The Scottish Executive is about to set in place the tendering process and I hope that everyone agrees that mechanisms must be in place to ensure that that continuity of service continues. I have heard the earlier discussion about that and I am aware of the problems. It might be useful if Lawrie Sinclair went through what is involved in bringing a new operator on to the scene, as that has not been discussed so far.
The question of the need for an independent regulator was raised. There are two aspects to that issue: fares and safety. We believe that the MCA gives us the regulations that are required in relation to safety. At the moment, CalMac has to get a document of compliance, which means that the company has to have in place a management system—some companies call it a quality or safety management system—which is audited against the international safety management code. To obtain that, we must open our books and records to the MCA and allow it to audit the company. In addition, each ship must get a safety management certificate, which is issued by the MCA after the satisfactory completion of an audit of the vessel.
I would like to tease this out some more. A receiver is not always brought in when a company is going to the wall. A company may find itself no longer able to carry out a contract and may decide to walk away. That can happen very quickly. On the two routes where it has happened—Ballycastle to Campbeltown and Orkney to Invergordon—the company walked away and left no services. There was no time to bring in another provider. I would like more reassurance about the actual process by which the vessel-owning company would procure another provider in circumstances in which a service is discontinued at short notice.
I will answer the first question. The Ballycastle to Campbeltown service did not have a subsidy. There was therefore no direct link of the kind that I expect to exist between the Executive and the successful tenderer. A comprehensive contract will set out the terms and conditions of the subsidy. We will come back to what the document will say about fares and quality of service in a moment. However, in that contract one would include the terms required to safeguard the continuity of the service.
NorthLink will be an operator, however. The vessel-owning company will no longer be an operator—it will be a holding company for vessels—so over time it will no longer have the background in or experience of operating the vessels in the way that the front-line provider would have. There is an issue with documents of compliance and ISM codes and NorthLink and any future vessel-owning company. How will you ensure that the vessel-owning company will be capable of getting the documents of compliance and ISM certification, given that it will not be an operator?
I cannot answer that definitively, but it must be covered in the arrangements for the tenders. The point was made that the vesco might be involved in procuring the services of an appropriate ship owner other than the one that is given the tender, but I stress that there are problems. Solutions must be found, and they can be found through the MCA procedures.
I will not go further on that issue. Perhaps specific questions should be addressed to the Minister for Transport and Planning, but I am glad that you accept that there are areas that require further thought.
Again, you should ask that of the minister, but my view is that the Executive would put in place some kind of temporary arrangement, making use of the MCA's procedures, to get an operator to provide continuity of service. I suspect that the services would go out to tender again in the longer term. That would achieve two things: continuity of service and value for money from a new, successful tenderer.
Mr Sinclair has already touched on the need, or otherwise, for an independent regulatory body. Can we concentrate on fares and service frequency, rather than on safety, as the previous witnesses made it clear that that is a matter for the MCA, on which you have given evidence? In addition, you have an excellent safety record, which means that we do not have to question you on it.
There has to be some oversight of fares and services. As described by other witnesses, there will be a procedure to go through. There will be an exercise to specify the services and the levels of fares. Until that is carried out, the Executive will not be in a position to seek tenders. On the NorthLink model, I expect that the invitation to tender will have a minimum level of service and will cap fares at a particular level. How one gets to that point is what you have discussed with other witnesses.
We have to plan and take views for the worst possible scenario. In the first instance, would you want an independent regulator if CalMac did not exist?
No. In the first instance, provided that the kind of documents that I have sketched out were in place, I would not press for an independent regulator. Those documents provide safeguards for the Executive. There is also the consultative machinery that can influence the operator.
So, it is for the procurement process to ensure that specification and tendering documents are tight enough?
Yes.
I do not have a question, but I will comment on what Dr Mills said.
To be completely honest, I have not thought that question through. I have not thought through in depth the implications of bundling the routes. I hope that what we have said and what has been said in Europe will result in the service remaining as a network. If Europe said that the routes had to be split in some way, I accept that one would need to think about that issue.
We are all going down the same line with regard to what we want Europe to do. However, we are trying to think of other scenarios.
To have the consultative committees, the Executive and so on overseeing the service should provide a reasonably good degree of regulation, but do you agree that having a regulator would produce results much more swiftly and efficiently than going through those other routes?
I am not clear that it would. I do not say that there is no case for a regulator, but the necessary mechanisms can be put in place to achieve what we all agree we want to achieve, without having a regulator.
To continue the analogy with the water industry that was raised earlier, is there benchmarking that would allow you to compare your operating costs under the new set-up with those of comparable companies that provide ferry services in other parts of the British Isles or the European Community?
I am not aware of the company undertaking work of that kind.
Should some of the services that are run by local authorities in geographically isolated areas be incorporated into the tendering exercise?
As a company, we do not have a view on that. We will respond once the Executive determines the scope of the specification. It is a matter of six and half a dozen to us. We must consider what will happen to the ownership of the vessels that currently undertake the services for the local authorities. Will they go to the vesco? Many other issues are raised but, as far as CalMac's bid is concerned, such services would just be another part of the network.
If we assume that the Executive will agree to let the routes go as a single bundle, what mechanisms are appropriate to ensure that the supposed effects of competition such as flexibility, pricing and customer focus are delivered? Could that be achieved through the specification or through some regulatory mechanism? If there is no competition, how can you ensure that there is a benefit?
I am assuming that we will receive the specification from the Scottish Executive. We will have to focus more on our customers and the services they want. We hope to build a bid for the specified services from the bottom up, and we will then find out whether our bid is the best one. Although we currently aspire to achieving efficiencies and effectiveness, the final decider will be how we compete with others.
Do you envisage developing a more constructive relationship with the trade unions to involve people in looking at the provision of services?
That is what we are doing. We have already had meetings with the STUC and the other trade unions and propose to continue such contact right up to the point that EU maritime state-aid rules come into force. We believe that we should listen to what the unions have to say and try to build their comments into our tender.
So that dialogue will form the preparatory work for the construction of your tender.
Yes.
Would such a mechanism prevent cherry-picking or the isolation of individual routes?
I am not sure how such a mechanism would impact on that. The appearance—almost from nowhere—of a competitor on the Stornoway to Ullapool route has made us think a great deal about those issues and we are still working our way through them. What we have had to do—and Lawrie Sinclair can say more about this if the committee wishes and if there is time—is consult our customers, the local authorities, our staff and our port managers to get a clear focus on how someone could come in and cream off our commercial traffic in such a way.
Lawrie Sinclair may wish to give us further details, but he will be restrained in the level of detail that he gives us, because Caledonian MacBrayne's internal strategies are central to profit-making for the business. Is there anything you can share with us about the lessons that were learned?
One of the points that has emerged is that we must listen to our customers, to local authorities and to our people. It is clear that we did not listen enough. That has now been reversed and we are listening to what people have to say. Sometimes we can do something about what they say and other times we cannot, but we have to be more customer-focused.
That leads me on to consultation, which we discussed with previous witnesses. What level of consultation on services, fares and frequencies is necessary in the near future?
We have shipping services advisory committee meetings for the north, the south and the Clyde. We meet twice a year and discuss our timetables. Any alterations to timetables can be addressed then. We also have one meeting a year with the combined SSAC. In addition, we have meetings with the CMUCC, the members of which do not just have meetings; they go out round the network and make recommendations when they see issues that should be addressed in ports and on ships. We will consult them on the tendering process.
I have a broad question. We all assume that there are efficiency savings to be made from bundling. Can you be more specific? What savings will you make? Is it about increased passenger numbers, through-ticketing or the better integration of services?
One thing that has been highlighted is the cascade effect, which means that we can move ships around within the network. Some of our ships are too large to go into certain ports, but we can move the best ship to the best area to give the best service and move spare ships into other areas. We can also reduce costs for vessel maintenance. Savings could be made in ticketing, marketing the fares that we offer—for example through-fares—piers and harbours. We can also make savings with the movement of staff, which Norman Martin referred to. In the event of sickness and leave, moving staff round the organisation would allow somebody from the Stornoway route to be used on the Islay route, for example.
I am sure that you expect and want to win the tender when it comes, whatever the shape of the competition, but I want you to think about the worst-case scenario and to imagine that you are unsuccessful. If someone else were to win some or all of the tenders—assuming that they are not all in one contract—what impact would that have on the services, on communities and on the passengers who use your ships? I am thinking particularly about the arguments that we heard earlier with regard to local knowledge and experience.
I have nothing to add to what was said. We believe that local knowledge and experience are features—probably the most important features—of our service and that they enable us to have the record that we have talked about. We want that to continue.
I want to press you on that. What would you do? It is all very well to say that you would want the work force to be kept on, but given the complexities and uncertainties that exist, what work are you doing with the work force and its representatives on their case? What should the Executive include in the conditions for tender to ensure that the aspects of employment that may not be covered by TUPE—such as pension rights, which were mentioned earlier—are taken care of?
We would like the Executive to make provision for such matters in the tender conditions. Only the Executive can judge whether it is able to do that. I refer again to the possibility of a complaint being made to Europe and an inquiry being launched. We would like employment issues that are not covered by TUPE to be addressed in the tender documents. The matter will be discussed in the exchanges with staff to which Lawrie Sinclair referred.
As there are no further questions, I thank the witnesses for attending. This has been a most useful session. I also thank our earlier witnesses, who stayed on to hear what you had to say.
Meeting continued in private until 18:00.
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