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Chamber and committees

Meeting date: Thursday, February 2, 2017

Meeting of the Parliament 02 February 2017

Agenda: General Question Time, First Minister’s Question Time, Awards for Valour (Protection) Bill, Ferry Services, Budget (Scotland) Bill: Stage 1, Business Motion, Decision Time


Ferry Services

The first item of business this afternoon is a statement by Humza Yousaf on Scotland’s ferry services. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

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.

Thank you, minister. We have about 20 minutes for questions. If members have questions, I encourage them to press their request-to-speak button now. I call Liam Kerr to ask the first question.

I thank the minister for advance copy of his statement. We welcome the Government’s acknowledgement of the concerns raised in multiple quarters over last year’s competitive tendering process for the Clyde and Hebrides contract. We all welcome the fact that the Government has taken action and has sought clarification from the European Commission on the matter. However, commercial ferry operators will have genuine concerns on seeing the statement and the Government’s stated preference for an in-house operator as a direction of travel that might ultimately see an end to competitive tendering for our ferry routes and/or automatic reference to any such operator.

If the review found that it were possible to apply the Teckal exemption and to meet state-aid rules, would that mean an end to the competitive tendering of ferry services in Scotland? If it does not find that, will the minister guarantee that any such tendering exercise will not be pre-loaded in favour of an in-house operator? Will he give an assurance that local groups and stakeholders will have a chance to input into the review to ensure genuine feedback into what is affordable, sustainable and provides confidence to users, communities and employees?

I thank the member for the question and the constructive manner in which he asks it. On his last point, I give him an absolute assurance that communities will be at the heart of what we are doing in the policy review—their views are vital to inform our direction.

I am really keen not to prejudge the outcome of the policy review, but I understand why the member asks that question. However, if the Teckal exemption applies, the approach complies with state-aid rules and—crucially—if communities want an in-house provider, the Government is minded to make a direct award to an in-house provider. Even if all the criteria, including state-aid rules, can be met, it may well be that particular communities, for a number of reasons—the member highlighted some in his question—do not want to offer a direct award but wish to have a competitive tender. We should be open-minded and consider what they want, rather than simply do what the Government is minded to do.

I do not want to prejudge the outcome of the review, and I look forward to hearing from the member and his party in the course of that review. I give the member an assurance that communities will be at the heart of everything that we do.

I thank the minister for advance sight of his statement.

I thank the RMT trade union and my colleague David Stewart MSP for their hard work and persistence on behalf of not only the workers in the sector, but the people who depend on lifeline ferry services.

In 2015, Scottish Labour joined the RMT, the Daily Record and others in calling for the Government to use the Teckal exemption and to reject the tendering process for the Clyde and Hebrides contract, so we welcome today’s announcement of a review to look at the legal, policy and financial implications on ferry service procurement.

Given the review, it is sensible and understandable to extend the current Gourock to Dunoon contract. However, will the minister provide assurances that there will be continuity of employment and conditions for the workforce on that particular route and, if necessary, on the northern isles route?

Can he also provide the assurance that, whatever the outcome of the review, jobs and conditions will be protected and the workforce will continue to be subject to the Transfer of Undertakings (Protection of Employment) Regulations?

Given the timescales, why did it take four months for the minister to publish the European Commission’s response? He said in his statement that it was received on 22 September.

I thank Neil Bibby for the constructive tone in which he asked his questions. I also put on record my thanks for the approach that the RMT has taken and my thanks to David Stewart for his indefatigability on this particular issue.

I can give short answers to Neil Bibby’s questions.

The rights of workers, collective bargaining and our no compulsory redundancy policy will continue regardless of the policy review. I can give that protection.

It is very clear from the European Commission’s response, which, as I said, is available to members through the Scottish Parliament information centre, that we will have to look at the governance and structure of both CalMac and CMAL. That will absolutely be part of the policy review, and we will keep members involved and up to date on that discussion.

Although we received the European Commission’s response in September, we have made the announcement today for three very important reasons.

First, the advice was somewhat different from that which we and previous Executives, including the Labour-Liberal coalition, have previously received, and the priority was to ensure that the advice was consistent across all the directorates-general of the European Commission.

Secondly, the more fundamentally important reason why time had to be given was that all sorts of uncertainties would have been thrown up if I had made a public announcement as soon as I received the response, because a live tendering exercise was going on.

Thirdly, I think that Neil Bibby will appreciate and understand, even though he is, understandably, a strong critic of the actions that we have taken, that procurement legislation is extremely complex. I had to find both the legal route whereby we could halt the current tender—that is important—and ensure that we had a legally watertight position in order to extend the contract by nine months. That does not mean that there will not be a legal challenge—I suspect, reasonably, that there may well be one—but I had to ensure that we had those legal ducks in a row before I made an announcement. I hope that that gives Neil Bibby the reassurance that he requires.

Can the minister guarantee that the policy review that he has announced will have communities at its heart and will ensure the best possible public ferry services to all of our island and remote rural communities, which need long-term confidence in their lifeline ferry services?

The short answer to that is yes. Communities have to be at the heart of the review. As I said, I have travelled around the country in the nine or 10 months that I have been in this job, and I know that communities absolutely have differing views on how lifeline services should be provided. They will be at the heart of the policy review.

Like Liam Kerr, I welcome the review and understand the implications of the decision.

I represent the Highlands and Islands and know first-hand how concerned and worried the people of the Cowal peninsula and Dunoon in particular have been for quite some time about the reliability and frequency of services on that route. Can the minister assure me that the nine-month delay to the tender will have a negligible effect on the future of that service so that both residents and visitors to Dunoon can soon look forward to a more robust service?

I assure Donald Cameron that continuity of service is the absolute top priority for me. Continuity of service, whether on the Gourock to Dunoon, northern isles or Clyde and Hebrides services, is vital not only for individuals, but for businesses. I do not want to prejudge the outcome of the review, but its immediate focus must, of course, be on the Gourock to Dunoon service, which Donald Cameron rightly raised.

I, too, welcome the review and pay tribute to David Stewart and the RMT for their tenacity on the issue.

Will the trade unions be directly involved in the review group? Further to Kate Forbes’s question, will communities also be involved in it? They all have a stake, and it is only right that they should be involved in the group. How long is the review likely to take?

The policy review will be undertaken by Transport Scotland. As the key engagers, we will be engaging with the RMT and the first meetings that I will look to have will be with David Stewart and the RMT. As Rhoda Grant rightly says, they have been leading on this issue.

On the second part of her question, again, I give assurances that communities will be involved.

On the third part of her question, the reason why we have asked for a nine-month extension, which we think is justifiable under regulation 72(1)(e) of the Public Contracts (Scotland) Regulations 2015, is that we think that the review will take about nine months. If the review kicks up further issues—state aid can be quite complex, as members will appreciate—we might have to look again at that timeline. However, we are looking to get that review under way as soon as possible and within that timescale.

Once again, I remind members that my wife works part time for CalMac in Gourock.

The minister and others have spoken about the current structure and governance of the David MacBrayne Ltd group of companies, which includes CalMac, whose headquarters is in my constituency. Can the minister provide further information about implications for my constituency in relation to the David MacBrayne group?

I can give Stuart McMillan the reassurances that I have given in previous answers. We do not foresee changes in the terms and conditions of employees, and the policies of collective bargaining and no compulsory redundancies will remain as they are throughout the policy review period. However, I will say frankly that because of the Commission’s response, which I urge the member to read, it is clear that we will have to examine the governance structure of CalMac and CMAL. Without prejudging the outcome, I say that I think that that will involve more emphasis on management structures than on employees. As I said, I cannot prejudge any of that, but I will be meeting with unions as soon as I can in order to give them reassurances in respect of employees.

I thank the minister for early sight of his statement. I welcome the review and support the position regarding the Gourock-Dunoon route.

I heard what the minister said about the timeframe and I acknowledge that it is important that we get this right. However, does the minister recognise the enthusiasm that exists to ensure that the beneficiaries of public money that is spent on ferries in the northern isles are the residents of the northern isles, rather than the private shareholders of Serco?

I understand the point that John Finnie is making and I thank him for his welcome for the approach that we are taking. I reiterate that communities will be at the heart of what is done, as they must be.

When I travelled to Orkney and Shetland, people in the communities there told me that they want continuity of service and a reduction in ferry fares. A commitment has been given in that regard, and I should say that that will not be affected by the policy review.

Communities should be at the heart of what is being done. As I said, the Government is minded to ensure that—where the Teckal exemption can apply, where state-aid rules can be complied with and where the communities want it—direct awards should be made to an in-house provider.

The northern isles contract was due to end in April 2018. Can the minister set out what effect the policy review will have on that contract and can he assure passengers that continued provision of the northern isles ferry service—continuity of service delivery—is a top priority of the Government?

I can, and I hope that I have been able to do that throughout my statement and my answers to questions. Continuity of service absolutely has to be my priority, and will continue to be this Government’s priority.

Maree Todd is right to say that the contract would have ended in April 2018. The tendering process for the northern isles ferry service was due to start in the spring. That will not happen, because the policy review will be under way at that point. Discussions have already begun with Serco for a possible extension of the contract in the interests of continuity of service. Of course, those discussions will continue apace.

I thank the minister for his statement and for the advance copy that he provided to us. On his last point, does that mean that it is therefore nearly certain that the current Serco contract for Orkney and Shetland will now extend beyond next summer?

Given that his Government has promised substantial reductions in ferry fares to the northern isles following the 50 per cent cut on the west coast, can he also clarify the position with regard to the fares review? When will we hear an announcement on that? Will Orkney and Shetland see the promised reductions?

Given the possibility of full Brexit, there may be no EU procurement rules. Will the minister be minded to ensure that his review covers that eventuality, too?

I thank Tavish Scott for the constructive nature of his questions. I will answer them one by one.

It is highly likely that we will require an extension to the contract, because can we no longer start the tendering process in the spring of this year; it will have to wait until the policy review is done. We are already talking to the provider, Serco, about a possible extension. I will ensure that Tavish Scott is kept up to date with those discussions.

I reassure the member about the work that we are doing to reduce ferry fares. The First Minister made a commitment on that, and it was a commitment in our manifesto. I have always been very clear that that issue is not tied to the next contract. In fact, if we can bring about ferry fare reductions before then, we will seek to do that. The position has not changed, and nor has the work of the working group. I will also keep Tavish Scott fully informed on the ferry fares reduction.

Tavish Scott is right that the policy review should take into account the possible implications of Brexit. He knows the Scottish Government’s position on that, so I will not rehearse it. Notwithstanding that, the potential impact of Brexit will be part of the policy review discussion.

As the minister is aware, there are currently three services running out of Gourock: three different routes, three different operators and three different lines of accountability and governance. The situation is described by one local user group as “a complete mess.” I note with interest that the minister does not want to pre-empt the outcome of the review but at the same time expresses a preference for an in-house operator. Will the minister give a commitment on the long-term security of the Gourock to Kilcreggan route, which is very important in that triangle? The route is currently funded by Strathclyde partnership for transport. More important, will he reassure Parliament that the review outcome will not automatically favour Government-owned operators, at the expense of transparency and reliability for local users?

I will try to give Jamie Greene some assurances. The Kilcreggan ferry issue is a separate one—I will write to him on that or speak to him offline. He knows that discussions between Transport Scotland and SPT on fair funding are on-going. In principle, we have an agreement to take over that service. However, that issue is separate from the contents of the policy review.

On Jamie Greene’s wider question, I assure him that there will be continuity of service. I can also give him an assurance that the wishes of communities—I think I know which community group he meant—will be very much at the heart of what we are doing.

The Government’s position is not inconsistent. I am not prejudging the outcome; I am simply saying that we have made known our preference. I look forward to hearing the Conservatives’ input into the policy review.

After years of extensive engagement and correspondence on the issue under this Government and previous Administrations, what the minister has announced today suggests that the Commission’s view may have changed in the event of a direct award under the Teckal exemption. Although complex state-aid rules will still need to be satisfied, does the minister agree that the review will encourage many people to look forward to the strong possibility that ferry service contracts will be awarded to an in-house operator?

I reiterate that I do not want to prejudge the outcome of the review. However, Kenneth Gibson is correct that advice that was received from the Commission by previous Executives and Governments—and not just by my predecessor, Keith Brown, or this Government—has been consistent in saying that the Teckal exemption could not apply. It would be correct to say that the Commission’s view in that respect seems to have shifted. That does not mean that there are not still obstacles in the way; some serious issues have to be examined. State-aid rules still have to be complied with and there are legal, policy and financial questions that have to be answered. The policy review will look at them in the fullest possible manner.

I warmly welcome this afternoon’s statement from the minister. Nearly two years ago, following advice from the RMT, I met European Commission officials to discuss the Teckal exemption. They said that, in principle, it was acceptable and consistent with previous European Court of Justice cases. Will the minister verify the cost to the public purse of tendering the last Clyde and Hebrides, Gourock to Dunoon and northern isles ferry services? In the future, there could be a substantial saving that could be reinvested in public services.

I refer to what I said at the beginning and pay tribute to the hard work that David Stewart has done on that issue. We met to talk about it when I first became transport minister, and I thank him for the advice that he has given in that regard.

I will give him the figures and the facts, but I will write to him if he does not mind. I know that the CHFS contract tendering came at a cost of £1.1 million. I will give him a written response on the other contracts that he asked about.

I assure David Stewart that I will be looking to engage with him; in fact, we have emailed his office to seek an early meeting with him and the trade unions to have a discussion on the matter. I look forward to his views during the policy review.

Hailing from the Hebrides, I welcome the latest advice from the European Commission on the Teckal exemption and look forward to the outcome of the policy review. What chance does the minister see for the policy review to result in a means of procuring ferry services other than by a public tender?

I reiterate that I do not want to prejudice the outcome of the review. I have indicated where the Government is minded to go, but I reiterate the point that there are some very serious questions that will take time to delve into, from financial matters, to legal matters, to state-aid rules and the potential implications of Brexit. I have made my position and the Government’s preference fairly clear.