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Proposals for Tendering Clyde and Hebrides Lifeline Ferry Services A Consultation Paper

DescriptionConsultation Paper for the draft Invitation to Tender for Clyde and Hebrides ferry services
ISBN
Official Print Publication Date
Website Publication DateJune 27, 2002

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    Proposals for Tendering Clyde and Hebrides Lifeline Ferry Services

    A Consultation Paper

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    Contents

    Foreword

    Introduction

    Background

    Key Decisions
    The Single Bundle
    Mainland-to-mainland Routes
    VesCo
    Out of Undertaking Services
    Lismore

    Draft Service Specification
    General
    Fares
    Protecting the Levels of Service
    Integrated Ticketing and Information Issues
    Gaelic
    Branding Issues
    Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE)
    Pensions
    Performance Regime
    Users' Charter
    Consultative Arrangements
    Safety
    Flagging and Crewing
    Other Issues
    Timetable

    Summary

    Annex A - Copy of announcement made on 23 January 2001

    Annex B - Draft timetable for tendering

    FOREWORD

    Lifeline ferry services are vital to the social and economic wellbeing of the remote communities they serve. It is clear that we must comply with European Community law and that tendering is the only way forward to protect these services and ensure that the Scottish Executive can continue to subsidise them.

    Since announcing our provisional proposals for tendering the Clyde and Hebrides ferry services in January 2001, we have maintained a dialogue with the European Commission to stress the importance of tendering the network as a whole. This is the best way to ensure reliable, safe and secure services together with affordable fares. I welcomed the Commission's response in November last year, which confirmed that the way is now clear for us to proceed on this basis. This is in line with the overwhelming preference of respondents to our previous consultation "Delivering Lifeline Ferry Services."

    The next step in the process is to prepare the Invitation to Tender (ITT) which will specify the level of services to be tendered. This paper sets out some options and explains the principles we have adopted in the attached draft Invitation to Tender. At the heart of these is my determination to protect levels of service and fares. We have also taken the opportunity to build on the success of the services currently provided and to extend the network to include some new services among those to be tendered. These include a new Sound of Barra service, enhanced services for the Sound of Harris and to the islands served from Oban, and a winter passenger service between Kilchoan and Tobermory. In addition, following a review of Out of Undertaking services, we are including the Tarbet - Portavadie and Mallaig - Armadale winter services in the services to tendered.

    I am keen to promote wide consultation on this paper and the accompanying draft ITT with the communities served, local authorities, ferry operators, trade unions and other interested parties. I look forward to considering the responses, which will inform the final ITT.

    Signature

    Lewis Macdonald MSP
    Deputy Minister for Enterprise, Transport and Lifelong Learning

    CLYDE AND HEBRIDES FERRY SERVICES: PROPOSALS FOR TENDERING -
    A CONSULTATION PAPER

    Introduction

    1. This consultation paper seeks the views of interested parties to assist Ministers of the Scottish Executive in considering the way forward in relation to tendering Caledonian MacBrayne's ferry services in the Clyde and Hebrides. It should be read in conjunction with the draft Invitation to Tender. The paper seeks views on a number of complex issues including standards of service specified, timetabling options and the proposed performance regime which the successful bidder would be required to meet.

    2. In order to help inform debate on the issues covered by the consultation paper, the Executive's normal practice is to make available to the public, on request, copies of responses to the paper. The Executive will assume therefore that responses can be made publicly available in this way. However, if respondents indicate that they wish all, or part, of their reply excluded from this arrangement, its confidentiality will be strictly respected.

    Background

    3. In April 2000, the Scottish Executive published the consultation document "Delivering Lifeline Ferry Services" which sought views on options for putting our subsidised lifeline ferry services out to tender in order that they can continue under European Community rules. Following consideration of responses, provisional proposals were announced on
    23 January 2001. These were submitted to the European Commission, as required under the rules. The detailed announcement is at Annex A for information. Briefly the proposals included the following:

    • The Executive's strong preference for tendering the network as a whole;
    • Our belief that all of CalMac's approved services, including mainland-to-mainland routes (normally ruled out by the EC rules) are consistent with Public Service Obligation (PSO) status;
    • Plans for restructuring Caledonian MacBrayne Ltd to form a publicly-owned vessel owning company and a publicly-owned operating company. The operating company will be allowed to bid for the services.
    • The publicly-owned vessel-owning company (VesCo) would own Caledonian MacBrayne's existing fleet. This would ensure effective utilisation of the fleet and the availability of appropriate vessels for subsequent contracts. Operators would be bound to the VesCo's fleet, although there might be some scope for new operators to introduce their own vessel solutions. This would be considered on a case-by-case basis.
    • VesCo's functions primarily to focus on bareboat leasing to operators (i.e. without crews) as well as ownership and maintenance of CalMac's piers and harbours. VesCo would be responsible for providing an operator of last resort.
    • The publicly owned operating company would be allowed to bid for the services.
    • On Gourock-Dunoon, we proposed to proceed with a passenger-only Public Service Obligation (PSO).
    • Service levels and fares would be protected.
    • There would be a review of Caledonian MacBrayne's services currently delivered outwith the Undertaking.

    4. Following consideration of material submitted, the Commission came back to the Executive with a number of questions in relation to tendering the network as a whole. The Scottish Executive submitted further evidence during the summer of 2001 and a number of local authorities, MSPs, MEPs and others with an interest also held discussions with the Commission.

    5. Meantime the Scottish Executive continued with preparations for tendering and appointed two consultancies to advise on the tendering process as follows:

    • Burness, Corlett and Partners, Maritime Consultants were appointed to advise on drafting the service specification; and
    • Shepherd & Wedderburn WS together with PriceWaterhouseCoopers were appointed to advise on options for restructuring Caledonian MacBrayne Ltd to form a publicly-owned vessel-owning company and a publicly owned operating company.

    6. On 14 November 2001, the then Minister for Transport, Sarah Boyack, announced that the Commission had advised the Executive that the way was now clear to tender the network as a whole. However, there were still a number of detailed issues that required discussion.

    7. We have been in close contact with the Commission on the remaining issues and the proposals set out in the draft service specification being published with this document flow from these discussions and from the work of the consultants mentioned above.

    8. The key decisions in relation to the framework are set out below. These proposals aim to protect the lifeline ferry services by bringing them into line with EC rules and thereby ensuring subsidy can continue. They also aim to build on the success of the Clyde and Hebrides ferry services and to protect these for the future while providing scope for innovation and improvement in services.

    KEY DECISIONS

    The Single Bundle

    9. As mentioned, Ministers have confirmed that the network will be tendered as a whole. Overwhelming support was expressed for this option in response to the consultation paper "Delivering Lifeline Ferry Services". This will maximise service reliability for the communities served, simplify the process for management of vessels and provide economies of scale in company management, safety and quality systems. It also avoids cherry picking of routes and facilitates integrated transport through co-ordinated timetabling of services.

    Mainland-to-Mainland Routes

    10. The Commission has also cleared the way for CalMac's two mainland-to-mainland routes, Tarbert-Portavadie and Gourock-Dunoon, to be included within the single bundle. This is based on the Commission's assessment that the land-based routes do not provide viable alternatives. This is welcome news and will mean that subsidy for these services can continue.

    11. However, it is clear that the service for Gourock-Dunoon should be restricted to a passenger-only service. This is because the need for a vehicle service is undermined by the existence of an unsubsidised private sector competitor nearby. We are pleased that the Commission accepted the arguments for a continued passenger-only service. That is consistent with our aims for integrated transport. (The ferry service connects with the Gourock railhead/interchange and Dunoon town centres.)

    12. While it is appreciated that some consultees will be disappointed that the existing vehicle service will not be continued, the Executive is satisfied that Western Ferries has sufficient capacity to provide the vehicle service on its own. We believe that the passenger service will complement Western Ferries' vehicle service and do so in a way that is consistent with the EC rules.

    13. An early priority for the vessel-owning company will be to procure passenger only ferries to serve the Gourock-Dunoon route. We plan that the passenger service will run to the same frequency as the current service. However, the Executive will be asking VesCo to investigate the possibility of an increase in the number of services depending on vessel solutions. Decisions are yet to be taken about when the new ferries would be introduced. However, we hope to have these available as early as possible in the new contract period.

    VesCo

    14. The Commission has also indicated that it is satisfied with the proposals to establish a publicly-owned vessel-owning company (VesCo). Ministers believe this approach will ensure efficient utilisation of the existing fleet, offer service reliability through this period of change and guarantee the availability of vessels for subsequent operating contracts. Vessels will be chartered/leased on a bareboat basis to the operator at commercial rates. This is in line with the European Community's rules that prohibit grants in respect of vessel replacement.

    15. Our original proposals had allowed scope for the operator to bring its own vessel solutions where we had identified a need for new vessels. This was on the basis that, similar to the arrangement for the Northern Isles tender, such ships would be transferred to an incoming operator for the second contract if necessary. However, on the basis of discussions with the European Commission, we have concluded that the creation of a vessel-owning company as a permanent body, continuing in existence through successive tendered contracts, makes this arrangement unnecessary. Therefore, VesCo should be regarded as the procurer of new vessels. Decisions in relation to the vessel procurement programme for the first tendering period have yet to be taken in the context of the 2002 spending review but we plan to include these for bidders in the final service specification.

    16. The operator will be bound to the publicly-owned VesCo's vessels. As the company builds new vessels to replace obsolete ones, the operator will also be bound to those. However, we consider that some flexibility should be provided for the operator to increase efficiency. In particular, we have concluded, on the basis of discussions with the Commission, that the operator should not be bound to particular numbers of vessels. Therefore, there will be some scope for the operator to redeploy vessels if it can deliver more efficient services in this way provided the service specification can be delivered in full. There will be no question of the operator cutting the size of the fleet at the expense of the level or reliability of services.

    17. In addition, we propose to allow some scope for the operator to provide additional vessels where it proposes to expand the services beyond the minimum standards set out in the service specification. In this way, the operator will have the flexibility to respond to demand without being constrained by the size of the fleet VesCo owns.

    18. We also confirm that VesCo will be responsible for providing an operator of last resort function. The Executive has been advised that there are two ways for VesCo to do this, either at its own hand or through a retainer arrangement with a shipping company. We will be making it an early key priority that VesCo investigates these options and makes recommendations to Ministers on its proposed course of action. VesCo will be instructed to ensure arrangements are in place by the start of the first contract. Consultees should note that this facility would be available only in the event of an irretrievable breakdown of contract. It is not proposed that the operator of last resort role be triggered to cover services in the event of operational breakdowns or difficulties. Fleet relief will be the responsibility of the operator.

    19. VesCo will also own CalMac's piers and harbours. We propose that the operator will be required, as VesCo's agent, to manage certain harbour function currently provided by CalMac in return for management fees (although VesCo will still retain overall responsibility for delivering these functions through such an agreement).

    20. Ticketing offices, waiting rooms, etc. will also be available for lease by the operator. This ensures that all "the tools to do the job" remain with VesCo and can be made available to the first and subsequent operators. The operator will not be bound to all of these facilities since it may be able to deliver improvements and efficiencies. There will also be the opportunity for the operator to develop facilities to improve services to customers.

    The diagram below shows the main relationships between VesCo, the operator and other harbour authorities.

    diagram

    21. VesCo will have a role in relation to strategic planning. This will include vessel procurement to meet service delivery needs and the capital investment programme for its piers and harbours. There is synergy between this role and its role for vessel procurement. Routine maintenance of piers and harbours will be for the operator to carry out on behalf of VesCo (who will retain responsibility). This is important to ensure that service reliability and safety are not compromised. The Executive plans research during the first two years of the contract to develop ideas for service and related vessel developments that might feed into the second contract.

    22. There are also some detailed obligations that CalMac has in relation to NorthLink, the operator of the Northern Isles ferry services from October 2002. VesCo may take some of these on although detailed decisions are yet to be made.

    Out of Undertaking Services

    23. Turning to the review of Out of Undertaking services, Ministers propose to expand the existing list of approved services (i.e. services eligible for subsidy) to include two services that currently are provided by Caledonian MacBrayne outwith the Undertaking. These are:

    • Mallaig-Armadale winter vehicle service
    • Tarbert-Portavadie winter service. This has been running on an experimental basis but will now be an approved service.

    24. These two services are included in the minimum standard in the attached service specification.

    25. In addition, Ministers propose further services as follows:

    Sounds of Barra and Harris - Resources have been made available to Comhairle nan Eilean Siar to fund shore infrastructure work in order that a vehicle ferry service can be provided across the Sound of Barra and complete the spinal link through the Hebrides. The Executive recently announced funding for a new CalMac ferry for the Sound of Harris route and enhanced services are planned. This will allow a vessel to be redeployed to the Sound of Barra. The new vessel is expected in summer 2003.

    Kilchoan-Tobermory winter passenger service. This will also be brought within the list of approved services. This service is currently provided by the local community (and subsidised through various sponsors including the local authorities). The current winter service is a passenger only service and it is proposed that it will remain so, with a vehicle service provided during the summer only (as now). This will ensure vital links between Tobermory and Kilchoan are secured.

    Enhanced Oban services. A newbuild vessel was approved to serve the Mallaig-Armadale route. This releases a third major Class IIA vessel (MV Lord of the Isles) to enhance services from Oban to Mull, Colonsay, Coll, Tiree, Lochboisdale, Castlebay and Islay during the summer. The new vessel is expected in summer 2003.

    26. We have also considered whether the Undertaking might be expanded to encompass a number of other routes that have been suggested.

    27. The Mull overland route is based on a concept of an inter-island network between Mull, Coll, Tiree, Barra and South Uist where islands are linked by a series of short sea crossings and then to the mainland via Mull by short sailings across the narrowest stretches of water. The project depends upon major infrastructure developments in Tobermory, completion of the A848 upgrade to two lane standard and investment in two new inter-island high-speed-type ferries.

    28. Following careful consideration, Ministers have decided that it is too early to include this proposal within the first tender. Further work is required on costs and benefits to test the feasibility. In addition, infrastructure costs require to be investigated, and there is no scope for these being funded in the short term. It is therefore proposed that further work be carried out on this proposal with a view to including this route within the second tender if appropriate.

    29. Islay-Jura overland route. The Overland Route Company has been proposing a route from Islay to the mainland via Jura since 1984. One suggested route is from Port Askaig on Islay to Feolin on Jura by way of the local authority ferry service, followed by a road journey to Lagg and, from there, a ferry to Keills on the mainland. Again, further development of the proposals is required. Ministers have therefore decided that this service should not be incorporated into the service specification but that it is considered in more detail for possible inclusion in the second tendering exercise.

    Lismore

    30. The current list of CalMac approved services includes the passenger and vehicle service from Oban to Lismore. Argyll and Bute Council also operates a passenger-only service from Rubh Aird Ghainimh at the north of the island to Port Appin on the mainland, a much shorter crossing than the one to Oban. There has been a suggestion that services might be rationalised through the provision of the vehicle service on the short crossing, combined with removal of the services to Oban. We understand that there is some community support for a rationalised service, which could be provided by the Council, or CalMac. There remain a number of unresolved issues, in particular, enhancements that would be required to shore infrastructure which have yet to be costed. In addition the withdrawal of the Oban service would have to be accompanied by the introduction of a bus service from Port Appin to Oban to ensure that difficulties were not created for foot passengers.

    31. In the event that these outstanding issues can be resolved before the final Invitation to Tender is made available to tenderers, it may be possible for the Oban-Lismore service to be replaced by a Port Appin-Lismore service or possibly dropped from the minimum standard altogether if the Council were to provide a passenger and vehicle service to Port Appin. If consultees have views on these options we would be happy to receive these. Meantime, additional work on these options is being taken forward.

    32. However, this service is included in the attached specification in the meantime and will remain so if agreement cannot be reached by those concerned.

    DRAFT SERVICE SPECIFICATION

    33. The draft Invitation to Tender (ITT), which includes the service specification, is being published in conjunction with this consultation document encompasses the above decisions. It also covers a number of new issues.

    34. As mentioned at paragraph 5, the Executive appointed maritime consultants, Burness, Corlett & Partners, to advise on drafting the service specification. The consultants carried out an initial consultation with some key players in order to determine the parameters of the service specification. Issues discussed included:

    • options for protecting levels of fares;
    • options for prescribing timetables;
    • integrated ticketing and information issues;
    • concessionary fares;
    • the possible need for Gaelic language skills on the part of crews; and
    • transfer of CalMac staff in the event that CalMac Opsco is unsuccessful in its bid.

    35. The paragraphs that follow explain the approach that has been taken in the attached draft service specification (which is based on the initial consultations) and asks consultees for views.

    General

    36. The service specification invites operators to tender for subsidy that will be made available for an operator to provide passenger and vehicle services to the Clyde and Hebrides. It is set out in four sections:

    • Section 1 covers the background to the tender and describes the policy objectives of the Scottish Executive. These were also set out previously in "Delivering Lifeline Ferry Services";
    • Section 2 sets out the purpose and scope of the tender and gives the basis for the subsidy available. It also outlines some key principles that will be included in the detailed terms and conditions for contract that will be awarded to the successful operator. The terms and conditions of contract will be based on the final specification and will be prepared later;
    • Section 3 sets out the Scottish Executive's requirements for delivering these lifeline ferry services. Our key principle has been to protect fares and levels of service. Section 3 is based on an approach which sets out the minimum levels of service and standards together with the maximum fares that will be required throughout the contract period; and
    • Section 4 outlines the timetable for the tendering exercise and the documentation that the Executive expects in response to the ITT.

    37. Consultees should note that there are areas of the document where decisions are yet to be taken and these are mentioned as appropriate.

    38. In preparing the draft service specification we have also had particular regard to the following key principles:

    • safety standards. The safety of passengers and crews is a fundamental issue which under no circumstances can be compromised or diluted;
    • standards and quality. Emphasis has been placed not only on accurately defining the existing level of services to be supplied but also on quality;
    • reliability. Emphasis has been placed on the ability to consistently deliver the required levels of service;
    • performance. The continuity of high standards of punctuality, and availability of ship and shore facilities together with reliability is essential;
    • objectivity. As many aspects of the service specification as possible must be capable of objective measurement; and
    • impartiality in the evaluation of bids and treatment of bidders.

    39. There are a number of issues that Ministers particularly wish to draw consultees' attention to as follows.

    Fares

    40. Caledonian MacBrayne's current fare structure is based on the CFares system introduced across the network by the company in 1994. This is intended to relate fares more closely to the costs incurred by the company on a route-by-route basis (as opposed to the distance-based approach used previously). The system has not been applied every year and, when it has been, constraints have been placed on its operation to avoid large changes in fares at route level.

    41. Discussions between Burness, Corlett & Partners and initial consultees on options for the service specification suggested that there was limited understanding of the CFares system and doubts over whether it assisted Calmac in delivering its three objectives of maintaining and improving economic and social conditions in the areas served; ensuring that resources are used efficiently and in a cost-effective manner; and producing a return to contribute towards resources for capital expenditure.

    42. The overwhelming view of those consulted at this early stage was that fares should be aligned with the system used in the Northern Isles ferry contract i.e. the existing CalMac fares would be taken as the starting point and these would simply be adjusted to reflect changes in the Retail Prices Index (RPI) over the contract period. Ministers have concluded that the draft service specification should be based on that principle. The resulting fares will represent the maximum fares allowed. We believe this is the fairest approach for the first contract period. (A further wholesale review could not be undertaken in time for the tendering.) However, we propose to carry out further research on fares which will inform the approach for the second contract period. There should be no presumption that this will lead to lower average fares across the network. Do consultees have comments on this approach?

    43. There will be scope for the operator to reduce fares where it is felt there is merit in doing so in order to encourage greater uptake on particular services, routes, etc.

    44. We also propose that the operator will be required to offer the full range of fares for passengers and vehicles as currently set out in the timetables. These include single/return, 5/6 day return and 6/10 journey tickets on sailings where these are currently available. The operator will have discretion to apply peak fares on those routes and sailings specified as having peak fares in the most up-to-date timetables at the time the final service specification goes to press. As at present, peak fares will not apply to commercial vehicles or coaches. While we recognise that peak fares may be unpopular, we consider that they have some role to play in spreading demand on heavily used routes and thus securing more efficient utilisation of capacity. CalMac operates a sliding scale system of discounts for commercial vehicle operators based on the volumes of traffic carried. There are questions over the consistency of this approach with competition law and CalMac is currently reviewing the arrangements. The results of this review will be announced in due course. In the meantime, consultees are invited to offer views on the possible form of a commercial vehicle discount scheme, bearing in mind the constraints imposed by competition law.

    45. Concessionary fares will also be continued as detailed in Section 3 of the service specification (subject to escalation arrangements described at paragraph 42). Similarly, the operator will be required to continue the current arrangements for the local authority- funded concessionary schemes (where the relevant discounts are refunded by the local authorities concerned). In addition, the operator will be expected to continue special charging arrangements in respect of the categories set out in Caledonian MacBrayne's Table of Rates, Fares and Charges. Annexes 9 and 10 of the Invitiation to Tender refer.

    46. This framework for fares is very prescriptive for the operator. However, Ministers believe this is necessary in order to safeguard passengers. Do consultees agree that all these fares should be protected or should operators be allowed more flexibility?

    Protecting the Levels of Service

    47. The Executive is committed to protecting existing levels of service as well as encouraging improvements where this is possible within the EC rules. There is a balance to be struck between prescribing detailed arrangements for timetables and on the other hand leaving scope for tenderers to provide solutions that could deliver significant improvements.

    48. The Executive's maritime consultants, Burness, Corlett & Partners consulted on possible options for protecting services in the service specification. There are a number of approaches which could be taken such as:

    Option A
    We could prescribe the core minimum service, perhaps based on winter timetables, while enforcing extra sailings during the summer (equivalent to the number there are currently) but with flexibility for operators in terms of timetabling. This broad approach was adopted when provision of rail services was tendered.

    Option B
    All current service arrangements (routes, timetables, etc.) could be prescribed exactly as they are now.

    Option C
    Services could be protected in terms of principles of provision (for example minimum frequencies) rather than operational specifics (i.e. precise timetabling requirements).

    Option D
    Timetables for services with less than, say, eight return sailings per day could be prescribed but more flexibility could be allowed in timetabling for those services with over eight return sailings per day.

    49. Following discussions with initial consultees, the service specification adopts the prescriptive approach set out at Option B above. It requires the operator, as a minimum, to preserve the current service arrangements both in winter and in summer, as they are operated by CalMac. However, it proposes an exception in relation to new services, i.e. the proposed Sound of Barra service, the Kilchoan-Tobermory winter passenger service, the enhanced Oban (to Mull, Coll, Tiree, Colonsay, Islay , Lochboisdale and Castlebay) and Sound of Harris service. The enhancements to the service specification includes model timetables that are prescribed as the minimum, in terms of frequencies. These have been developed by Caledonian MacBrayne based on the capability of the planned vessels. However, the Company has advised there has been no public consultation on the proposals and therefore there is scope for refinement. We would welcome comments from those with an interest in these services. The company will also be consulting on proposals in the usual way.

    50. It is not the intention of the service specification to set arrangements in stone. However, these timetables would represent the minimum required throughout the five-year contract period. We propose, as now, that there will be the possibility for changes to be approved provided the operator has agreed this with the local communities concerned through the consultative machinery. This is in line with the current system, whereby Caledonian MacBrayne holds discussions with the three Shipping Services Advisory Committees on annual timetabling. In the event variations are proposed to the timetable, the operator will be required to submit proposals to the Executive and the Executive will be able to permit "approved variations". This will enable services to develop and cater for local needs.

    51. It is also emphasised that the services prescribed as the minimum will be based on the most recent timetables at the time the Service Specification is finalised.

    52. We would welcome consultees' views on the prescriptive approach that we have adopted in relation to the existing services. This would ensure the existing pattern of services is protected for all. However, if agreement can be reached within communities that they wished the operator to have greater flexibility in respect of their routes to improve timetables from the outset this could be considered.

    Integrated Ticketing and Information Issues

    53. Ministers have made clear that they wish the tendering exercise to create opportunities to advance the Executive's integrated transport objectives. There are several ways in which greater integration can be pursued through the Service Specification although some of them (for example information exchange schemes) are easier to pursue than others (for example joint ticketing schemes).

    54. Our proposal to tender the network as a whole will facilitate integrated transport.

    55. In our initial consultations, it was felt that integrated information exchange and co-ordinated connections between different transport modes were more important to achieve than integrated ticketing (which was regarded as desirable but a longer-term objective).

    56. The service specification prescribes that the operator's timetables specify onward connections as now (paragraphs 3.9 of the draft refer). There is also a requirement to participate in Traveline and in due course Transport Direct. In addition, we have ensured that the performance regime does not conflict with integrated transport - it will be acceptable for an operator to sail slightly late if it is awaiting a late train/bus arrival without incurring penalties.

    57. The operator will also be exhorted to promote integrated transport and encourage intermodal transfer wherever possible. We have also asked for tenderers' proposals in relation to ticketing. The operator will also be required to make proposals for encouraging tourism, which is key to communities, through similar products to Island Hopscotch and Rover although the precise format will be for the operator since it may be able to bring an innovative approach to marketing.

    Gaelic

    58. We have also considered whether to prescribe a requirement for Gaelic-speaking crew or shore staff in the service specification. However we have concluded that prescribing Gaelic speaking crew and shore staff would cut across European Community procurement rules. Also, the standards for marine communications are subject to Maritime and Coastguard Agency rules but there do not appear to be grounds for prescribing Gaelic among crew.

    59. The service specification focuses on ensuring continuation of Caledonian's MacBrayne's services for Gaelic speaking passengers. In particular we have prescribed continuation of the current practice of welcome announcements in Gaelic to continue on those routes that currently have them. It will also be possible to continue Caledonian MacBrayne's existing policy of adding ships names in Gaelic since we will be prescribing that the current Caledonian MacBrayne livery continues (see below). In addition we intend to extend provision for Gaelic speakers by prescribing bilingual signage and literature on board vessels serving Gaelic speaking routes. More generally, we have sought to highlight the importance of Gaelic in the service specification and we have invited tenderers' initiatives to enhance the language and culture in the area.

    Branding Issues

    60. The Executive takes the view that the operator should be required to operate the vessels under the existing Caledonian MacBrayne livery. Operators will be chartering the vessels from the vessel-owning company and so this can be secured through terms and conditions of contract. This will ensure continuity of the brand and assist with longer- term marketing of the Highlands and Islands. However, there would be flexibility for the operator to be identified with the operation of services in literature and web sites. It is also proposed that where the operator brings its own vessels to provide extra services over and above those specified that they be allowed to sail those under their own livery.

    61. Do consultees agree?

    Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE)

    62. The Executive attaches importance to the future of staff of CalMac OpsCo should another operator be successful in their bid. The application of TUPE is a matter of law. However, Ministers have decided that tenderers should be required, as a condition of contract, to cost their bid as if TUPE applies and to implement TUPE in the event they are successful in their bid.

    63. In addition, if TUPE is subsequently found not to apply (i.e. if it is challenged in the courts and the court finds it does not apply), there may be a reduction in subsidy throughout the contract equivalent to any reduction in the operator's costs as a consequence of that decision.

    64. The effect of these measures will ensure that in the event another operator is successful, CalMac staff will be treated in line with the arrangements set out in the Cabinet Office Statement of Practice "Staff Transfers in the Public Sector".

    Pensions

    65. TUPE regulations do not apply to pensions. However, the Executive confirms that it intends to adopt a policy similar to that set out in "Staff Transfers in the Public Sector" and will require tenderers to cost their bid so as to protect the actuarial equivalent pension schemes and entitlements of transferring staff.

    Performance Regime

    66. There will be a robust performance regime which will set tough targets for operators and safeguard standards of reliability and punctuality of services. This will operate on a route-by-route basis (so that no one route can be operated at the expense of others). The regime is summarised at Annex 19 of the service specification. The key targets are as follows:

    • On reliability (i.e. the extent to which scheduled sailings actually operate), the target for operators is 100% of sailings excluding sailings which do not take place due to relief events, for example, because of safety reasons or events outwith operator's direct control, etc. (see paragraph 2.23 of the draft). These would not be counted so as to ensure that safety is not jeopardised. Subsidy (equivalent to the average subsidy per sailing per route) will be deducted for each sailing which does not take place (and is not due to a relief event);
    • If, in any four-week period, reliability on any route falls below 90%, dispute resolution procedures (which may result in termination of contract) will be triggered;
    • If, over a 12-week period, reliability on any route falls below 95%, again a dispute resolution procedure would be triggered and this could result in termination of contract;
    • If there is no service for seven consecutive days, the Executive will have the right to act immediately to ensure provision of services. The action must be reasonable in the circumstances and the Executive may seek reimbursement from the operator for any costs involved;
    • On punctuality, 98% of sailings must be on time. 1 Depending on the degree of lateness, up to 25% of the subsidy would be deducted. This is deliberately less onerous than the deductions of subsidy for reliability so that there will always be an incentive for operators to sail rather than simply cancel sailings.

    1 See Service Specification for detailed definition of "on time"

    67. The performance regime is tighter than that currently applied to CalMac. However, we see this as essential to ensure that standards are maintained.

    Users' Charter

    68. In addition, we propose that the operator be required to develop a Users' Charter and set down standards in relation to a number of other areas such as:

    • conduct of staff;
    • standard of on-board facilities;
    • standard of cleanliness; and
    • complaints procedures and targets for responses.

    Consultative Arrangements

    69. Ministers wish to promote good consultative arrangements within the new framework. Following announcement of our provisional proposals for tendering (Annex A refers) the Highland and Islands Strategic Partnership was invited to consider these and to make recommendations. These are presently being considered and we intend to consult on the way forward separately later this year. In the meantime the service specification sets out the current arrangements and requires the contractor to meet these as a minimum. This will be amended in due course if appropriate.

    Safety

    70. Safety of passengers and crew is paramount. The Maritime and Coastguard Agency is responsible for safety in relation to sea transport in UK waters. The core principle of the service specification is to ensure that the operator must comply with all Maritime and Coastguard Agency's standards on all ships at all times. The successful tenderer will be subject to the same stringent standards of safety that Caledonian MacBrayne and other operators already have to comply with.

    71. VesCo's contracts with the successful tenderer will also set out detailed maintenance responsibilities in respect of vessels. However, the key principle will be that the operator should be responsible for vessel maintenance. This will ensure that there is no confusion in relation to safety issues. It would clearly be unacceptable for the operator to be able to take issue on a maintenance matter where this threatened the safety of vessels, passengers or crew. An early task for VesCo will be to prepare terms and conditions of contract with the operator based on these principles.

    72. In addition, the operator will require to adhere to safety standards in relation to shore facilities and this will be set out in the detailed contracts between the vessel-owning company and the successful tenderer.

    73. The service specification covers safety in more detail.

    Flagging and Crewing

    74. The service specification makes clear that VesCo's vessels will be flagged in the UK when leased to the operator. Crewing arrangements are for the operator. However, these will need to take account of the application of TUPE.

    Other Issues

    75. More generally, the draft service specification covers a number of other detailed issues and consultees' comments are welcome on any aspect. Consultees should also note that there are a number of items, which will require to be finalised in the context of decisions in relation to the final invitation to tender. These include technical evaluation criteria and decisions in relation to the new vessel procurement programme throughout the contract period.

    Timetable

    76. The work involved in restructuring Caledonian MacBrayne is complex. The Executive is of the view that, ideally, VesCo should be established before the tendering process begins since it will require to be in a position to negotiate with bidders in relation to vessels and facilities. It seems unlikely that VesCo would be ready to do this until at least early next year. It requires staff and will need to develop its business plan and leasing arrangements in respect of vessels and assets. It will also require to take forward the procurer of last resort role and management agreement in respect of its Harbour Authority role.

    77. A draft timetable is attached at Annex B. Based on the VesCo being established and ready to negotiate with bidders early in 2003 we anticipate that the tendering process will be completed in 2004 with contract handover later that year. However, this may be subject to change depending on progress with restructuring. The Executive believes that it is better to take the time necessary to ensure a smooth transition to the new framework.

    Summary

    78. Consultees are invited to comment on any aspect of the attached draft service specification. In particular consultees may wish to give views on:

    • the prescriptive approach taken in relation to protecting services;
    • the decision to tie maximum fares to RPI (rather then follow the CFARES regime);
    • Out of Undertaking services;
    • the possible rationalisation of services to Lismore;
    • the model timetables for the new services (Sound of Barra, enhanced Oban and Sound of Harris services and Kilchoan-Tobermory winter);
    • the proposed performance regime for operators; and
    • branding issues.

    79. Responses on the issues raised in this paper should be sent, by 27 September 2002 to John Davidson, The Scottish Executive Development Department, Transport Division 4, Area 2 E, Victoria Quay, Edinburgh EH6 6QQ (e- mail john.b.davidson@scotland.gsi.gov.uk ).

    June 2002

    ANNEX A COPY OF ANNOUNCEMENT MADE ON 23 JANUARY 2001

    BOYACK PLOTS COURSE FOR FUTURE OF HIGHLANDS AND ISLANDS FERRY SERVICE

    Scottish Transport Minister Sarah Boyack today announced details of the proposals for the future of Caledonian MacBrayne's ferry service network that she is to present to the European Commission tomorrow.

    Under EC law the Executive has to put future ferry services out to tender. The Minister made it clear however, that the Executive will continue to subsidise the current ferry network and will ensure fares and levels of service are protected.

    Caledonian MacBrayne will remain in public ownership.

    Announcing her decision of the way forward, Sarah Boyack said in Parliament today:

    "In April 2000, I announced publication of the consultation document "Delivering Lifeline Ferry Services" which sought views on options for putting our subsidised lifeline services out to tender in order that they can continue under European Community rules.

    "We received a response of over 100 replies. I have considered all of the points made carefully, taking account the relevant EC Regulations and Guidelines on State Aid. I am announcing today a package of provisional proposals which have been submitted to the European Commission and which I believe will provide a robust framework for the continued delivery of high quality lifeline ferry services to the Highlands and Islands. The key elements are briefly summarised as follows:

    • I regard all Caledonian MacBrayne ferry services which serve islands as being consistent with public service obligations (PSOs) and plan to tender these services in line with the requirements for these as set out in the European Community cabotage regulations and guidelines;
    • I made robust representations to the Commission in relation to Caledonian MacBrayne's mainland-to-mainland routes, Gourock-Dunoon and Tarbert-Portavadie. I am pleased that the Commission has indicated it might be prepared to consider such services where land based transport would not provide a viable alternative. I regard Caledonian MacBrayne's present mainland-to-mainland routes as being consistent with this criterion. I therefore propose PSOs in respect of these routes also. In the case of Gourock-Dunoon, the PSO would be in respect of a passenger only service because of its integration with other modes of transport (as indeed is the approved service at present);
    • On the packages of routes to be tendered, the Executive's strong preference, based on the results of consultation, is to tender the network as a whole. Overwhelming support was expressed for this option in response to consultation and we believe this would maximise service reliability for the communities served, simplify the process for management of vessels and provide economies of scale in company management, safety and quality systems. It also avoids cherry picking of routes and facilitates integrated transport through co-ordinated timetabling of services;
    • On arrangements for future ownership of vessels, I propose to establish a publicly owned vessel owning company in line with proposals set out in "Delivering Lifeline Ferry Services". I believe this strikes the right balance between the need to ensure the efficient utilisation of the unique existing fleet and service reliability through this period of great change. Vessels will be leased to operators on a commercial basis and without subsidy in line with European Community rules that prohibit grants in respect of vessel replacement;
    • I propose operators would be bound to the vessel owning company's existing vessels. However, I propose to allow scope for operators to bring their own vessel solutions where we have identified a need for new vessels to replace older ships or expand the range of services during a 5 year contract period. This will be decided on a case by case basis at the outset of each PSO contract period. In line with the Commission's guidance, the vessel owning company's functions would focus on bare boat leasing to operators as well as ownership and maintenance of CalMac's piers and harbours. I am considering the possibility of the vessel owning company, offering, on an optional basis, a management of maintenance package which might be attractive to some operators. We also propose the vessel owning company should act as an operator of last resort which will provide an important safeguard through this period of change;
    • "Delivering Lifeline Ferry Services" made clear that the Executive would allow Caledonian MacBrayne to bid to operate the routes on a basis which ensured that the bid was prepared on a fair and full cost basis and evaluated transparently and equally with bids from other potential operators. We will honour this commitment. It will be for the company to decide how best to proceed and I will ask it to draw up proposals setting out details of its plans and to put these to me;
    • the consultation paper invited views on the possible need for a new legislative framework. There was little comment on this aspect and I intend to consider this in the longer term drawing on the lessons learned through the first contract period and taking account of the possible future role of a Highlands and Islands Integrated Transport Authority;
    • I wish to promote good consultative arrangements within the new framework. The Highlands and Islands Integrated Transport Forum was invited in Autumn 1998 to review the way in which passenger ferry companies consult the public and local communities over services and timetables. I propose to invite the forum to expand their review to look at the arrangements needed under the new framework;
    • I gave a commitment when I announced "Delivering Lifeline Ferry Services" that levels of service and fares would be protected. We will be developing a detailed specification of services and will be consulting on this in due course;
    • Caledonian MacBrayne currently operates several services which are outwith the Undertaking of approved services. I plan to take the opportunity presented by the tendering exercise to consider whether any of these Out of Undertaking Services should be brought within the Undertaking and hence safeguarded and made eligible for subsidy. I will also be considering whether any new routes ought to be added. We will require to take into account the affordability of proposals and we will consult on the service specification in due course when we have taken decisions on these matters;

    "We are required under the European Community's rules to consult the Commission on the proposals and therefore they are provisional at this stage and subject to the Commission's approval and further investigation. The Executive is committed to maintaining these vital lifeline links to Scotland's islands and rural communities. If approved by the Commission, these measures would ensure that we will be able to continue to subsidise them in the future and safeguard the services on which these communities depend."

    The Minister is to visit Brussels to present the proposals to the European Commission tomorrow, Wednesday 24 January 2001.

    Note for News Editors

    1. A Public Service Obligation (PSO) in any obligation imposed upon a carrier to ensure the provision of a service satisfying fixed standards of continuity, regularity, capacity and pricing, which standards the carrier would not assume if it was solely considering economic interest.

    2. CalMac currently operates a fleet of 29 ferry vessels providing passenger, vehicle and shipping services to the islands of the West Coast of Scotland and in the Clyde Estuary. Nearly all their services are deemed to be of a lifeline nature and require Government support to keep them in operation. Under the terms of the current formal Undertaking between the Scottish Ministers and CalMac, approved by the UK Parliament in 1995, the Executive undertakes to advance monies to CalMac by way of revenue and/or capital grants. This is done to support approved services that, in the opinion of Scottish Ministers, are necessary to maintain or improve the economic or social conditions in the Highlands and Islands.

    3. On 27 April, the Minister announced the publication of the consultation paper "Delivering Lifeline Ferry Services - Meeting European Union Requirements". This explained that the Executive would be amending the current arrangements in the
    light of EC requirements and sought views on options for tendering ferry services
    in line with EU rules.

    ANNEX B

    Draft Timetable for tendering- may be subject to change depending on progress in restructuring Caledonian MacBrayne Ltd

    June 2002

    service specification published

    Summer

    issue Prior Information Notice

    Summer

    advertise VesCo appointments

    September

    end of service specification consultation period

    early Winter

    VesCo Board appointed

    Winter 2002/03

    decisions in light of response to consultation

    early 2003

    OJEC published and Pre Qualification Questionnaire (PQQ) issued

    early 2003

    VesCo bedded in and able to deal with enquiries from bidders

    Spring 2003

    period for responses to PQQ

    mid 2003

    invite technical bids

    Autumn 2003

    analyse technical bids and invite costed bids from those who pass minimum requirements

    end 2003

    begin negotiations with the preferred bidder

    early 2004

    finalise negotiations with preferred bidder

    September 2004

    target handover date