It is estimated that the subsidy for the running of over 30 lifeline ferry routes over a new ten year period starting in October is set to soar to £370m-a-year from just over £120m a year in the the last eight-year contract period.
What is a direct award?
It involves giving a contract directly to a supplier without going taking it through a tendering process.
So what are the advantages of a direct award?
It avoids a lengthy tendering process, the government can expedite the awarding of the contract, ensuring continuity of essential ferry services. It also ensures that ferry services remain under public oversight, aligning operations with public interest rather than profit motives.
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The tendering process for the 2016–2024 CHFS contract cost approximately £1million. A direct award could eliminate such expenses.
Advocates say a direct award could provide long-term stability for island communities that rely heavily on ferry services, reducing uncertainties associated with contract renewals and operator changes.
What are the cons of the direct award?
By not opening the contract to competitive bidding, there’s a risk of complacency and lack of innovation, potentially leading to inefficiencies and higher costs over time.
Awarding the contract without competition may raise concerns about transparency and accountability, especially if service issues persist.
And while CalMac has faced criticism over the way it operates the service with an ageing fleet, including service disruptions, a direct award might not address these underlying issues without additional reforms.
How long has the Scottish Government been deliberating over doing this.
Former First Minister Humza Yousaf, when he was transport minister, indicated in 2017, the year after CalMac was last awarded the Clyde and Hebrides Ferry Services contract that it was his intention to scrap future tendering processes and appoint the contract to CalMac “indefinitely”.
At the time, the UK was in the European Union and Mr Yousaf said that he was going to “work hard” to satisfy the European Commission that it will meet its state aid rules.
The decision scrap the tender process has been delayed and delayed due to the need for thorough due diligence.. This includes assessing the financial, operational, and legal feasibility of a direct award to CalMac under what is called the Teckal exemption.
What is the Teckal exemption, and how does it apply?
The Teckal exemption, derived from EU law and incorporated into UK regulations, would allow the Scottish Government to bypass the usual procurement process and award a contract directly to CalMac without being found to have carried out unlawful state aid.
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The exemption removes the legal obligation on a public authority to tender public contracts when it can be proven that the public authority can provide the services itself, subject to certain ‘control’ and tests.
The exemption was developed through EU case law to allow contracting authorities to award a contract to a supplier without the recourse to a regulated procurement procedure.
Now that the UK is out of the EU, the procurement principles that exist in Scotland are still derived from EU law and that exemption.
So why did the Scottish Government decide to go ahead with the award without demonstrating that it would be value for money?
The transport secretary Fiona Hyslop said that the award “fundamentally changes the ethos of the service by shifting from a commercial arrangement to a model more focused on the delivery of a public service engaged on the particular needs of the communities it serves”. The Herald has asked what this means and has been awaiting a response. The way CalMac operates means that profits are already not distributed to shareholders but are instead reinvested into the company to maintain and enhance ferry services.
She said she expects it will become a “catalyst for positive change across the Clyde and Hebrides network, based on a more efficient, flexible model of delivery that fully reflects community interests.”
Transport Scotland was asked to explain whether there were any value for money benefits.
What is the community’s stance on this approach?
While the Scottish Government sees a direct award as beneficial, some community representatives have voiced opposition. Concerns include potential service quality issues and the lack of competitive pressure to drive improvements.
Was there a suggestion that this could happen before CalMac got the contract through a competitive tender in 2016?
Yes. In 2015, ministers were told by the National Union of Rail, Maritime and Transport Workers that through the Teckal exemption, the Scottish Government could exempt CalMac and other ferry contracts from the ‘damaging and unpopular’ tendering requirement.
But then the transport minister Derek Mackay told an MSP that the Teckal exemption was “irrelevant” after representations were made to “stop the tender process dead iin its tracks and award the contract to CalMac under the Teckal exemption”
Mr Mackay said that its legal opinion then was that “we have to undertake the [tender] process”, addiing: “There’s no escaping it.
He said that there was a “requirement to tender and bring CHFS into line with EU rules”.
And he added: “Breaking the law is not an option. The Scottish Government would be left open to challenge, because of the European rules. Any challenge would be to taxpayers and the services themselves.”
So what changed?
Mr Yousaf became transport minister, and saw the merits in pursuing the Teckal exemption and in 2017 said the Scottish Government would be minded to make a direct award to an in-house operator.
Why didn’t Mr Yousaf sanction the scrapping of the tender process then?
Mr Yousaf in 2017 said that its analysis over the future of ferry services said that further consideration was required over how it can satisfy the Teckal control test. The control test requires the Scottish ministers to exert similar levels of control over CalMac to that which they exerted over one of its own Government departments.
But Mr Yousaf said the analysis showed that there were a “number of complex legal, policy and financial issues still to be addressed” before a direct award could be agreed.
So what happened then?
In recent years, after the UK left the European Union, the decision to directly award the contract had to be postponed due to the need for further thorough due diligence. This includes assessing the financial, operational, and legal feasibility of a direct award to CalMac under the Teckal exemption.
Complications included that the Scottish Government’s guidance to local authorities states that contracts above applicable threshold values need to be awarded following a fair, open and transparent competition in accordance with the relevant rules, “other than for a few exceptions where the rules may not apply or where direct awards are expressly permitted”.
The government has to ensure compliance with subsidy control regulations, as the proposed contract involves significant public funding
To accommodate this process, the CHFS contract to CalMac was extended by 12 months last year allowing time to complete the necessary evaluations and consultations.
