Udvalget for Landdistrikter og Øer 2017-18
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Offentligt
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Transport
Scotland’s
ferry services
Prepared by Audit Scotland
October 2017
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Auditor General for Scotland
The Auditor General’s role is to:
•
•
•
•
appoint auditors to Scotland’s central government and NHS bodies
examine how public bodies spend public money
help them to manage their finances to the highest standards
check whether they achieve value for money.
The Auditor General is independent and reports to the Scottish Parliament
on the performance of:
•
•
•
•
•
•
directorates of the Scottish Government
government agencies, eg the Scottish Prison Service,
Historic Environment Scotland
NHS bodies
further education colleges
Scottish Water
NDPBs and others, eg Scottish Police Authority, Scottish Fire and
Rescue Service.
You can find out more about the work of the Auditor General on our website:
www.audit-scotland.gov.uk/about-us/auditor-general
Audit Scotland is a statutory body set up in April 2000 under the Public
Finance and Accountability (Scotland) Act 2000. We help the Auditor General
for Scotland and the Accounts Commission check that organisations
spending public money use it properly, efficiently and effectively.
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Transport Scotland's ferry services | 3
Contents
Key facts
Summary
Part 1. Ferry operations in Scotland
Part 2. Spending and performance
Part 3. Procurement
Part 4. Long-term planning
Endnotes
Appendix 1. Ferry routes in Scotland
Appendix 2. Roles and responsibilities of the bodies involved
in Transport Scotland’s ferry operations
Appendix 3. Audit methodology
Appendix 4. Advisory group
4
5
9
15
32
44
53
54
56
59
62
Links
PDF download
Web link
Exhibit data
When viewing this
report online, you can
access background
data by clicking on
the graph icon. The
data file will open in a
new window.
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Key facts
About Transport Scotland's ferry services in 2016
Number of
subsidised routes
32
Number of cars:
a 16.8 per cent
increase since 2007
1.4
million
158,000
Number of
scheduled sailings
Number of
passengers:
a 0.3 per
cent increase
since 2007
5.7
million
£209.7
million
2016/17
spending
on ferries
Scheduled
sailings that
were on time
2
99.6
per cent
115
per cent
Real-terms increase
in spending since
2007/08
1
99.7
per cent
Scheduled sailings
that took place
2
1. Spending is presented in real terms, that is, adjusting for inflation, at 2016/17 prices.
2. After weather-related cancellations and delays have been accounted for.
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Summary | 5
Summary
Key messages
1
Ferries are an essential part of Scotland’s transport network. There are
an estimated 66 scheduled ferry routes in Scotland, managed by a range
of public and commercial operators. In 2016/17, Transport Scotland
spent £209.7 million on ferry services and assets, such as vessels
and harbours. It operates three main ferry contracts, through which it
subsidises 32 ferry routes, carrying over five million people each year.
Between 2007/08 and 2016/17, Transport Scotland’s spending on ferries
increased by 115 per cent in real terms. Over this period, the number of
passengers travelling on its subsidised routes increased by 0.3 per cent
and car numbers increased by 16.8 per cent. Subsidies for the Clyde
and Hebrides Ferry Service (CHFS) have increased by 185 per cent since
2007/08. This is mainly due to an increase in services, new vessels and
the introduction of the Road Equivalent Tariff (RET). RET has resulted in
higher passenger and car traffic but its wider impact has been mixed.
Transport Scotland’s Ferries Plan sets out proposals to develop ferry
services and assets between 2013 and 2022, at an estimated cost of
£390 million in capital and £10 million a year in revenue. Transport
Scotland has made significant progress against the commitments
in the plan less than halfway through its duration. But the plan, and
underpinning investment plans for vessels and harbours, is focused
on the Clyde and Hebrides network. There is no Scotland-wide, long-
term strategy which takes into account proposed developments to ferry
operations, and the condition of about half of the harbours used by
Transport Scotland’s ferry operators is unknown. This means the full
extent of Transport Scotland’s future spending requirements on services
and assets is not known. In the context of limited public finances,
Transport Scotland will find it challenging to continue to provide ferry
services that meet the needs of users within its allocated budget.
The operators of Transport Scotland’s ferry contracts are performing
well and, in 2016, about 99 per cent of sailings were on time. Ferry users
are generally happy with services but there is variation across routes
and some frustrations exist. Transport Scotland’s arrangements for
consulting and involving ferry users could be improved. Ferry operations
are complicated and responsibilities and accountabilities are not well
understood by users. Transport Scotland does not routinely measure the
contribution that ferry services make to social and economic outcomes
at a network level, which makes it difficult to determine whether its
spending is value for money. Better information would allow Transport
Scotland to demonstrate the impact of its decisions and the contribution
that ferries make to the Scottish Government’s National Outcomes.
2
a new long-
term strategy
for ferries
is required
to take into
account
the many
proposed
developments
to services
and assets
3
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4
The new CHFS contract started on time, in October 2016, despite
delays and weaknesses in how Transport Scotland managed the
procurement project. The chosen procurement method was new
and the two bidders were not clear on what was expected of them.
The bidders submitted over 800 queries during the tender process
and there were delays in providing them with important information.
Transport Scotland has previously treated ferry procurement exercises
as individual projects rather than a programme. It is now developing
a more strategic approach for future procurements which should help
improve planning, the use of resources and knowledge transfer.
Transport Scotland received one compliant bid for the new CHFS
contract, which it awarded to CalMac at a cost of £868 million over
eight years. CalMac’s bid met the minimum quality requirements
and was £128 million lower than Transport Scotland’s estimate of
the contract cost. Transport Scotland was not required to assess the
350 commitments in CalMac’s bid, which makes it difficult for it to
demonstrate the added value of the new contract. Transport Scotland
updated the contract before its start date to reflect, for example, planned
timetable changes and this has increased the contract cost to £975
million. Contract management arrangements are still evolving and could
be strengthened.
5
Recommendations
Transport Scotland should:
•
as part of its Strategic Transport Projects Review, develop a Scotland-
wide, long-term strategy for its network of subsidised ferries. This should:
–
take into account progress already made against the Ferries Plan
and proposed developments to its ferry operations
–
set out its intended benefits of subsidised ferry services, how these
contribute to National Outcomes and how these will be measured,
monitored and reported. It should then consider how this information
could be used to inform operational and financial decisions and to
demonstrate that ferry services are value for money
–
include an assessment of the long-term affordability of its
spending on services and assets. This should take into account
the level of service required, the condition of assets and the need
for capital investment
–
set out how its spending will be prioritised across its network
–
be monitored regularly to ensure it is on time and on budget
–
be reviewed regularly to ensure it remains relevant and affordable
•
ensure that it has adequate resources to develop, monitor and report
against its long-term ferries strategy
•
improve the transparency of decision-making for ferry users. This
may include streamlining and formalising how it consults with and
involves ferry users, by giving specific user groups a formal remit to
comment on operational and policy matters
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Summary | 7
•
improve its approach to procuring ferry services. This should include:
–
ensuring that procurement teams include staff with procurement
qualifications and experience of the ferry sector
–
applying lessons from previous procurement exercises
–
building in sufficient time to prepare important project
documentation, such as business cases
–
ensuring that contract specifications are accurate, up to date and
clear to potential bidders
–
providing bidders with clear, good-quality and timely data to allow
them to make informed bids
•
strengthen its contract management arrangements by:
–
ensuring there is a sufficient number of people, with the right
expertise, to effectively manage ferry contracts
–
involving the contract management team in ferry procurement
exercises to inform its understanding of contract requirements.
Transport Scotland, along with Caledonian Maritime Assets Limited
(CMAL) and the ferry operators, should:
•
better communicate their roles, responsibilities and accountabilities
to improve customers’ and stakeholders’ understanding.
Background
1.
Ferries are an essential part of Scotland’s transport network. The Scottish
Government considers that the quality and affordability of ferry services are
vital for sustaining some of the most remote and geographically dispersed
communities in Europe. The total number of ferry routes in Scotland is not
known. We estimate that there are 66 routes connecting mainland Scotland and
its islands, managed by a number of public and private operators
(Appendix 1).
Every year about nine million passengers and 2.8 million cars travel on these
routes. Ferries also transport essential goods to remote communities and help
export large amounts of island produce, including seafood and whisky, which
contribute significantly to Scotland’s economy.
2.
Transport Scotland has a major role in the development and operation of ferry
services in Scotland. This involves implementing ferry policy on behalf of Scottish
ministers and providing financial subsidies to the operators of ferry routes that it
considers to be lifeline, that is, those it considers are required for communities
to be viable. Transport Scotland’s rationale for subsidising ferry services includes
helping to maintain rural populations, encouraging tourism and increasing rural
economic growth.
3.
In 2016/17,
Transport Scotland
spent £209.7 million on ferries, including
operators’ subsidies and investment in vessels and harbours. It subsidises almost
half of the estimated number of ferry routes in Scotland (32 out of 66), carrying
about two-thirds of all passengers (5.7 million a year) on almost 160,000 sailings
each year. Its subsidised ferry routes vary greatly, in terms of length of journey
and tidal conditions, which requires many different types of vessels and harbour
Transport Scotland
is a Scottish
Government agency.
It is responsible for
national transport
services and
infrastructure.
In 2016/17, it spent
£2.1 billion, of which
ten per cent was
on ferry services
and assets.
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infrastructure. Transport Scotland manages the 32 ferry routes through three
contracts. It provides the operators of these contracts with an agreed level of
financial subsidy in return for a specified level of service. Its subsidies reduce the
cost of ticket prices, making travel more affordable for ferry users.
About the audit
4.
Our audit looked at Transport Scotland’s spending on ferry services to
determine whether it is value for money. We examined:
•
whether there is clarity around the operation of subsidised ferry services,
including the roles and responsibilities of the different bodies involved
•
how much is spent on subsidised ferry services, what this achieves and how
Transport Scotland demonstrates that its expenditure is value for money
•
the extent to which Transport Scotland’s procurement arrangements for
ferry services are appropriate and helping to obtain best value
•
whether Transport Scotland has an evidence-based strategy for the long-
term investment in ferry services and assets (that is, vessels and harbours).
5.
Our audit focused on Transport Scotland’s subsidised ferry services. We did
not review ferry services that are operated by councils or the private sector,
although we considered how well Transport Scotland works with partners to
plan and operate ferry services and assets. As part of our audit, we reviewed
Transport Scotland’s procurement arrangements for ferry services. We focused
on the procurement of the Clyde and Hebrides contract as this is the most recent
ferry contract that Transport Scotland has awarded. We did not review any other
of its ferry procurement exercises.
6.
This report has four parts:
•
Part 1
explains Transport Scotland’s ferry operations.
•
Part 2
analyses the cost and performance of Transport Scotland’s
subsidised services.
•
Part 3
examines procurement arrangements.
•
Part 4
considers the long-term planning of ferry services and assets.
7.
Appendix 3
sets out the methodology we used to gather evidence, which
includes desk research, data analysis, community visits and interviews with
Transport Scotland and its ferry service operators. We also spoke with private
sector (commercial) operators, Regional Transport Partnerships (RTPs), councils
and other interested parties, including trades unions.
Appendix 4
lists members
of our advisory group who provided help and advice throughout the audit.
8.
As part of the audit, we visited ten communities which rely on ferry services.
This was not a representative sample of ferry users but was used to understand
the range of users' experiences and views. We considered the views of these
communities, alongside our other evidence, to help inform our judgements in
this report. We have published an
online supplement
which details our
discussions with a sample of representatives from each of these communities.
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Part 1. Ferry operations in Scotland | 9
Part 1
Ferry operations in Scotland
The organisation of ferry services in Scotland is complex,
involving many different bodies
European Union rules and guidelines have influenced the structure of ferry
operations in Scotland
9.
The Scottish Government has provided financial support for ferry services
since the 1960s:
•
Ferry services in the Clyde and Hebrides were initially operated by two
companies, the Caledonian Steam Packet Company and David MacBrayne.
In 1973 these merged to form Caledonian MacBrayne Limited, a public
corporation wholly owned by Scottish ministers.
•
Northern Isles Ferry Services (NIFS) were initially operated by P&O, a
commercial operator.
10.
Since then, a number of European Union (EU) rules and guidelines have
influenced the structure, funding and operation of ferry services in Scotland. For
example, to comply with Maritime Cabotage Regulation, Scottish ministers have
been required to tender for ferry services to the Northern Isles (since 1997) and in
the Clyde and Hebrides (since 2006).
1
EU State aid rules also led ministers to tender
separately for the ferry service between Gourock and Dunoon, which had previously
been part of the Clyde and Hebrides network
(Case study 1, page 10).
11.
The requirement to tender for the Clyde and Hebrides Ferry Service (CHFS)
led Scottish ministers to change the structure of its ferry operations in 2007.
The responsibilities of Caledonian MacBrayne Ltd were split between two new
organisations, both of which are wholly owned by Scottish ministers:
•
Caledonian Maritime Assets Limited (CMAL) was established to own and
manage the assets (that is, vessels and harbours) on the network.
•
David MacBrayne Limited (a holding company) was established to bid for
and operate ferry contracts.
12.
These changes were intended to create a fairer competition for future bidders
for the CHFS contract because it allowed bidders equal access to the ferry assets
by leasing them from CMAL.
Transport
Scotland's
subsidised
ferry routes
vary greatly,
requiring
many
different
types of
vessels and
harbour
infrastructure
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10 |
Case study 1
The history of the Gourock-Dunoon route
Until 2006, the Transport Scotland subsidised ferry service between
Gourock and Dunoon was part of the Clyde and Hebrides network. A
commercial operator, Western Ferries, has operated a passenger and
vehicle service without subsidy on an adjacent route since 1973.
Scottish ministers first decided in 2002 that the route should be tendered
separately to the rest of the Clyde and Hebrides network. This was in
response to Western Ferries' concerns that Transport Scotland's subsidies
were being used to reduce commercial vehicle fares. To comply with
EU rules and guidelines, ministers considered the option of providing
subsidies for passengers only on the Gourock-Dunoon route.
In 2006, Scottish ministers invited operators to bid for both the CHFS and
the Gourock-Dunoon contracts. On the Gourock-Dunoon route, following
a consultation on subsidies, operators were invited to run a fully
commercial passenger and vehicle service (that is, no subsidy would
be provided). No operators bid for the contract. Caledonian MacBrayne
Ltd operated the other routes on the Clyde and Hebrides network at
that time. It created a subsidiary company, Cowal Ferries, to operate the
Gourock-Dunoon route and continued to run a subsidised passenger and
vehicle service.
In 2008, the European Commission considered a further complaint from
Western Ferries. It concluded that Transport Scotland should retender
the route from 2011. Subsidies were to be paid for passengers only,
although operators were free to provide a vehicle service at their own
risk. None of the three bidders chose to operate a vehicle service. Argyll
Ferries, a new subsidiary of David MacBrayne Limited, won the contract
and has operated a passenger-only service since June 2011.
The procurement exercise for the next Gourock-Dunoon contract is
currently paused while the Scottish Government carries out a review of
ferry procurement
(paragraph 15).
The current contract, which was due
to expire in June 2017, has been extended to account for the delay in the
procurement exercise.
Source: Audit Scotland
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Part 1. Ferry operations in Scotland | 11
Many bodies are involved in Transport Scotland’s ferry operations
13.
Transport Scotland currently subsidises 32 ferry routes to the Clyde and
Hebrides, Northern Isles and between Gourock and Dunoon through separate
contracts with three ferry operators – CalMac Ferries Limited (CalMac), Serco
NorthLink and Argyll Ferries Limited
(Exhibit 1, page 12).
Numerous other
bodies are also involved in ferry operations. For example, a range of public,
private and independent bodies own the 41 vessels and 59 harbours on Transport
Scotland’s subsidised ferry network. Asset arrangements vary by contract, but
in general ferry operators pay vessel owners a lease fee for the vessels and pay
the harbour owners a ‘harbour due’ for harbour access. The numerous bodies
and different arrangements in place for ferry services and assets have created
complicated operational and funding arrangements
(Exhibit 2, page 14).
Appendix 2
sets out the main roles and responsibilities of these bodies.
Numerous other models are in place for operating ferry services
14.
Transport Scotland subsidises about half of the ferry routes in Scotland. Other
models are in place for funding, tendering for and operating the remaining routes:
•
Four councils (Argyll and Bute, Highland, Orkney Islands and Shetland
Islands) subsidise 22 routes. Councils operate some of these routes, while
others are contracted out to other operators.
•
Strathclyde Partnership for Transport (SPT) subsidises one route.
•
The private sector operates eight routes without public funding and one
route with funding from Transport Scotland and Argyll and Bute Council.
•
Community groups run two routes, one of which receives public sector
subsidy from Argyll and Bute, and Highland councils.
Transport Scotland’s requirement to tender for ferry services may change
15.
In February 2017, the Minister for Transport and the Islands announced a
review into the future procurement of ferry services.
2
In particular, the review is
to consider:
•
whether the
Teckal exemption
could be applied
Teckal exemption
In 1999, the European
Court of Justice ruled
that a public body
may award a public
services contract
directly to a company
that it wholly owns,
provided that:
• the public body
fully controls that
company in a
similar way to its
own departments
• the publicly owned
company carries out
at least 80 per cent
of its activities with
the public body.
If these criteria are
met, the public body
is not required to
tender for the public
services contract.
•
whether the tendering of ferry services is value for money
•
the governance and organisational structures of David MacBrayne Ltd and
CMAL.
The review has resulted in a pause to the procurement exercises for the next
Gourock-Dunoon and NIFS contracts. The Scottish Government expects to
publish a progress report on the review in autumn 2017.
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12 |
Exhibit 1
Transport Scotland's three main ferry contracts
Transport Scotland subsidises 32 ferry routes through three ferry contracts of varying sizes.
Contract
Clyde and Hebrides
Ferry Services
28
1
From the west coast of
Scotland to 22 islands and
four peninsulas
From 0.6 to 89.5 miles
2
CalMac Ferries Limited
A subsidiary of David
MacBrayne Ltd, created in
2006 to bid for the contract
Eight years
Oct 2016 – Sept 2024
Northern Isles
Ferry Services
3
From the north and
north-east of Scotland
to Orkney and Shetland
From 30 to 221 miles
2
Serco NorthLink Ferries
A subsidiary of Serco Group
plc
Five years, 10 months
Jun 2012 – Apr 2018
3
Gourock –
Dunoon
1
Passenger-only service from
Gourock to Dunoon
4.3 miles
2
Argyll Ferries Limited
A subsidiary of David
MacBrayne Ltd, created in
2011 to bid for the contract
Six years
Jun 2011 – Jun 2017
3
Routes
Current
operator
Contract
duration
Expected
contract
cost at
award date
£868 million
£243 million
£10.6 million
Passengers
5,056,000
(2016)
Cars
(2016)
Vessels
1,356,000
33
•
CMAL owns 32
•
Lloyds Bank owns one
All vessels carry passengers
and vehicles. Three
further vessels are under
construction
CalMac is obliged to lease
CMAL's vessels, due to the
unique nature of the waters,
tides and harbours on the
network
52
1
•
CMAL owns 25 harbours
and pays CalMac a
'harbour operating fee' to
operate these on its behalf
•
27 harbours are owned by:
– councils (21)
– independent harbour
authorities (4)
– a private company (1)
– the National Trust for
Scotland (1)
304,000
64,500
5
•
The Royal Bank of
Scotland (RBS Group)
owns three passenger
and vehicle vessels
•
Two freight vessels
are owned by a private
company, Fortress
Serco NorthLink is not
obliged to lease the
passenger or freight vessels
5
•
Orkney Islands Council
owns two harbours
•
The others are owned
by three different
independent harbour
authorities
303,000
0
3
•
David MacBrayne Ltd
owns two passenger
vessels
•
A third vessel is leased
from CalMac during the
winter months
Argyll Ferries is required to
supply its own vessels
Harbours
2
•
CMAL owns Gourock
harbour
•
Argyll and Bute Council
owns Dunoon harbour
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Part 1. Ferry operations in Scotland | 13
Exhibit 1 (continued)
Interactive data
map available
on our website
Scrabster - Stromness
Aberdeen
- Lerwick
Ullapool - Stornoway
Berneray - Leverburgh
Uig - Tarbert /Lochmaddy
Raasay - Sconser
Mallaig - Lochboisdale
Ardmhor - Eriskay
Oban - Castlebay
Oban - Coll/Tiree/Castlebay
Oban - Coll/Tiree
Fionnphort - Iona
Oban - Colonsay
Kennacraig - Islay/Colonsay/Oban
Kennacraig - Islay
Tayinloan - Gigha
Mallaig - Eigg/Muck/Rum/Canna
Mallaig - Armadale
Tobermory - Kilchoan
Fishnish - Lochaline
Oban - Lismore
Oban - Craignure
Gallanach - Kerrera
Colintraive-Rhubodach
Tarbert-
Gourock - Dunoon
Portavadie
Aberdeen - Kirkwall - Lerwick
Wemyss Bay - Rothesay
Largs - Cumbrae
Lochranza - Claonaig
Ardrossan - Brodick
Ardrossan - Campbeltown
tude1 and Latitude1. Color shows details about Operator1. The marks are labeled by Path ID1. Details are shown for Pa
Notes:
h ID1,Path order1). The Operator1 filter keeps Argyll Ferries, CalMac and Serco Northlink. The Exclusions (Latitude1,Long
1. This includes the Gallanach to Kerrera route which was transferred to the CHFS network in July 2017. Prior to this, Transport Scotland
had separately subsidised this service since 2013. The two harbours are owned by CMAL and are included in the harbours total.
2. Route lengths taken from
The introduction of a road equivalent tariff based fares system on Scotland's ferry network
, Halcrow Group
Limited, 2008 (Table 1).
3. The procurement exercises for the next Gourock-Dunoon and NIFS contracts are currently paused, pending the results of a
procurement review in 2017.
4. Outside these three contracts, Transport Scotland also provides funding of about £40,000 a year to the private operator of the
Craighouse to Tayvallich route.
Source: Audit Scotland, from information provided by Transport Scotland, CMAL and the ferry operators
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14 |
Exhibit 2
How Transport Scotland's subsidised ferry services operate
Operational and funding arrangements are complex.
Scottish
ministers
Vessel
loans
Transport
Scotland
Harbour
dues
Harbour
grants
Harbour
operating fee
CMAL
1
David
MacBrayne
Harbour
dues
Vessel
leases
Vessel
leases
Serco
NorthLink
Vessel
leases
Vessel
lease
CalMac
Argyll
Ferries
Harbour
dues
Lloyds
Bank
1
RBS Group
and Fortress
2
Council, private
and independent
harbour owners
Harbour
dues
Harbour
dues
Direction/ownership
Ferry contract/
subsidies
Harbour
contract
Money
flow
Notes:
1. For the Lloyds Bank-owned vessel, CalMac pays the lease fee through CMAL, along with a CMAL service fee.
2. In March 2017, CMAL took over the lease of the two freight ferries on the NIFS network, which are owned by Fortress.
Source: Audit Scotland
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Part 2. Spending and performance | 15
Part 2
Spending and performance
Key messages
1
Between 2007/08 and 2016/17, Transport Scotland’s total annual
spending on ferries increased by 115 per cent in real terms, from
£97.3 million to £209.7 million. Over this period, total annual subsidies
to ferry operators doubled to £168.7 million and annual capital
expenditure increased by 174 per cent, to £41.0 million. CMAL has
procured eight new-build vessels in this time and Transport Scotland
has spent £86 million on harbour upgrades.
Subsidies for services to the Northern Isles increased by three per
cent between 2007/08 and 2016/17. Since the start of the new Northern
Isles contract in 2012, subsidies have decreased by 24 per cent, to
£35.2 million in 2016/17. This is partly due to a reduction in the annual
number of sailings which has led to a decrease in Serco NorthLink’s
running costs.
Subsidies for services to the Clyde and Hebrides increased by 185 per
cent between 2007/08 and 2016/17, to £133.8 million. This is mainly due
to an increase in services, new vessels being added to the fleet and the
introduction of the Road Equivalent Tariff (RET), which has significantly
reduced the price of ferry travel for passengers and cars. Since 2008/09,
Transport Scotland has spent £40 million to compensate CalMac for
lower ticket income. RET has resulted in higher demand for services but
the additional cost of meeting this demand is unclear. The wider impact
of RET has been mixed. For example, while RET has increased the
number of tourists visiting the islands, it has meant that islanders are
sometimes unable to travel on certain sailings because they are full.
Between 2007 and 2016, the annual number of scheduled sailings,
subsidised by Transport Scotland, increased by eight per cent. The
annual number of passengers travelling on its subsidised routes
increased by 0.3 per cent to 5.7 million, and the annual number of cars
carried increased by 16.8 per cent to 1.4 million.
Ferry operators are performing well. In 2016, after taking into
account weather-related cancellations and delays, about 99 per cent
of scheduled sailings operated and about 99 per cent of these ran
on time. Ferry users are generally happy with services but there is
variation across routes and some frustrations exist. Ferry operations
are complicated and responsibilities and accountabilities are not
well understood.
2
3
4
spending
has doubled
since
2007/08,
mainly due to
an increase
in services,
new vessels
and lower
ferry fares on
most routes
5
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Important notes on the data presented
The data we report on spending and performance comes from
different sources and is reported in different time periods:
•
Trend information on total spending on ferry subsidies and assets
is from Transport Scotland’s internal reports and is presented by
financial year. Data is presented from 2007/08 to 2016/17. Figures
are presented in real terms, at 2016/17 prices. Some figures may not
add up due to rounding.
•
Spending on individual contracts (Exhibit
5, page 18,
and
Case studies 2, 3 and 4, pages 20 to 22)
has been taken from
each operator’s Annual Outcome Statements and is presented by
contract year. Contract years are different for each operator. Data
is presented from contract years starting in 2007 to those ending
in 2016. We have reported the gross annual subsidy provided by
Transport Scotland to the operators. In each contract year, the
operators may have received less than this as Transport Scotland
can claw back a proportion of the operators’ profits. However, due
to incomplete data we are unable to present the annual net subsidy
for each of the contracts. Figures are presented in real terms, at
2016/17 prices.
•
Traffic numbers are from the Scottish Transport Statistics and
individual ferry operators and are presented by calendar year
(with the exception of Northern Isles traffic data, which Transport
Scotland publishes for the period July to June).
This means it is not possible to make direct comparisons between, for
example, spending and passenger numbers.
We have used 2007/08 as the base year as this is the first year of the
first CHFS contract.
Appendix 3
sets out more details on the methodology.
Transport Scotland’s spending on ferries has more than doubled
since 2007/08
16.
In 2016/17, Transport Scotland spent £209.7 million on ferries (capital and
revenue). This is a 115 per cent increase, in real terms, since 2007/08
(Exhibit 3,
page 17).
The majority of Transport Scotland’s 2016/17 spending (80 per cent)
was on subsidies to ferry operators and the remaining 20 per cent was capital
investment in vessels and harbours.
Total subsidies to ferry operators have increased but there is variation by
contract
17.
In 2016/17, Transport Scotland spent £172.4 million on subsidies to the
operators of its three main ferry contracts (its net spending on the three contracts
was £168.5 million, as operators returned £3.9 million). It also spent £180,000
on financial support to the commercial operators of two other routes. Most of its
spending on operators’ subsidies (78 per cent, £133.8 million) was on the
CHFS contract, 20 per cent (£35.2 million) was on NIFS and the remainder
(£3.5 million) was on Gourock-Dunoon.
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Part 2. Spending and performance | 17
Exhibit 3
Transport Scotland's ferry spending, in real terms, 2007/08 to 2016/17
Total spending on ferries has increased by 115 per cent since 2007/08.
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
£82.67m
£100.29m
£109.53m
£107.57m
£121.99m
£118.74m
£135.50m
£146.97m
£154.86m
£168.65m
£14.96m
£6.07m
£5.65m
£29.67m
£20.49m
£9.43m
£13.87m
£20.85m
£45.59m
£41.03m
Total subsidy (revenue)
for ferry operations
Total capital spending
104%
increase
in subsidy
spending
174%
increase
in capital
spending
Notes:
1. Data is shown by financial year, in 2016/17 prices.
2. Total annual spending excludes payments made directly into the CalMac Pension Fund.
3. Total annual subsidy is net of any receipts Transport Scotland receives from the ferry operators.
4. The increase in capital spending in 2015/16 was largely due to a £34 million payment towards two new vessels which are currently
under construction.
Source: Audit Scotland, using Transport Scotland's Ferries Section 70 report, August 2017
18.
Total subsidies have increased by 104 per cent, in real terms, since 2007/08. This
is largely due to a 185 per cent increase in CHFS subsidy and 148 per cent increase
in subsidy for the Gourock-Dunoon contract. Subsidies paid in respect of the NIFS
contract have increased by three per cent since 2007/08, but have decreased by
24 per cent since the start of the new contract in 2012
(Exhibit 4, page 18).
19.
Transport Scotland’s subsidies are intended to cover the difference between the
ferry operator’s costs of running the contract and income received, while allowing a
capped profit to be made. Transport Scotland will claw back a proportion of any profit
in excess of this cap. There is variation across contracts in the percentage of total
costs that are covered by Transport Scotland subsidies
(Exhibit 5, page 18).
For
example, in the contract years ending in 2016, subsidies were equivalent to:
•
83 per cent of the total costs of the Gourock-Dunoon service
•
71 per cent of the total costs of CHFS
•
51 per cent of the total costs of NIFS.
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Exhibit 4
Transport Scotland subsidies for each ferry contract, in real terms
Subsidies have increased for all three Transport Scotland contracts.
140
120
100
£ million
80
60
40
20
0
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
Clyde and Hebrides
Ferry Services
Northern Isles
Ferry Services
Gourock –
Dunoon
Note: Data is by financial year at 2016/17 prices.
Source: Audit Scotland, using Transport Scotland's ferries Section 70 report, August 2017
Exhibit 5
The percentage of total costs covered by Transport Scotland subsidies, by contract year
The percentage of subsidy has decreased on the NIFS contract and increased on the other two.
100
80
Percentage
60
40
20
0
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Clyde and Hebrides
Ferry Services
Northern Isles
Ferry Services
Gourock –
Dunoon
Notes:
1. Data is by contract year, at 2016/17 prices. Percentages are based on the gross subsidy paid to operators
2. Annual Outcome Statements are only available for Gourock-Dunoon from contract year 2011-12.
Source: Audit Scotland, using Operators' Annual Outcome Statements, based on individual contract years, which are as follows:
CHFS – 1 October to 30 September; NIFS and Gourock-Dunoon – 1 July to 30 June
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Part 2. Spending and performance | 19
20.
Ferry operators submit an Annual Outcome Statement (AOS) to Transport
Scotland at the end of their contract year. These set out the operator’s running
costs (which include staff, vessel leases, harbour access charges and fuel), its
income and the amount of subsidy required. Our analysis of each operator’s
AOS identifies a number of reasons for changes to the amount of annual subsidy
which Transport Scotland has paid since 2007:
•
CHFS – annual subsidies have increased, largely due to the additional costs
of extra sailings and new vessels, and as a result of the introduction of
Road Equivalent Tariff
(RET, page 24).
•
NIFS – annual subsidies have decreased since 2012 as a result of Serco
NorthLink generating additional revenue and reducing its operating costs,
for example as a result of fewer sailings.
•
Gourock-Dunoon – annual subsidies have increased, largely as a result
of additional costs arising from leasing a third vessel in winter months to
improve service reliability.
Case Studies 2, 3 and 4 (pages 20 to 22),
set out more details of our analysis.
All data is presented in real terms at 2016/17 prices.
Transport Scotland is making financial contributions aimed at reducing the
CalMac Pension Scheme deficit
21.
Staff working for CalMac, Argyll Ferries and CMAL are members of the
CalMac final salary pension scheme. The pension fund has been in deficit for
a number of years and CMAL has paid £0.7 million a year into the fund since
2007 to try and reduce this. Following a fund valuation in 2012, which showed a
deficit of £32 million, Scottish ministers decided that Transport Scotland should
also contribute to help reduce the deficit. The agreed contribution was £3 million
a year until 2024. This is in addition to the subsidies it pays to CalMac and
Argyll Ferries to provide ferry services, some of which covers their employer
contributions into the pension fund.
22.
The most recent pension scheme valuation, in 2015, found that the deficit had
increased to £41.9 million. This was largely due to pension liabilities increasing, for
example as a result of people living longer and low interest rates. To help reduce
the deficit, Scottish ministers decided that between April 2015 and April 2024:
•
Transport Scotland should increase its contribution to £3.4 million a year
•
CMAL should continue to contribute £0.7 million a year.
23.
In 2007, the pension fund trustees also increased the employer’s pension
contribution rate, from 14.5 per cent to 24.2 per cent of employees’ salaries.
In 2016, this increased again, to 30.8 per cent. This is now one of the highest
employer contribution rates for a public pension scheme in Scotland. The
increased employer’s contribution, for CalMac and Argyll Ferries staff, is funded
by Transport Scotland through increased subsidies. The 2016 increase will
cost Transport Scotland, in relation to CalMac employees only, an additional
£22.5 million over the eight years of the new CHFS contract.
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24.
The next valuation, in 2018, will show whether the additional contributions
have made a positive difference to the deficit. If the deficit has not decreased,
Transport Scotland and CMAL will have to consider the sustainability of paying
increased pension contributions. They may have to consider whether other steps,
such as amending scheme terms and conditions, are more affordable in the
context of Transport Scotland’s overall ferries budget.
Case study 2
Changes to Gourock-Dunoon gross subsidies between
June 2011 and June 2016
Information on the breakdown of spending is only available from
June 2011 when Argyll Ferries won the contract for the service. Between
June 2011 and June 2016 (five contract years), the annual amount of
subsidy paid to Argyll Ferries increased by 76 per cent, from £1.9 million
to £3.3 million. The level of subsidy, as a proportion of operating costs,
increased from 72 per cent to 83 per cent over the same period. This is
due to a 52 per cent increase in the total operating costs and an eight per
cent reduction in income. Specific operating costs increased as follows:
•
Vessel leasing costs increased by 156 per cent.
•
Harbour charges increased by 66 per cent.
•
Staff costs increased by 51 per cent.
These increases are largely due to a contract variation requiring Argyll
Ferries to lease a third vessel in the winter months to help improve
service reliability. This vessel has a much higher passenger capacity than
required and an unused car deck. Using a third vessel requires additional
crew and also results in increased harbour charges.
Other costs increased by 74 per cent. This is largely due to the cost of
a replacement bus service used to transfer passengers from cancelled
Argyll Ferries services to Western Ferries services (which are able to
operate better in bad weather).
The above increases have been partially offset by a 58 per cent reduction
in fuel costs.
Notes:
1. Initial start-up costs have been excluded from the total expenditure for contract year one.
2. Figures for contract year one cover the period June 2011 to June 2012, contract years two to
five, cover July to June each year.
Source: Audit Scotland, using Argyll Ferries' Annual Outcome Statements, June 2012 to June
2016, provided by Transport Scotland
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Part 2. Spending and performance | 21
Case study 3
Changes to CHFS gross subsidies between October 2007
and September 2016
Between October 2007 and September 2016 (nine contract years) the
annual amount of subsidy paid to CalMac increased by 153 per cent,
from £57.0 million to £144.2 million. The percentage of operating costs
covered by subsidy increased from 47 per cent to 71 per cent over the
same period.
The level of subsidy increased because the total cost of running the
contract increased by 67 per cent while CalMac's revenue decreased by
eight per cent:
•
CalMac's revenue decreased due to the introduction of Road
Equivalent Tariff
(RET, page 24).
RET has decreased CalMac's
income from ticket sales, requiring more subsidy from Transport
Scotland.
•
CalMac's running costs have increased due to an increase in
service provision. Since 2007, two routes have been added to the
network and the annual number of sailings has increased by
3.5 per cent (from 130,968 to 135,542). Within this, the annual
number of sailings on:
–
routes that use large vessels increased by 29 per cent (from
15,472 to 19,961)
–
routes that use small vessels increased slightly, by 0.1 per cent
(from 115,496 to 115,581).
•
Additional services require longer working hours and more crew,
vessels, fuel and harbour access. This has contributed to higher
annual costs as follows:
–
Staff costs increased by 91 per cent.
–
Harbour charges increased by 163 per cent. This is largely
due to CMAL realigning harbour and vessel leasing charges in
October 2013. CMAL increased harbour charges so that they
more closely reflect the actual cost of harbour operations.
–
Vessel leasing costs increased by 29 per cent. This is due to five
new vessels being added to the fleet.
–
Vessel maintenance costs increased by 136 per cent, due to a
larger and increasingly older fleet.
These cost increases have been partially offset by a 30 per cent decrease
in fuel costs. Although more fuel was used due to additional sailings, the
price of fuel has decreased.
Source: Audit Scotland, using CalMac's Annual Outcome Statements, September 2008 to
September 2016, provided by Transport Scotland
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Case study 4
Changes to NIFS gross subsidies between July 2007
and June 2016
There have been two operators of the NIFS contract between 2007
and 2016. NorthLink Ferries (a subsidiary of David MacBrayne Ltd) ran
the service until the end of its contract in June 2012. Since then, Serco
NorthLink has operated the contract. There are different trends in the
amount and level of subsidy provided for the different contracts:
•
Between July 2007 and June 2012 (five contract years, which was
contract year two (CY2) to contract year six (CY6) of that contract),
the amount of annual subsidy increased by 52 per cent, from
£34.0 million to £51.5 million. The level of subsidy increased from
59 per cent to 67 per cent of operating costs.
•
Between July 2012 and June 2016 (four contract years), the annual
amount of subsidy has decreased by 36 per cent, from
£51.5 million to £33.2 million. The level of subsidy has decreased
from 67 per cent to 51 per cent of operating costs.
NorthLink Ferries' annual operating costs increased by 33 per cent,
between CY2 and CY6 of the previous contract. This was mainly due to
the cost of fuel, which almost doubled, from £10.0 million to £19.1 million
a year. Staff costs also increased by 28 per cent.
NorthLink Ferries' revenue increased in this period, but only by
17 per cent, which resulted in an increase to the amount and
percentage of subsidy required.
Since the start of the new NIFS contract in July 2012, annual running
costs have decreased by 15 per cent and revenue has increased by ten
per cent. This means that less subsidy is required. Serco NorthLink's
annual running costs have decreased due to:
•
a nine per cent reduction in the number of annual sailings due to a
reduction in the service between Scrabster and Stromness (from
six daily sailings to four)
•
a 29 per cent reduction in fuel costs
•
a 30 per cent reduction in staff costs, partly due to voluntary
redundancies and more efficient operational management.
Despite the reduction in the number of sailings, harbour charges have
increased by 11 per cent, between 2012 and 2016. This is largely due to a
33 per cent increase in harbour charges by Aberdeen Harbour Board to
pay for development work.
Source: Audit Scotland, using NorthLink Ferries' and Serco NorthLink's Annual Outcome
Statements, June 2008 to June 2016, provided by Transport Scotland. Trends in harbour
charges were provided by Serco NorthLink
Transport Scotland has spent £197.5 million on ferry assets since 2007/08
25.
Transport Scotland’s expenditure on ferry assets includes:
•
loans provided to CMAL to procure new vessels
•
grants paid to CMAL and other harbour owners for harbour developments.
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Part 2. Spending and performance | 23
26.
Its annual capital expenditure has varied in the last ten years, between
£5.7 million in 2009/10 and £45.6 million in 2015/16
(Exhibit 3, page 17).
Between 2007/08 and 2016/17, Transport Scotland spent a total of
£197.5 million on ferry assets.
27.
In this period, Transport Scotland spent a total of £123 million on vessel
loans and it has received £29.7 million in loan repayments. About half
(£60 million) of its vessel loans has been on four new-build vessels which
have been added to the CHFS fleet since 2011. Transport Scotland also spent
£34 million in 2015/16 towards the £106 million cost of two vessels, which are
currently being built and are expected to enter service in late 2018.
28.
In 2012, Lloyds Bank financed the £42 million cost of the fifth new-build
vessel that has been added to the CHFS network since 2011. Transport Scotland
did not have sufficient capital budget available at that time, and is therefore paying
for the vessel through an eight-year operating lease. Transport Scotland pays the
cost of the lease through a subsidy payment to CalMac. The cost to Transport
Scotland over the long term is higher than the conventional method of providing
loans to CMAL. In addition, CMAL will not own the vessel at the end of the lease
and will have to either negotiate a new lease in 2022 or consider other options.
Transport Scotland pays for harbour upgrades directly through harbour
grants and indirectly through harbour dues
29.
Transport Scotland has spent £86 million on harbour grants since 2007/08.
Almost half of this (£42 million) was spent on CMAL-owned harbours.
Improvements include the £17.8 million development of Brodick harbour and the
£4.5 million upgrade of Largs pier. Transport Scotland also spent £44 million
improving harbours that are not owned by CMAL. For example, in 2014 Transport
Scotland contributed £8.8 million to the £12 million cost to upgrade the harbour in
Stornoway, which is owned by Stornoway Port Authority.
30.
Transport Scotland’s harbour grants only part-fund the cost of harbour
improvements. For example, the harbour grants provided to CMAL are expected
to cover up to 75 per cent of costs, with CMAL funding the remaining amount.
CMAL and other harbour owners are responsible for improvement works and
raise funding for this through a harbour access charge, known as a harbour due.
This is a charge made to ferry operators, and other users such as fishing boats,
for harbour access. Harbour owners set their own dues which, for subsidised
ferry services, are largely funded by Transport Scotland. If a harbour owner
increases the dues paid by the ferry operator, Transport Scotland pays for this by
increasing the amount of subsidy paid to the operator.
31.
Transport Scotland spent a total of £200 million on harbour dues between
contract years 2007-08 and 2015-16. Of this, £155 million (78 per cent) was on
harbours not owned by CMAL. Transport Scotland does not know how much
of the harbour dues paid to non-CMAL harbour owners have been used for
improvement works. In addition, where Transport Scotland has funded the capital
cost of upgrading non-CMAL harbours, it has continued to pay the same or higher
levels of harbour dues (which are meant to pay for the upgrade costs). For example,
Ullapool harbour dues have increased by 78 per cent since September 2014 despite
Transport Scotland paying the majority of the upgrade costs.
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Transport Scotland has spent £40 million on the Road Equivalent
Tariff since 2008/09
32.
In 2007, the Scottish Government committed to lowering the cost of ferry
travel to reduce the economic disadvantages experienced by remote island
communities. It introduced the
Road Equivalent Tariff (RET)
, which is a simple
and transparent fares structure based on the equivalent cost of travelling by road.
RET was introduced on a pilot basis to help the Scottish Government determine
the impact of lower ferry fares on local communities and economies. After the pilot
exercise, the Scottish Government did not set clear objectives for the roll-out of RET,
including what benefits it expected to achieve or how these would be measured.
33.
RET applies to routes on the Clyde and Hebrides only. It does not apply to
the Northern Isles or the Gourock-Dunoon routes. Orkney and Shetland residents
(and their friends and family) are entitled to a 30 per cent discount on passenger
and non-commercial vehicle fares on Northern Isles services. The Scottish
Government has committed to lower fares, for all passengers, to the Northern
Isles from 2018
(page 44).
RET has lowered CHFS passenger fares by up
to 50 per cent and car fares by up to 65 per cent, compared to ‘summer single’
fares. RET was also initially applied to commercial vehicles but Scottish ministers
decided to remove this in 2012, following an evaluation which showed that the
costs outweighed the benefits.
3
34.
Transport Scotland has gradually rolled out RET since October 2008. It was
initially introduced as a pilot on routes to the Western Isles, Coll and Tiree and
extended to:
•
Islay, Colonsay and Gigha in October 2012
•
Arran and Campbeltown in October 2014
•
the remaining CHFS network in October 2015.
35.
Before its introduction in 2008, Transport Scotland investigated the potential
impact of RET.
4
It concluded that lower fares would increase demand for ferry
services and have an overall positive economic and social impact on islands. It
estimated that applying RET to all routes included in the initial pilot would require
additional annual subsidy of £7.6 million to compensate CalMac for lower ticket
income. At that time, it did not consider the cost of applying RET across the
full CHFS network or the costs associated with increased demand, such as
the need to operate additional sailings. However, as part of its evaluation of the
pilot in 2011, Transport Scotland estimated an additional annual subsidy of at
least £13 million would be required to implement RET across all CHFS routes,
excluding any associated additional costs.
5
Transport Scotland used the results of
the 2011 evaluation to inform the ministerial decisions on the further roll-out of
RET across the CHFS network.
The full cost implications of RET are unknown and the impact has been mixed
36.
Between 2008/09 and 2015/16, Transport Scotland spent about £40 million
on RET. This cost relates to the additional subsidy provided to CalMac to offset
lower fare income. The full cost of implementing RET is not known but will
include the associated costs of higher demand, including additional sailings, which
require extra crew and fuel, more harbour dues and increased vessel and harbour
maintenance. Transport Scotland estimates that the full introduction of RET across
the CHFS network cost between £14 million and £16 million in 2016/17. It does
RET
links ferry
fares to the cost
of travelling an
equivalent distance
on land. It is made
up of a fixed fare
plus a rate per mile
– based on the costs
associated with
travelling by car (for
example, insurance,
tax and fuel costs).
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Part 2. Spending and performance | 25
not estimate the cost of RET beyond the following financial year, nor has it made
any assessment of the long-term financial sustainability of the policy.
37.
RET has increased traffic on the CHFS network, in particular car journeys. For
example, the first two years of the RET pilot (on routes from the mainland to the
Western Isles, Coll and Tiree) saw increases of:
•
20 per cent in passenger numbers
•
31 per cent in car numbers
•
125 per cent in motorhome numbers.
This compares to a three per cent increase in passenger numbers, no change in
car numbers and a 28 per cent increase in motorhome numbers across the rest
of the CHFS network.
6
38.
In 2016, which was the first full year of RET across the whole CHFS network,
there was a nine per cent increase in passenger numbers and a 16 per cent
increase in car numbers compared to 2015. The largest increase, in absolute
terms, of passenger and car numbers between 2015 and 2016 was on the Oban
to Craignure route:
•
Passenger numbers increased by 16 per cent to 644,800.
•
Car numbers increased by 41 per cent to 162,300.
7
39.
Transport Scotland commissioned impact assessments on the three stages of
the RET roll-out which highlighted numerous benefits.
8
These include higher visitor
numbers and increased social, cultural and economic opportunities for islanders.
There have also been unintended consequences of RET. For example, islanders
told us that spaces were limited on some sailings, that traffic congestion was being
experienced on certain islands and road condition had declined. The RET fares
policy also means that CalMac is unable to adjust fares to help manage demand.
For example, it cannot increase fares on sailings with high demand for spaces to
encourage users to travel at a different time. Our
online supplement
sets out
the impact of RET from different communities’ perspectives.
40.
It is too early to assess the full impact of RET across the CHFS network. As the
Scottish Government did not set clear objectives or targets for RET, it will be difficult
for it to determine whether RET has been more, or less, successful than planned.
There has been little change in passenger numbers on subsidised
ferries, but car traffic has increased by about 17 per cent
Passenger numbers on subsidised ferries have increased by 0.3 per cent
41.
Between 2007 and 2016, total passenger numbers on ferry routes across
Scotland increased by one per cent, from 8.9 million to 9 million. Over this period,
passenger numbers on Transport Scotland’s subsidised routes increased by
0.3 per cent to 5.7 million. There have been different trends in Transport
Scotland’s passenger numbers during this period:
•
Between 2007 and 2012, the number of passengers decreased by
nine per cent, to 5.2 million.
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•
Since 2012, passenger numbers have increased by ten per cent, mainly
due to an eight per cent increase between 2015 and 2016.
42.
There has also been variation across the three contracts between 2007
and 2016:
•
CHFS passenger numbers increased by 6.9 per cent, from 4.7 million to
5.1 million. In the first seven months of 2017, 3.1 million passengers
travelled on CHFS routes.
•
NIFS passenger numbers decreased by 1.2 per cent from 307,700 to
304,000. However, in the most recent contract year (ending in June 2017),
passenger numbers increased by 1.7 per cent, to 304,500, compared to
the contract year ending in 2016.
•
Gourock-Dunoon passenger numbers decreased by 50 per cent,
from 607,200 to 303,400. In the first seven months of 2017, 171,300
passengers travelled on the route (2007 passenger numbers include foot
passengers and passengers who travelled with cars, while the 2016 and
2017 figures include foot passengers only).
43.
There are two routes in Scotland where a Transport Scotland subsidised
service operates in competition with a commercial operator:
•
Serco NorthLink’s Scrabster to Stromness service is similar to the route
operated by Pentland Ferries across the Pentland Firth.
•
Argyll Ferries operates an adjacent route to Western Ferries between
Gourock and Dunoon.
44.
Since 2007, passenger numbers on the commercially operated services
have increased, in contrast to passenger numbers on the subsidised services
(Exhibit 6, page 27).
Cowall Ferries/Argyll Ferries’ passenger numbers have
fallen by 50 per cent since 2007, partly due the removal of the vehicle service in
2011. Passengers who want to travel in their cars use the Western Ferries service
(Case study 1, page 10).
Passenger numbers on the Scrabster to Stromness
service have decreased by ten per cent since 2007. However, despite reducing
the number daily of sailings on the route (from six to four), Serco NorthLink has
increased passenger numbers by 20 per cent since 2013, through improved
marketing and special offers.
The number of cars travelling on CHFS routes has increased, but has fallen
on other subsidised routes
45.
The total number of cars travelling on ferry routes across Scotland has
increased by 11 per cent since 2007, from 2.5 million to 2.8 million in 2016.
There was an overall 16.8 per cent increase in car traffic on Transport Scotland
subsidised routes, to 1.4 million in 2016, but there was variation between
contracts. Between 2007 and 2016:
•
car numbers on the CHFS network increased by 27 per cent from
1.1 million to 1.4 million. This includes a 16 per cent increase between
2015 and 2016 alone. The increase is due to the reduced cost of car
travel following the introduction of RET. In the first seven months of 2017,
836,600 cars travelled on CHFS routes
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Part 2. Spending and performance | 27
•
car numbers on the NIFS network decreased by 7.5 per cent, from 69,700
to 64,500, mainly due to the reduction in the Scrabster-Stromness service
(paragraph 44).
However, car numbers on this route have increased by
22 per cent since 2013, due to improved marketing. In the most recent
contract year, ending in June 2017, car numbers increased by 8.1 per cent,
from 70,900 in 2015-16 to 76,700 in 2016-17
•
the number of cars on the Gourock-Dunoon route decreased from 80,100
in 2007 to zero in 2012 because the service is now passenger only.
Exhibit 6
Passenger numbers on the Pentland Firth and Gourock-Dunoon routes
Passenger numbers on publicly operated ferries have decreased while they have increased on commercially
operated services.
Pentland Firth route
180
Passenger numbers (thousand)
+91%
140
-10%
100
60
20
0
2007
2008
Northlink
2009
2010
2011
2012
2013
2014
2015
2016
Serco Northlink
Pentland Ferries
Gourock-Dunoon route
1,600
Passenger numbers (thousand)
+1%
1,200
800
400
-50%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
Cowal Ferries
Argyll Ferries
Western Ferries
Note: Cowal Ferries' passenger numbers between 2007 and 2011 include foot passengers and passengers who travelled with cars.
Source: 2016 Scottish Transport Statistics, Transport Scotland and Pentland Ferries
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The total amount of commercial vehicle traffic travelling across all ferry
routes is unknown
46.
Transport Scotland does not have a single, comprehensive dataset on
commercial vehicle
traffic. Its annual publication of Scottish Transport
Statistics includes information on the number of commercial vehicles, which
includes lorries and buses, travelling on CHFS and some non-subsidised routes.
But it does not include data on the number of commercial vehicles travelling
on NIFS routes. Between 2007 and 2016, the number of commercial vehicles
travelling across CHFS routes decreased by 22 per cent, to 89,500 vehicles.
In contrast, the number travelling on non-Transport Scotland subsidised routes
increased by 16 per cent, to 81,900 vehicles.
47.
CalMac and Serco NorthLink have datasets on commercial vehicle traffic
for their own purposes. This is reported to Transport Scotland’s ferry contract
management team on a monthly basis, but is not included in the Scottish
Transport Statistics dataset. Both CalMac and Serco NorthLink measure
commercial vehicle traffic by the length of the vehicle, in lane metres, and their
data excludes buses. In 2016, 1.6 million lane metres of commercial vehicle
traffic travelled on CHFS and NIFS routes, which is a 13 per cent increase since
2007. Most of the 2016 commercial vehicle traffic travelled on the CHFS network
(1.1 million lane metres, an increase of 4.3 per cent since 2007). The Ullapool-
Stornoway route accounted for about a quarter of all CHFS commercial vehicle
traffic and the Kennacraig-Islay route accounted for 19 per cent. There is no
breakdown available on the type, or value, of freight being carried on the CHFS
routes. This information is currently unavailable as hauliers are not required to
report this information to CalMac or Transport Scotland. It is also complicated by
the fact that commercial vehicles often carry a mix of different freight.
48.
Commercial vehicle traffic on the NIFS network increased by 44 per cent
between 2007 and 2016, to 464,000 lane metres. Serco NorthLink records the
amount and type of freight imported to and exported from the islands.
For example, in 2016 the largest export from the Northern Isles was seafood
(54,000 lane metres) and almost 50,000 tonnes of salmon was exported.
49.
Working with hauliers, Transport Scotland and CalMac could develop better
information on commercial vehicle traffic travelling on the CHFS routes, which
includes an estimate of the type and value of freight being transported. This
would help Transport Scotland demonstrate the contribution that ferry services
make to Scotland’s economy.
Commercial
vehicles
(CVs)
on the CHFS
network have been
reclassified with the
roll-out of RET:
• From – vehicles
over five metres
• To – vehicles over
six metres.
This means that
vehicles between
five and six metres
are now classed as
cars rather than CVs.
This has contributed
to an increase in
car numbers and
a decrease in CV
numbers.
It means that
accurate trend
information is not
available.
Numerous forums exist for Transport Scotland and operators to
communicate with ferry users
50.
Ferries are essential to the sustainability of many island communities. It is
important therefore that these communities are involved in, and are kept aware
of, decisions that affect their ferry services. A number of forums are in place at
an operational and strategic level for Transport Scotland and ferry operators to
communicate with ferry users, communities and other stakeholders, such as
councils. Each ferry contract states that operators must take part in:
•
consultation meetings with relevant councils and Regional Transport
Partnerships (RTPs)
•
‘local community liaison’ with ferry users and the wider public.
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51.
Arrangements for consulting and involving local communities vary across
Scotland. For example, on the CHFS network, 13 ferry committees (or
equivalents) are in place. These are generally open to all members of the public
and they usually discuss issues on a specific community or route basis. On a
more strategic level, there are four Ferry User Groups (FUGs) covering Argyll,
Clyde, Hebrides, and Skye and Lochaber. HITRANS (the RTP for the Highlands
and Islands) administer the FUGs, which are a forum for Transport Scotland,
CMAL and CalMac to update members and receive feedback on ferry operations.
Membership is by invitation only and FUGs typically comprise local councillors
and representatives from local businesses and other relevant partners.
52.
Different arrangements are in place on the NIFS network. There are currently
no specific ferry forums in Orkney, although Orkney Islands Council runs a
Transport and Travel Forum for interested people to discuss all transport issues
affecting the island, including air, sea and road. In Shetland, Transport Scotland
and Serco NorthLink attend two forums on a quarterly basis. The Shetland
External Transport Forum is administered by ZetTrans, the RTP for Shetland, and
the Stewart Building Transport Group represents the seafood industry. These
appear to work well and forum members appreciate the information that Serco
NorthLink provides on the ferry service.
There is scope to streamline and strengthen arrangements for consulting
and involving communities
53.
Current community engagement arrangements are time-consuming
and costly. All parties involved agree that, with the exception of Shetland
arrangements, improvements could be made. For example:
•
ferry committees do not have a specific purpose and not all communities
have one
•
Transport Scotland, CalMac, CMAL, HITRANS and FUG members told us
that FUGs are not fit for purpose in their current state. They do not have a
specific remit and there is no requirement for them to be consulted on any
policy or operational decisions, including timetables
•
we were also told that arrangements in Orkney are not effective and could
be improved
•
individual forums are often established on an ad-hoc basis to discuss
specific ferry issues.
54.
To help improve customer engagement, CalMac has appointed a Director
of Community and Stakeholder Engagement. It has also set up a Communities
Board to be the ‘voice of communities on strategic issues’. It will comprise
12 community representatives and an independent chair. In July 2017, CalMac
invited residents from rural communities across the Clyde and Hebrides to apply
for these positions and the chair was appointed in September 2017. We heard
mixed feedback from communities on whether the Communities Board will be
effective. HITRANS has also suggested how user consultation might be improved
over the duration of the new CHFS contract. It presented a number of proposals
to FUG members in April 2017, which included how and when ferry committees
and FUGS might be consulted in future. HITRANS is working with CalMac to
implement the proposals.
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Users are generally happy with ferry services but frustrations exist
55.
Operators gather user feedback from surveys carried out online, on board
and by email. These cover various aspects of the customer experience including
the use of online and telephone booking systems, the ability to book specific
sailings which they want to travel on, ticketing and on-board facilities. Results
are generally positive. CalMac’s most recent post-journey customer satisfaction
survey (December 2015 – April 2017) showed that 92 per cent of customers
were fairly or very satisfied with the service provided. In a separate on-board
survey run by Serco NorthLink, between January and June 2017, 97 per cent of
customers rated their overall experience as good or excellent.
56.
We spoke to a small sample of ferry users across a number of communities
which rely on ferry services (see our
online supplement
). While our discussions
were specific to the individual communities, some common themes emerged:
•
CHFS: users were generally happy about the level and frequency of service
and were positive about new vessels being added to the fleet. However,
many reported that the choice of vessels used on some routes was
confusing and could be better communicated.
•
NIFS: users were very positive about the service and in particular the level of
engagement and information provided by Serco NorthLink. The main concern
that users expressed were the ticket prices, which are set by Transport
Scotland and are high compared to the CHFS network
(page 50).
9
The
availability of cabins during the summer months was also a concern.
•
Gourock-Dunoon: users were unhappy with Argyll Ferries’ decision in 2011
to bid for a passenger-only service. In their opinion, the two main vessels
used on the route are often not suitable for the weather conditions, and
this has led to an increase in weather-related cancellations. Users were also
unhappy, for a variety of reasons, with the tendering exercise for the new
contract, which has currently been paused.
57.
The operation of ferries is complicated. The roles and responsibilities of Transport
Scotland, CMAL and the operators are not well understood by people who are not
directly involved in ferry operations. Ferry users told us that it can be unclear who is
responsible or accountable for individual decisions. This causes frustration as some
users feel that they are not listened to. In addition, if users are dissatisfied with the
response to a complaint, they are unsure how they can take it further.
Most ferry services operate on time
58.
As part of its contract management arrangements, Transport Scotland has a
series of performance measures to assess its ferry operators. It reports two of
these to its senior management team, namely:
•
reliability (the percentage of scheduled sailings that take place)
•
punctuality (the percentage of sailings that are on time).
59.
Each ferry contract sets out the financial penalties that will apply for failures
against the measures. Performance deductions are not made against reliability
and punctuality measures when a sailing is cancelled or delayed due to a ‘relief
event’. Relief events include adverse weather, tidal conditions, traffic problems
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Part 2. Spending and performance | 31
and other issues of safety. Other reasons for cancellations, or the late running of
services, include vessel breakdowns or crew shortages.
60.
The operators of the three contracts have performed very well since 2007.
Both the CHFS and NIFS operators have, with a few exceptions, operated over
99 per cent of scheduled sailings each year with over 99 per cent of these
running on time, after relief events have been accounted for
(Exhibit 7).
Reliability on the Gourock-Dunoon route is lower, with 97.6 per cent of sailings
operating in 2016, after relief events have been accounted for. This is mainly due
to mechanical problems with the vessels. Argyll Ferries operates a replacement
bus service to transfer passengers from its cancelled services to Western Ferries,
which enables users to complete their journeys.
Exhibit 7
Reliability and punctuality of sailings, by contract, in 2016
A higher percentage of sailings are cancelled on the Gourock-Dunoon route than on CHFS and NIFS routes.
3.8
%
Reliability
(% that operated)
0.2
%
2.5
%
0.1
%
3.5
%
2.4
%
96
%
1.6
%
8.8
%
97.4
%
94.1
%
0.3
%
0.6
%
0.1
%
Punctuality
(% on time)
98.1
%
% operated/on time
90.6
%
% cancelled/delayed
due to relief events
99.9
%
% cancelled/delayed
for other reasons
Note: Operators of the Gourock-Dunoon service are not required to report the number of punctuality failures split by relief events and
other reasons.
Source: Audit Scotland, using data returns from CalMac, Serco NorthLink and Argyll Ferries
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Part 3
Procurement
Key messages
1
EU rules and guidelines on ferry tendering have led to Transport
Scotland operating three main ferry contracts with different timescales.
As a result, it previously treated the procurement of each ferry contract
as an individual project rather than a programme of work. It is now
developing a more strategic approach which should help improve
procurement planning, the use of resources and knowledge transfer.
There were weaknesses in how Transport Scotland managed the
recent CHFS procurement project, although the appointment of key
project staff introduced improvements. The chosen procurement
method was new and the two bidders (CalMac and Serco) were not
clear on what was expected of them. The bidders submitted over
800 queries during the tender process and there were delays in
providing them with important information.
Transport Scotland estimated that the new CHFS contract would
cost £996 million, based on the cost of continuing the old contract
on the same terms. Transport Scotland received one compliant
bid, from CalMac, which was £128 million lower than Transport
Scotland’s estimate. Although CalMac’s bid met the minimum quality
requirements, Transport Scotland was not required to assess the
350 commitments included in CalMac’s bid which makes it difficult for
it to demonstrate the added value of the new contract.
Transport Scotland awarded the new CHFS contract (CHFS2) to
CalMac at a cost of about £868 million over eight years. Transport
Scotland updated the contract requirements before the start date in
October 2016 to reflect planned changes, which included updating the
timetables. The required amendments have increased the contract cost
to £975 million.
Transport Scotland has restructured and increased the size of its
ferry contract management team to manage the additional workload
associated with the new CHFS contract. But the team is still small
compared to the significant amount of work required. The contract
management team was not fully involved in the CHFS2 procurement
exercise. This meant that it did not have sufficient time to understand
the contract management requirements prior to the contract starting.
2
3
4
the new
CHFS
contract
started on
time despite
delays and
weaknesses
in the
procurement
process
5
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Part 3. Procurement | 33
Transport Scotland has not previously taken a strategic approach
to procuring ferry services
61.
As highlighted in
Part 1,
EU rules and guidelines on ferry tendering have
resulted in Transport Scotland operating three main ferry contracts with different
timescales. This meant that these ferry procurement exercises were carried out
by different people in Transport Scotland and were treated as individual projects
rather than a programme of work.
62.
Transport Scotland’s procurement strategy for the 2016-24 CHFS contract
(CHFS2) set out a number of learning points from previous ferry procurement
exercises, including:
•
the need for good governance structures, which includes information
provided to project boards, roles and responsibilities, and decision-making
procedures
•
sufficient time must be built in to every aspect of the procurement exercise
•
the importance of making information available to bidders in good time.
However, our review of the CHFS2 procurement exercise found that these
lessons had not been applied.
63.
Transport Scotland carried out a post-project review of the CHFS2 project in
early 2017. It did not request feedback from the bidders as part of the review. Its
review report identified a number of areas for improvement but it did not set out
how these lessons would be applied to future procurements.
64.
Transport Scotland recognises the advantages of a strategic approach
to procurement. This includes better use of resources, improved planning,
knowledge transfer, more coordinated use of external support (for example,
financial advice), and the opportunity to create standard processes. Transport
Scotland has now developed a more strategic approach for the next round of
renewing ferry services contracts, which it expects will improve procurement
practices in future. For example, the CHFS2 project sponsor and project manager
will also oversee the next Gourock-Dunoon and NIFS tendering exercises.
There were weaknesses in the management and governance of
the CHFS2 project
65.
Transport Scotland has guidance in place which sets out the governance
arrangements and the appropriate steps that should be followed for all investment
decisions.
10
All ferry procurements are required to comply with the guidance and
must be signed off at key stages by Transport Scotland’s Investment Decision
Making (IDM) Board due to their ‘novel, contentious or otherwise politically
sensitive’ nature. The CHFS2 project did not fully comply with the requirements
of the IDM guidance
(Exhibit 8, page 34).
66.
Preparation for the CHFS2 project began in June 2014. In October 2014,
Transport Scotland appointed the project sponsor and established a project
steering group (PSG) to oversee the project. The PSG was responsible for
reviewing the work of the CHFS2 project team and for all aspects of delivering the
project, including developing the business case, managing risk and reviewing the
The CHFS2
project
was a joint
procurement exercise
for a single bidder to
operate two separate
contracts:
• The provision of
ferry services in
the Clyde and
Hebrides.
• The operation of
CMAL's harbours.
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34 |
project. The PSG had clear terms of reference. The head of Transport Scotland’s
ferries unit chaired the PSG and it comprised appropriate senior staff from relevant
areas of Transport Scotland’s business, such as procurement, policy and finance.
Exhibit 8
CHFS2 compliance with Transport Scotland's Investment Decision Making guidance
The CHFS2 project did not fully comply with guidance.
IDM guidance requirement
Sign off by the IDM Board
The IDM Board must be
presented with a completed
Strategic, Outline, or Full Business
Case at key decision points
Appropriate governance
procedures are in place
Gateway reviews completed
Compliance
Full –
However, the CHFS Project Steering Group was not aware
who had authority to sign off the project
Partial –
The IDM Board was not presented with the Outline
Business Case or the Full Business Case when making the
decision to 'Proceed to Procurement' and 'Proceed to Contract'
respectively. A Strategic Business Case was not prepared
Partial –
Project sponsor and other important team members
were not in place at the outset
Partial –
Not all reviews were undertaken
Full project costs reported
Equalities Impact Assessment
carried out
Strategic Environmental
Assessment carried out
Benefits realisation plan in place
Partial –
Whole-life costs were not reported
Full
Full
Partial –
This was not developed until August 2016
Partial –
An appropriate risk register was not developed until
December 2015
Risk register must be in place
Source: Audit Scotland
67.
CHFS2 was a high-value, complicated project with a high level of public,
political and media interest. It was therefore important that Transport Scotland
had effective arrangements in place to manage it. Although the PSG received
regular updates from the project team and provided challenge on progress, there
were a number of weaknesses in governance and management arrangements:
•
Roles and responsibilities and decision-making processes were not fully
established at the outset of the project.
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Part 3. Procurement | 35
•
There were delays in appointing important members of the project team.
For example, the project manager was not appointed until May 2015 and
project support was appointed later, in October 2015. The appointment of
financial consultants to support the team did not take place until June 2015.
•
No one in the project team had a procurement qualification, although some
staff in the project team had extensive experience of procurement projects
and all members received procurement training. There was also no one in
the project team with a ferries or shipping background.
•
A detailed project plan was not in place at the outset, just a list of project
milestones.
•
Although risks were reported to the PSG from the outset, they were not
well documented until after the project manager was appointed.
68.
Using business cases is vital for scrutinising projects effectively and ensuring
the right information is available at the right time to support decision-making.
Transport Scotland’s IDM guidance states that business cases must be presented
to the IDM Board at key decision points, to provide a clear justification for
investment and demonstrate value for money and the affordability of projects.
69.
The CHFS2 Outline Business Case (OBC) and Full Business Case (FBC) were
not presented to the IDM Board when important decisions were being made. For
example, the OBC should have been presented when the IDM Board made the
decision to ‘Proceed to Procurement’ but it was not developed until
November 2015, seven months after the pre-qualification questionnaire was
published. Our 2013 report on transport infrastructure projects similarly found
that Transport Scotland did not routinely develop and update business cases.
11
70.
The project manager prepared the OBC and FBC after their appointment
and these followed the HM Treasury’s ‘five case’ model. That is, the OBC and
FBC set out the strategic, economic, commercial, financial and management
case for the project.
12
The project manager made a number of other project
improvements, including:
•
developing a detailed project plan
•
revising and shortening the risk register
•
preparing whole-life project costs
•
creating clearer, more useful reports for the PSG.
71.
Transport’s Scotland’s IDM guidance requires projects that are high value
or risky to be subject to the Scottish Government’s gateway review process.
Gateway reviews should be carried out by an independent team ahead of key
decision points to provide assurance on the progress made to date. However,
some of these reviews were not carried out for the CHFS2 project, partly due to
the absence of business cases
(Exhibit 9, page 36).
It is therefore not clear
what independent assurances were being provided to the PSG or the IDM Board
that the project was being delivered well and on time.
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Exhibit 9
CHFS2 gateway reviews
Some gateway reviews could not be completed due to lack of project documentation.
Stage/
Purpose
Date
completed
Did not take place
Issue
Transport Scotland prepared a strategic
outline case for the project, which
was discussed by the PSG. It did not
consider it necessary to complete a
formal Strategic Business Case as
there was no doubt that the project
would go ahead.
The assumptions in the OBC were not
independently assessed as the OBC
for the project was not developed until
November 2015.
Health check
reviews generally use
the same principles and processes as
gateway reviews. They are less formal
and there is normally more flexibility on
the remit and scope of the review and
the subsequent report.
1
Gateway review 1
Business justification
This review assesses the justification of
the project. It should take place after the
Strategic Business Case has been prepared
and before project proposals are presented
to the Project Board.
2
Gateway review 2
Delivery strategy
February 2015
A supplementary
gateway 2
health check
was carried out in
May 2015, before the
Invitation to Tender
(ITT) was issued.
This review investigates the assumptions
in the Outline Business Case (OBC) to
assess the project's viability, its potential for
success, the value for money to be achieved,
and the proposed approach. It should take
place before invitations to tender are issued.
3
Gateway review 3
Investment decision
Did not take place
A health check was
carried out instead in
April 2016.
This review assesses the Full Business Case
(FBC) to confirm that the recommended
investment decision is appropriate. It should
take place before the contract is awarded.
The review could not take place
because the bids were still being
evaluated. This meant that mandatory
documents, including the FBC, were
not available for the gateway review
team to assess.
The FBC was not developed until May
2016 and was finalised in August 2016.
4
Gateway review 4
Readiness for service
September 2016
This review assesses whether an
organisation is ready to implement the
service and whether appropriate contract
management arrangements are in place.
It should take place prior to the service
initiation date.
Delays in the project meant that this
review could not take place in August
2016 as planned.
5
Gateway review 5
Operations review and benefits
realisation
Not yet taken place
N/A
These reviews check that the project is on
track to deliver its intended benefits. They
should take place several times during
service operation.
Source: Audit Scotland
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Part 3. Procurement | 37
The CHFS2 procurement exercise was complex and the two
bidders were not clear on what was expected of them
The chosen procurement method for CHFS2 was new and there were no
guidelines in place on how it should be used
72.
The CHFS2 procurement strategy considered the suitability of three different
procurement routes for the project:
•
Competitive Dialogue and Competitive Procedure with Negotiation (CPwN),
both of which involve discussion with bidders on their proposals.
•
The Restricted Procedure, which does not involve any discussion with
bidders.
73.
Transport Scotland assessed each option against a range of criteria, including
the likelihood of achieving compliant bids, bidders’ access to the process,
timescales and costs. The Restricted Procedure was Transport Scotland’s least
favoured option because it did not allow it to enter into any discussion with
bidders. This created a risk of bidders submitting bids that did not comply with
Transport Scotland’s minimum requirements. Transport Scotland considered the
CPwN route to be the best option because it scored highly against most of its
criteria. It was, however, the lengthiest of the three routes and Transport Scotland
estimated it would take about four months longer than the Restricted Procedure.
74.
The CPwN route enables contracting bodies to negotiate with bidders over
the quality of service to be provided. Once these negotiations are complete,
bidders submit a final bid, with a price, to provide a set standard of service, which
is non-negotiable. For the CHFS2 procurement exercise, Transport Scotland set
minimum contract requirements and award criteria which were not negotiable.
It negotiated with the two bidders (CalMac and Serco) on aspects of their initial
and interim bids which were deemed ‘weak’ or ‘unacceptable’, with the aim
of improving the final bids received. Transport Scotland selected the CPwN
procedure to minimise the risk of receiving non-compliant bids. However, it
received only one bid (from CalMac) which it considered to be compliant with its
minimum requirements. It also received a bid from Serco, but it considered this to
be non-compliant
(paragraph 82).
75.
CPwN is a complex procurement route and, at the time, there were no
guidelines in place on how it should be used. It was introduced by the
2014 European Procurement Directives. Specific details on how and when it
should be used were not set out in the Public Contracts (Scotland) Regulations
until December 2015, eight months after pre-qualification exercise for the
procurement started.
13
The Regulations state that the CPwN route should be
used when services require ‘innovative solutions’ or when the specification
cannot be fully established by the public body. Transport Scotland’s CHFS2
procurement strategy stated that the specification was heavily constrained by
the Ferries Plan and was more prescriptive than NIFS, as the routes, timetables,
fares and use of vessels are all determined by Scottish ministers. The strategy
also lists a few areas where bidders could be innovative, including customer
service, technology and catering.
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Transport Scotland received over 800 queries from bidders during the
tender process
76.
The specification for the CHFS2 ferry contract was based on Transport
Scotland’s Ferries Plan. This sets out service proposals to meet the needs of
communities, based on extensive analysis and consultation carried out in 2009
and 2010. Transport Scotland did not consider it necessary to carry out a separate
exercise to update the CHFS2 specification, due to the amount of work that had
been carried out to develop the Ferries Plan.
77.
Transport Scotland issued three versions of the
Invitation to Tender (ITT)
–
an initial, interim and final one – which covered both ferry and harbour operations.
Both bidders told us that, in their opinion, the ITTs were not clear and contained
a number of errors and omissions, which resulted in changes being made to the
documents. An Independent Procurement Reference Panel (IPRP) also provided
Transport Scotland with feedback on each of the ITTs. The Minister for Transport
and the Islands established the IPRP to ensure that the procurement was fair,
open and transparent. The IPRP reviewed the initial and interim ITTs, after they
were issued to the bidders, which resulted in changes being made. It may have
been more useful for the IPRP to review the initial and interim ITTs before they
were issued, as was the case with the final ITT. This may have resulted in a
clearer, more comprehensive ITT from the outset.
78.
Transport Scotland set up an online information room to provide bidders with
the information required to prepare bids. Transport Scotland acknowledges that
there were significant delays in providing important data, in particular information
on staff costs and vessel condition. Reasons for the delays include insufficient
staff within the team to deal with all the queries and not holding all the data that
bidders asked for (Transport Scotland therefore had to request this from CalMac
as the incumbent bidder). Transport Scotland also failed to provide a clear financial
baseline – bidders were provided with a range of financial information from
different periods and had to reconcile the data. These issues made it difficult for
bidders to make fully informed bids. Bidders told us that, in their opinion, there
was also a lack of clarity in the contract specification and on the level of detail that
they were expected to provide in their bids. This, along with the data issues, led
bidders to submit over 800 queries during the tender process (352 from CalMac
and 452 from Serco).
Although the new service began on time, delays in the tender process
increased bidders’ costs
79.
The weaknesses in project management, delays in providing data and external
factors, such as discussions with unions and strike action by CalMac crewing
staff, all contributed to delays in the procurement process. The most significant
was in issuing the ITTs
(Exhibit 10, page 39).
Transport Scotland delayed
the submission date for interim bids to allow bidders more time to prepare.
This subsequently reduced the time they were given to prepare their final bids.
Despite the delays, the new service began on time in October 2016.
80.
The CHFS2 procurement project took over two years to complete, from
June 2014 to September 2016. Transport Scotland’s project costs totalled
£1.1 million, which included £439,000 on consultancy support. Bidders told us
that their costs were increased due to delays during the project. Serco told us
that its costs also increased due to Transport Scotland providing insufficient data,
for example on asset costs, which created more work.
An invitation to
Tender (ITT)
is a
formal invitation to
bidders to make an
offer to run a public-
sector contract. It
sets out the public
body's requirements
for goods or services,
procurement
timescales, details
on how bids will
be evaluated and
contract terms and
conditions.
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Part 3. Procurement | 39
Exhibit 10
CHFS2 procurement delays
The final ITT was issued two months later than planned.
2015
Stage
Pre-Qualification
Questionnaire issued
Initial ITT issued
36
2016
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
17 Feb
10 Jun
31 Jul
37
21 Sept
23 Sept
2 Nov
Initial bid submission
29 Jul
Interim ITT issued
21
44
5 Jan
Interim bid submission
21 Oct
Final ITT issued
38
2 Dec
15 Feb
7 Mar
May
16
Final bid submission
27 Jan
Preferred bidder
announced
Contract award
May
Aug
1 Oct
Service commences
Planned date
Actual date
00
Time allowed to prepare bid (working days)
Note: Planned dates taken from Transport Scotland's estimated project timescales in January 2015. Project timescales prepared prior
to January 2015 were based on a Competitive Dialogue procedure and therefore cannot be directly compared to the actual dates.
Transport's Scotland initial timetable (dated October 2014) planned for the final tender to be submitted in December 2015 (actual date
was March 2016).
Source: Transport Scotland
The added value of the CHFS2 contract is unclear
Transport Scotland assessed that only one bid for the CHFS2 contract was
compliant
81.
Transport Scotland had a thorough process in place to evaluate the financial and
quality aspect of the CHFS2 bids. The initial and interim bids did not include bidders’
costs and were not scored. The final ITT required bidders to submit four packages
(covering their operational proposals, personnel, costs and certificates) for both the
ferry and harbour operations contracts. The ITT set out, in detail, how each package
was to be evaluated, including how individual elements were to be scored and
weighted, and what information bidders were required to include in their bids. Staff
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involved in the assessments were provided with guidance and training. Eight panels
were established to evaluate the final tenders after checking them for compliance
and completeness. The financial package was only to be evaluated after the others
had been checked for compliance against the minimum specification.
82.
Transport Scotland assessed Serco’s bid as non-compliant as it did not meet
the minimum contract requirements. In particular, Serco was not willing to accept
some of the risks specified in the contract. For example, it was not willing to
accept financial liabilities relating to maintaining assets because it considered it did
not have enough information on asset condition. In Transport Scotland’s opinion,
this made the bid non-compliant and it did not open the quality or financial aspect
of the bid. Transport Scotland had a process in place for bidders to suggest
amendments to the contract although it was not obliged to accept these. In
Serco’s opinion there was limited scope for negotiation and Transport Scotland
rejected its suggested contract amendments without any explanation. However,
Serco remained in the procurement process and submitted a final bid, with
proposed amendments to the contract, in the hope that Transport Scotland would
consider them.
Transport Scotland did not assess the 350 commitments included in
CalMac’s bid
83.
Ministers decided that the bids were to be evaluated using a price/quality
ratio of 65/35. The quality aspect of the tender required bidders to submit their
proposals on:
•
summer and winter timetables
•
managing customer demand
•
catering and retail services
•
vessel deployment and investment
•
marketing
•
customer care and accessibility.
84.
As Transport Scotland only received one compliant bid, from CalMac, it only
checked the quality aspect of the bid for compliance and completeness. It was
not required to formally evaluate and score the quality aspect of the single bid.
85.
CalMac’s bid included a total of 350 commitments, with milestones, across
the different quality categories in the ITT. Commitments included a combination
of specification requirements, as set out in the ITT, and additional offerings, such
as a new post of Director of Community and Stakeholder Engagement. Transport
Scotland did not analyse the 350 commitments to assess which of these were:
•
requested by Transport Scotland in the specification
•
a continuation of service offerings from the previous contract
•
new practices or additional offerings which were not in the specification.
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Part 3. Procurement | 41
Without analysing these 350 commitments, Transport Scotland cannot
demonstrate the additionality or added value that it expects the new contract
to provide. However, Transport Scotland expects to benefit from the
350 commitments as CalMac is contractually required to deliver them. It is
important that Transport Scotland monitors these commitments throughout the
duration of the contract to help demonstrate value for money.
86.
CalMac reports that its bid identified inefficiencies and opportunities to
enhance value for money over the duration of the new contract. It proposed that
it could make savings and stimulate additional revenue, thereby reducing the
amount of subsidy required, as follows:
•
It estimated that it could achieve savings of between five and 20 per
cent over the duration of the contract through better procurement and
management of spares, maintenance and fuel.
•
It anticipated that it could increase revenue through local marketing and
better demand management that would increase commercial traffic by
12 per cent and passenger and vehicle traffic by ten per cent.
14
Transport Scotland plans to monitor how CalMac is performing against these
proposals as part of its contract management arrangements.
Transport Scotland awarded the CHFS2 ferry contract at a cost
of £868 million; contract variations have increased costs to
£975 million
87.
Scottish ministers awarded CalMac the contract to run ferry services for eight
years, at a cost of £868 million. CMAL awarded a separate contract to CalMac, at
a cost of £32.5 million, to operate its harbours. Transport Scotland estimated the
cost of the ferry services contract to make comparisons with bidders’ estimates.
Its estimated cost was £996 million, based on the cost of continuing the previous
contract on the same basis (that is, the same timetables, fares and vessels).
CalMac’s winning bid for the ferry contract was £128 million lower than Transport
Scotland’s estimate.
88.
The £868 million cost of CalMac’s bid is based on the ITT specification. If
any changes are subsequently made to that specification, such as the need for
additional sailings, a contract variation is required. Although the specification was
up to date when the initial and interim ITTs were issued, it had to be updated
before the contract start date. For example, the specification was based on the
2014/15 timetable and RET had not yet been fully implemented.
89.
Since the contract was signed in August 2016, CalMac has had to recalculate
a number of its costs to take into account the expected changes. It has submitted
contract variations to reflect, for example, the planned timetable changes and
increased pension contributions imposed by the CalMac Pension Fund Trustees.
Transport Scotland’s ferries unit reviews the contract variation requests and
corresponding costs. It has approved some of the contract variations, which will
increase the cost of the contract over its duration by £107 million to £975 million.
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Arrangements for managing the three ferry contracts are
evolving and could be strengthened
90.
Transport Scotland’s ferries unit has a contract management team
which monitors the three main ferry contracts, plus the funding provided for
one commercially operated route (Tayvallich to Craighouse). Contract
management includes:
•
monitoring the performance of operators through analysing monthly
performance reports and meetings with operators
•
checking monthly grant claims
•
reviewing contract variations, which can be technical in nature
•
annual reconciliations of operators’ costs and subsidy payments.
91.
Transport Scotland introduced changes to the new CHFS ferry contract to
help control its costs. More financial risk has been transferred to the operator
(for example, in relation to income generation, certain staff costs and maintaining
asset condition). This means that if CalMac’s bid has underestimated certain
elements of its running costs or overestimated its revenue, Transport Scotland
will not increase its subsidy payments to reflect this. This differs from the
previous contract, which committed Transport Scotland to meeting the full net
cost of delivering services. The changes will require more thorough contract
management than was necessary during the previous contract.
92.
Transport Scotland identified early in the CHFS2 procurement exercise that
the new contract would require enhanced contract management due to the
degree of specialism required and the volume of work involved. CHFS2 contract
management arrangements:
•
have been recorded on Transport Scotland’s corporate risk register since
the start of the procurement process
•
were highlighted in the project’s gateway review process, with a
recommendation that appropriate resourcing should be put in place ahead
of services starting
•
were identified by internal audit as an area for further investigation in 2017.
93.
The ferries contract management team has been restructured and increased
by three posts to help manage the additional work the CHFS2 contract created.
The team now consists of five staff, with two dedicated to the CHFS2 contract.
It is too early to tell whether the new arrangements will allow for effectively
managing the contracts. The contract management team still appears small
compared to the amount of work involved.
94.
The ferries contract management team was not fully involved in the CHFS2
procurement exercise. This meant that the team did not have sufficient time
to understand the contract management requirements until the
contract
mobilisation
stage. This caused a delay in the team agreeing what
information it needed to effectively monitor the contract. For example, at the start
of the contract, the team did not know how it would monitor progress against
The
contract
mobilisation
stage is the period
between the contract
award date and the
start of the contract.
For CHFS2 the
mobilisation stage
ran from 22 August
to 30 September
2016.
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Part 3. Procurement | 43
CalMac’s 350 commitments. The contract management team would have been
better prepared to effectively manage the contract from the outset if it had been
made aware of the contract specifications at an earlier stage.
95.
Operators provide Transport Scotland with a range of detailed financial and
performance reports every month, quarter, six months and year (depending on
the contract). Despite key performance indicators being largely similar across the
three contracts, there is little consistency between the content and format of
reports. Although this is to be expected to a degree, it would be more efficient
if Transport Scotland requested common information from each operator in a
consistent format. This would allow it to make comparisons and identify trends,
which it is currently difficult to do.
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44 |
Part 4
Long-term planning
Key messages
1
Transport Scotland’s Ferries Plan sets out proposals to develop ferry
services and assets between 2013 and 2022. The estimated cost of
these proposals, as at December 2012, was £390 million in capital and
£10 million a year in revenue. The Ferries Plan was based on extensive
analysis and consultation, and was Transport Scotland’s first attempt to
set out a long-term strategy for ferries. This was a positive development
and was welcomed by communities and other interested bodies.
The Ferries Plan is focused on the Clyde and Hebrides network.
Transport Scotland does not have a Scotland-wide strategy that takes
into account its responsibilities across its network of subsidised ferries
or the many proposed developments to its ferry operations. This
means that the full extent of Transport Scotland’s future spending
requirements, and how it will prioritise spending across its three
contracts, is unclear.
Transport Scotland’s investment plans for vessels and harbours
are focused on the CHFS network. Transport Scotland is currently
considering how to develop its vessels plan to include its
responsibilities across the rest of its network.
Less than halfway through the duration of the Ferries Plan, Transport
Scotland has made significant progress against its proposals. It is not
clear, however, if this has been achieved within budget as Transport
Scotland does not monitor the associated costs.
Maintaining and investing in harbours will have significant cost
implications for Transport Scotland. CMAL estimates that at least
£466 million of investment in its harbours is required over the next
30 years. The condition of the remaining harbours across the
subsidised ferry network is not reported to Transport Scotland, which
means that the level of any required investment in these harbours is
not known.
Transport Scotland does not measure systematically the benefits arising
from its spending on ferry services, or the overall contribution ferries
make to social and economic outcomes, such as employment or reducing
inequality. Better information on this would help Transport Scotland
make more informed decisions and demonstrate value for money.
2
3
4
5
Transport
Scotland
has made
significant
progress
against its
Ferries Plan
but there are
substantial
proposed
developments
to its ferry
operations
6
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Part 4. Long-term planning | 45
Transport Scotland’s Ferries Plan sets out its proposals to
develop services and assets over ten years
96.
Transport Scotland published a Ferries Plan in December 2012, setting out its
proposals for ferries investment between 2013 and 2022.
15
This was Transport
Scotland’s first attempt to set out a long-term strategic approach to ferries and
was welcomed by communities and stakeholders, such as councils and other
interested parties. The plan involved extensive stakeholder consultation, data
analysis and research and included a needs-based assessment of routes and
services to determine:
•
the needs of each community (that is, whether ferries were required for
commuting, personal use, freight or tourism)
•
what level of service was required to meet those needs
•
how the current service model compared to needs.
97.
Transport Scotland assessed options for each community against a range
of criteria including feasibility, scale and complexity, to determine whether
additional sailings or vessels were required. Most communities were offered
an enhanced service and none received a reduction. Transport Scotland then
developed a number of short, medium and long-term proposals to address
communities’ needs.
98.
The Ferries Plan sets out Transport Scotland’s investment proposals for
services and assets, which would go ahead subject to the budget being
available. The estimated cost of the proposals in December 2012 was
£400 million, split as follows:
•
Vessel replacement – £295 million capital.
•
Ports and harbour works – £73 million capital.
•
Development of routes and services – £22 million in capital and £10 million
in annual revenue.
99.
The plan also contained other commitments for Transport Scotland, including:
•
rolling out RET across all ferry routes
•
taking on responsibility for council-run services and harbours (if requested)
•
reviewing commercial vehicle fares.
The Ferries Plan focuses largely on the CHFS network
100.
The Ferries Plan focuses largely on services and assets on the CHFS
network. However, it contains some reference to the other contracts, in particular:
•
a commitment to consider vessel deployment on the Northern Isles before
the current lease ends in 2018
•
a proposal to upgrade Gourock harbour by 2025.
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46 |
101.
Transport Scotland reports that the plan focuses on the CHFS network
because of the significant investment made in the Northern Isles before the
Ferries Plan was developed. For example, in 2002 the RBS Group funded three
new passenger vessels at an estimated cost of £100 million. However, this still
means that Transport Scotland does not have a Scotland-wide strategy for the full
network of services that fall within its responsibilities. It is therefore not clear how
Transport Scotland plans and prioritises its investment across the three contracts.
Transport Scotland has made substantial progress against
the Ferries Plan, but it does not know if this has been
achieved on budget
102.
Transport Scotland regularly reviews progress against the Ferries Plan.
In March 2017 (just over four years into the ten-year plan), Transport Scotland
reported significant progress to Scottish ministers. Of the 75 commitments
made (covering routes and services, vessel replacement, harbour works, funding
and procurement, fares, accessibility and responsibilities), 53 had been met
and 21 were on schedule to be met. The one commitment that was not met
was buying a passenger-only vessel for the Small Isles (the islands of Canna,
Eigg, Muck and Rum) during the period of the interim CHFS contract (2013-16).
Transport Scotland reported in March 2017 that it will no longer be buying the
new passenger vessel as the local communities had decided against an increased
ferry service.
103.
Transport Scotland does not know whether it has delivered the Ferries
Plan commitments within budget as it does not monitor progress against
individual cost estimates. The plan does not estimate the cost of individual
commitments. Instead it categorises commitments into short, medium and long-
term proposals and estimates a total cost for each category. This means that it
is not possible to determine the extent to which individual commitments have
been delivered on budget.
104.
Since publishing the plan, Transport Scotland has also made a number of
other investments and improvements that were not included in it, to respond
to changes in circumstances. Examples include increasing the capacity on the
Kennacraig-Islay service, extending the operating day on the Tobermory-Kilchoan
route and introducing a new route between Mallaig and Lochboisdale.
Better information on assets would assist long-term planning
Transport Scotland’s vessels plan is not Scotland-wide
105.
The Ferries Plan sets out a high-level proposal of vessel replacement on
the CHFS network, based on vessel age. In 2013, Transport Scotland, alongside
CMAL and CalMac (the tripartite group), started to consider a more detailed
plan of vessel retentions, acquisitions and disposals to support the delivery of
the Ferries Plan. The tripartite group published its Vessel Replacement and
Deployment Plan (VRDP) for the Clyde and Hebrides in October 2015 and
refreshed it in December 2016.
16,17
A further refresh is due in late 2017.
106.
The VRDP takes into account historical and projected customer demand, the
impact of RET and vessel capacity for both passengers and vehicles. It is based
on actual and forecast weekly capacity utilisation (that is, how full the ferries
are) over the peak nine-week summer season on the CHFS network. The VRDP
lists short, medium and long-term proposals to address issues of high-capacity
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Part 4. Long-term planning | 47
utilisation on the Clyde and Hebrides network, which is predicted to reach over
100 per cent on some routes by 2024. Proposals include the deployment of
two new vessels that are currently under construction, adding a second vessel
onto some routes or using larger ones. It does not set out the cost implication of
vessel decisions.
107.
Transport Scotland is considering how it can develop the VRDP to include all
of its vessel responsibilities across its subsidised network. In doing so, Transport
Scotland should ensure that it includes the estimated cost of its vessel decisions,
including the cost of any associated harbour works.
Detailed information on vessel capacity utilisation is important for both
financial and operational planning
108.
The VRDP is a positive and useful development to help make difficult and
complicated vessel decisions on the CHFS network. However, it is based on
average weekly capacity utilisation data, which hides significant variations in how
busy, or empty, vessels are on particular sailings, at different times of the day, or
on different days of the week. More detailed information would allow Transport
Scotland, in cooperation with CMAL and operators, to accurately identify peaks
and troughs and allow it to better plan services and assets to manage these.
109.
CalMac and Serco NorthLink record information on capacity utilisation for
their own purposes. On both CHFS and NIFS routes, average monthly capacity
utilisation varies significantly throughout the year, mainly due to higher numbers
of tourists during the summer. For example:
•
on the CHFS network in 2016, vehicle deck capacity utilisation varied
from seven per cent on the Kennacraig to Islay/Colonsay/Oban route in
December, to 80 per cent on the Oban to Craignure route in August
•
in contract year 2015-16, cabin utilisation on the Northern Isles routes
varied from 37 per cent in January 2016 to 79 per cent in July 2015.
These monthly figures hide huge variations that can exist on a daily and weekly
basis.
110.
Argyll Ferries does not record capacity utilisation on the Gourock-Dunoon
route. Based on passenger numbers and vessel sizes, we estimate that the
average passenger capacity utilisation ranges from six per cent in winter months
(October 2015 to March 2016) to seven per cent in the summer months (April to
September 2016).
111.
The VRDP sets out how Transport Scotland will increase capacity on ferry
routes which have high average capacity utilisation. But low levels of capacity
utilisation can also be a problem and may indicate that sailings are too frequent
or vessels are too big. Transport Scotland should consider, when developing
its refreshed strategy for ferry services, opportunities to address low capacity
utilisation, which may include reducing the frequency of sailings.
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48 |
Substantial investment in harbours is required but the full extent of this is
unclear
112.
Transport Scotland’s subsidised ferries operate in and out of 59 harbours
across Scotland. CMAL owns 25 harbours and one berth on the CHFS network,
plus Gourock Harbour. It is responsible for both maintaining these and investing in
new and upgraded facilities. Between 2007 and 2016, CMAL spent about
£30 million on harbour improvement works. However, it considers this has not
been enough to address historical underinvestment in harbours and there is now
a need to replace infrastructure:
•
which is reaching the end of its useful life
•
to accommodate new vessels
•
to manage higher demand, resulting from RET
•
to comply with disability and accessibility legislation
•
to improve the customer experience.
113.
Transport Scotland does not have a harbours investment plan. CMAL has
a programme of improvements for its harbours, which is based on condition
surveys carried out in 2007 and 2015. The estimated cost of the improvement
works is £466 million over 30 years (excluding inflation). This excludes the cost
of upgrading harbours to accommodate new vessels, which may be significant
(Case study 5, page 49).
CMAL’s estimated investment requirement is
significantly higher than the estimated ten-year cost of harbour works in the
Ferries Plan (£73 million). It is not clear how the improvement works will be
funded within Transport Scotland’s allocated budget.
114.
Although Transport Scotland has information on the condition of CMAL’s
harbours, it does not collate details on the condition of more than half (33) of
the harbours that its services operate from. The condition of these harbours is
fundamental to operating ferry services safely and efficiently. It also has financial
implications for Transport Scotland. It is therefore important that Transport
Scotland collates this information and builds it into its long-term operational and
investment plans.
A number of ferry developments will have a financial impact on
Transport Scotland
115.
There are a number of pressures on Transport Scotland’s ferries budget,
some of which we have already mentioned. These include:
•
the significant investment required in harbours
•
the increasing demand pressures created by RET
•
rising pension costs
•
ongoing public and political pressures to improve services.
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Part 4. Long-term planning | 49
Case study 5
An example of how vessel decisions affect harbour costs
Harbour modifications to accommodate the new Ullapool to Stornoway
vessel cost £31.6 million
In 2011, Transport Scotland, on the advice of CMAL and CalMac, decided
to build a new, large ferry on the Ullapool to Stornoway route to replace
the existing passenger and vehicle vessel and separate freight vessel.
Although an initial option appraisal exercise indicated that the preferred
option was to build two medium/large-sized vessels, a later evaluation
indicated that a single, larger ferry would be more reliable in bad
weather. Lloyds Bank funded the £42 million cost of the new ferry, which
has the capacity to carry an extra 20 passengers and an extra 20 cars,
compared to the previous passenger and vehicle vessel.
The existing harbour infrastructure was unable to accommodate the
larger vessel, requiring both harbours to undergo major upgrade and
extension in 2014. Although CMAL did not own the harbours, Transport
Scotland agreed to pay a significant proportion of the upgrade costs:
•
Stornoway Harbour (owned by Stornoway Port Authority):
Transport Scotland paid £8.5 million of the £12 million cost
(71 per cent).
•
Ullapool Harbour (owned by Ullapool Harbour Trust): Transport
Scotland paid £18 million of the £19.6 million cost (92 per cent).
Between October 2014 and September 2016, harbour dues paid by
Transport Scotland, through CalMac, increased by:
•
56 per cent at Stornoway harbour, to £1.4 million per contract year
•
78 per cent at Ullapool harbour, to £1.5 million per contract year.
Source: Audit Scotland using figures provided by Transport Scotland and CalMac
116.
A number of other developments are also likely to have implications for
Transport Scotland’s capital and revenue expenditure. For example:
•
In 2014, the Scottish Government committed to the principle of ‘fair
funding’ for Orkney and Shetland councils’ inter-island ferry services.
18
Scottish Government funding for councils’ ferry services is currently part of
their local government funding settlement. Orkney and Shetland councils
supplement Scottish Government funding by about £2.5 million and
£7.5 million a year respectively. In contrast, Transport Scotland subsidises
inter-island ferry services in the Western Isles, as part of the CHFS
contract, without financial support from Comhairle nan Eilean Siar.
Transport Scotland has been discussing the future funding of inter-island
services and assets with Orkney and Shetland councils for about two
years. ‘Fair funding’ will require substantial capital investment plus annual
funding to cover the operational costs.
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50 |
•
In 2016, the Scottish Government committed to reduce fares to the
Northern Isles in response to RET being introduced on CHFS routes. As
part of its planning for the new NIFS contract, Transport Scotland has been
considering its methodology for reduced fares, how much this will cost and
how it will manage the implications. Lower fares will be introduced from
2018. This is anticipated to significantly increase demand for ferry travel,
which is likely to create capacity issues. Transport Scotland is planning to
manage this by operating additional sailings using the current vessels on
the network. This is likely to require major timetable changes, which will
have an impact on freight customers in particular. While making greater use
of assets will save on the costs of new vessels, it will increase crewing,
fuel and maintenance costs and harbour dues. Transport Scotland will
also introduce RET on the commercially operated service on the Pentland
Firth from 2018. This means it will be required to pay compensation to the
operator, Pentland Ferries, in respect of lower ticket income.
•
Transport Scotland is currently considering how to deal with the three
passenger vessels on the NIFS routes. Transport Scotland has an operating
lease with the owners, RBS Group, and this is due to end in 2018.
Transport Scotland and CMAL are currently assessing the cost of their
options, which include renewing the lease.
•
Transport Scotland has been reviewing and discussing freight fare options
since 2014. The aim is to introduce a consistent freight fare structure
across the Transport Scotland network which means that costs will
increase on some routes and decrease on others. Depending on the
route, it may mean that additional sailings or vessels are required to meet
demand, or that Transport Scotland loses custom to commercial operators
on routes where its fares are increased. Transport Scotland is alert to this
risk from its experience of the NorthLink Ferries contract failure in 2004.
One of the reasons for the failure was competition from Norse Island
Ferries, which a group of hauliers created in response to NorthLink’s high
freight charges.
•
The specification for the new Gourock-Dunoon contract requires the operator
to use its own 40-metre vessels, to help improve reliability on the route. If
the contract is awarded to David MacBrayne Ltd (DML), this will require
public sector investment in new vessels. While the tender exercise is
currently paused, it is important that Transport Scotland considers the value
for money of providing financial support for this route, in the context of:
– the cost of the new vessels. In 2013, Transport Scotland commissioned
consultants to estimate the cost, which ranged from £3.0 million per
passenger vessel to £6.0 million per passenger/vehicle vessel.
19
In
January 2017, DML estimated this could cost in the region of
£25 million to £30 million per vessel
20
– falling passenger numbers since 2007
– increasing subsidies since 2011 (which are estimated to increase further
to £4.2 million a year at the start of the new contract)
– the required £13 million investment in Gourock harbour (as estimated in
the Ferries Plan)
– the presence of a successful commercial operator on an adjacent route.
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Part 4. Long-term planning | 51
It is difficult to determine whether Transport Scotland’s spending
on ferries is value for money
Transport Scotland does not routinely measure the impact of its ferry
spending
117.
Transport Scotland’s Ferries Plan states that its funding of ferry services
helps to:
•
improve connections for island and remote rural communities
•
improve reliability and journey times
•
maximise the opportunities for employment, business, leisure and tourism
•
promote social inclusion.
21
118.
Transport Scotland’s ferries team does not have a performance
measurement framework in place to assess the extent to which its funding for
ferry services contributes to these aims. Similarly, Transport Scotland considers
that transport contributes to nine of the Scottish Government’s National
Outcomes.
22
But it has not set out how it intends the Ferries Plan to contribute to
these outcomes, nor does it have a framework in place to measure this.
119.
Some work has been carried out to estimate the impact of specific aspects
of ferry services. For example:
•
Transport Scotland has evaluated the impact of RET on certain
communities
•
CalMac has estimated the contribution that it makes to local economies,
in terms of the number of jobs and salary levels that it supports.
23
For
example, in 2014 it employed over 1,400 staff and supported a further
4,300 jobs, resulting in a total of £85.8 million being paid in direct and
indirect salaries
•
Serco NorthLink regularly reports how much it spends on local suppliers to
help demonstrate its contribution to local economies.
120.
But there has been no overall assessment of the contribution that ferry
services make to economic and social outcomes, such as supporting well-paid
employment in remote communities.
121.
Transport Scotland’s spending on ferries has doubled since 2007/08
(Exhibit 3, page 17).
Although this has delivered tangible outputs, including
additional vessels and sailings, the impact of this increased spending, for
example on employment or tourism, is not known. Transport Scotland does not
know the specific impact of increasing or reducing service levels, either on an
individual route basis or across the whole network. Without detailed information,
it is difficult for Transport Scotland to demonstrate the impact of its operational
or spending decisions. It is important that Transport Scotland can demonstrate
that it is getting the best level of service for the money available and that it is
targeting its future ferries investment where it will have the biggest impact on
local communities.
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52 |
There are opportunities for Transport Scotland to set out more clearly its
intended benefits of ferries
122.
Transport Scotland, at a corporate level, is currently in the process of
developing a methodology and assessment tool to enable it to prioritise all of its
future spending decisions and assess the impact of its spending against Scottish
Government objectives. It intends to use its Policy Assessment Framework (PAF)
tool to assess how projects perform against Scottish Government policies, such as:
•
promoting economic growth
•
improving transport integration
•
protecting the environment and improving health
•
improving journey safety
•
promoting social inclusion.
123.
In these times of financial constraint, it is important that Transport Scotland
can demonstrate it is getting the best level of service for the money available.
There is an opportunity for Transport Scotland to use the PAF to develop a
Scotland-wide ferries strategy which:
•
clearly identifies what Transport Scotland’s spending on ferries services is
intended to achieve
•
includes a framework for assessing the contribution that its ferries
spending makes to the Scottish Government’s National Outcomes
•
is clearly aligned with the plans of relevant
Community Planning
Partnerships (CPPs)
to improve local economies and social wellbeing.
Transport Scotland is currently not a partner on CPPs
•
is financially sustainable and clearly identifies its priorities for future ferries
development
•
takes into account its current ongoing review of its Strategic Transport
Projects and refresh of its National Transport Strategy.
There are 32
CPPs
in Scotland, one for
each council area.
They are a statutory
forum for bodies,
such as councils,
NHS boards, RTPs
and the police and
fire services, to
work with local
communities to plan
and deliver better
services.
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Endnotes | 53
Endnotes
1
Council Regulation (EEC) No. 3577/92 of 7 December 1992, applying the principle of freedom to provide services to maritime
transport within Member States (maritime cabotage)
, Official Journal of the European Communities, December 1992.
Official report, Meeting of the Parliament, Scottish Parliament, Thursday 2 February 2017.
2
3
4
5
6
7
8
Assessment of the Impacts of the Road Equivalent Tariff Pilot, Final Report,
Halcrow Group Limited, July 2011.
The introduction of a road equivalent tariff based fares system on Scotland’s ferry network
, Halcrow Group Limited, 2008.
Assessment of the Impacts of the Road Equivalent Tariff Pilot, Final Report,
Halcrow Group Limited, July 2011.
Ibid
.
2016 Annual Carrying Statistics
, CalMac Ferries Ltd, February 2017.
Assessment of the Impacts of the Road Equivalent Tariff Pilot, Final Report
, HalcrowGroup Limited, July 2011;
Road
Equivalent Tariff Pilot Extension to Islay, Colonsay & Gigha evaluation report,
Transport Scotland, February 2016;
Evaluation
of the Impact of Road Equivalent Tariff on Arran,
Transport Scotland, February 2017.
The Scottish Government announced in August 2017 that lower fares will be introduced from 2018.
9
10
Governance Procedures for Investment Decision Making and Monitoring and Review,
Transport Scotland, December
2013. This was updated in March 2017.
11
Scotland's key transport infrastructure projects
, Audit Scotland, June 2013.
12
Public Sector Business Cases: Using The Five Case Model. Green Book Supplementary Guidance on Delivering Public
Value From Spending Proposals
, HM Treasury, 2013.
13 Scottish Statutory Instruments. 2015, No. 446 Public Procurement, The Public Contracts (Scotland) Regulations 2015,
December 2015.
14
CHFS 2016 | 2024 Calmac Ferries Limited, Ferry Services, Clyde & Hebrides Ferry Services,
CalMac, August 2016.
15
Scottish Ferries Services, Ferries Plan (2013-2022),
Transport Scotland, December 2012.
16
The Vessel Replacement and Deployment plan: Annual report 2014
, Transport Scotland, October 2015.
17
The Vessel Replacement and Deployment plan: Annual report 2015
, Transport Scotland, December 2016.
18
Empowering Scotland’s Island Communities
, Island Areas Ministerial Working Group, June 2014.
19
Gourock-Dunoon Ferry Service – Feasibility Study of a Future Passenger and Vehicle Service with the Vehicle Portion
being non-Subsidised. Final Report for Transport Scotland. In Association with The Maritime Group (International) Limited,
MVA Consultancy, June 2013.
20 Official report, Scottish Parliament’s Rural Economy and Connectivity Committee, Scottish Parliament, 25 January 2017.
21
Scottish Ferries Services. Ferries Plan (2013-2022),
Transport Scotland, December 2012.
22
www.scotland.gov.uk/About/scotPerforms
23
The Economic and Social Impact of CalMac Ferries Ltd on Scotland
, Fraser of Allander Institute, April 2015.
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Appendix 1
Ferry routes in Scotland
We estimate that there are 66 ferry routes within Scotland, as follows:
Route
Operator
32 Transport Scotland subsidised routes
Gourock-Dunoon
Ardmhor-Eriskay
Ardrossan-Brodick
Ardrossan-Campbeltown
Berneray-Leverburgh
Colintraive-Rhubodach
Fionnphort-Iona
Fishnish-Lochaline
Gallanach–Kerrera*
Kennacraig-Islay
Kennacraig-Islay/Colonsay/Oban
Largs-Cumbrae
Lochranza-Claonaig
Mallaig-Armadale
Mallaig-Eigg/Muck/Rum/Canna
Mallaig-Lochboisdale
Oban-Castlebay
Oban-Coll/Tiree
Oban-Coll/Tiree/Castlebay
Oban-Colonsay
Oban-Craignure
Oban-Lismore
Raasay-Sconser
Tarbert-Portavadie
Tayinloan-Gigha
Tobermory-Kilchoan
Uig-Tarbert/Lochmaddy
Ullapool-Stornoway
Wemyss Bay-Rothesay
Aberdeen-Lerwick
Aberdeen-Kirkwall-Lerwick
Scrabster-Stromness
Argyll Ferries
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
CalMac
Serco Northlink
Serco Northlink
Serco Northlink
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Appendix 1. Ferry routes in Scotland | 55
Route
Operator
34 Non-Transport Scotland subsidised routes
Councils
Cuan-Isle of Luing
Ellenabeich (Isle of Seil)-Isle of Easdale
Islay-Jura (Port Askaig-Feolin)
Port Appin-Lismore
Camusnagaul-Fort William
Cromarty-Nigg. Summer only*
Nether Lochaber-Ardgour
Houton-islands of Flotta and Lyness (Hoy)
Kirkwall-North Isles (islands of Stronsay, Eday, Sanday,
North Ronaldsay, Westray and Papa Westray)
Kirkwall-Shapinsay
Papa Westray-Pierowall*
Stromness-Graemsay/North Hoy
Tingwall-Rousay/Egilsay/Wyre
Grutness (Sumburgh)-Fair Isle*
Gutcher (Yell)-Belmont (Unst)-Hamars Ness (Fetlar)
Laxo (Mainland)-Symbister (Whalsay)
Lerwick (Mainland)-Bressay
Lerwick (Mainland)-Skerries
Toft (Mainland)-Ulsta (Yell)
Vidlin (Mainland)-Skerries*
Walls (Mainland)-Foula*
West Burrafirth (Mainland)-Papa Stour*
Argyll and Bute
Argyll and Bute
Argyll and Bute
Argyll and Bute
Highland
Highland
Highland
Orkney Isles
Orkney Isles
Orkney Isles
Orkney Isles
Orkney Isles
Orkney Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Shetland Isles
Regional Transport Partnerships
Gourock-Kilcreggan
Strathclyde Partnership for Transport
Private operators
Tayvallich-Craighouse (Jura). Summer only*
Cape Wrath Ferry (May-Sept only)*
Hunter's Quay-McInroy's point
Mull-Ulva*
John O’ Groats – Burwick. Summer only*
Mallaig-Loch Nevis (Inverie – Tarbet)*
Scoraig-Badluarach*
St Margaret's Hope-Gills Bay
Yoker-Renfrew*
Private operator with Transport Scotland funding
Private operator
Private operator – Western Ferries
Private operator
Private operator
Private operator
Private operator
Private operator – Pentland Ferries
Clydelink
Community groups
Glenelg-Kylerhea. Open Easter – October*
Laga-Tobermory-Drimnin*
Community interest group
Community interest group
Note: This is our estimate of ferry routes within Scotland. There may be additional routes and services in operation.
Due to unavailable or incomplete data, routes with an * are not included in total passenger, car and commercial vehicle carryings figures
reported in
Part 2.
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Appendix 2
Roles and responsibilities of the bodies involved
in Transport Scotland’s ferry operations
Scottish ministers
•
Responsible for ferry policy and delivery. The Minister for Transport and the
Islands is responsible for ferry services
•
Set Transport Scotland’s budget for subsidised ferry services
•
Approve Transport Scotland’s operational and spending decisions, including
setting fares and timetables
•
Contract ferry operators to operate Transport Scotland’s subsidised ferry
services
•
Own David MacBrayne Ltd and Caledonian Maritime Assets Ltd (CMAL)
Transport Scotland
•
Implements policy and guidance relating to Scotland’s ferry services
•
Supports ministers to prioritise ferry projects and funding
•
Sets ferry fares and timetables
•
Tenders for ferry services, on behalf of ministers, to the Clyde and
Hebrides, Northern Isles and Gourock–Dunoon, through three ferry
contracts
•
Pays subsidies to the operators of three main ferry contracts
•
Provides funding for one privately operated ferry route (Tayvallich to
Craighouse)
•
Monitors ferry operators’ performance and manages subsidy payments
•
Provides loans to CMAL to support vessel procurement
•
Provides grants for improvement works to piers and harbours on its
subsidised ferry network
David MacBrayne Ltd
•
Wholly owned by Scottish ministers
•
Reports to the Cabinet Secretary for the Rural Economy and Connectivity
•
Employs two staff
•
Oversees the delivery of the ferry contracts between Scottish ministers
and its two subsidiaries (CalMac Ferries Ltd and Argyll Ferries Ltd)
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Appendix 2. Roles and responsibilities of the bodies involved in Transport Scotland’s ferry operations | 57
•
Its human resource subsidiary, David MacBrayne HR (UK) Ltd, provides
HR, payroll and crewing services to the David MacBrayne group and
employs 27 staff
•
Owns two passenger vessels which are operated by Argyll Ferries Ltd
Caledonian Maritime Assets Ltd (CMAL)
•
Wholly owned by Scottish ministers
•
Reports to the Cabinet Secretary for the Rural Economy and Connectivity
•
Employs 27 staff
•
Owns 32 vessels and 25 harbours on the Clyde and Hebrides network,
plus Gourock Harbour
•
Leases one vessel, the MV
Loch Seaforth,
from Lloyds Bank
•
Charges harbour users, including ferry operators, a ‘harbour due’ for using
its harbours
•
Responsible for major harbour works
•
Contracts CalMac Ferries Ltd to operate its harbours
•
Leases vessels to CalMac on a ‘bareboat charter’ agreement. This means
the vessels are leased without a crew
•
Leases two freight vessels from Fortress, a private company. CMAL then
lease these vessels to Serco NorthLink on a ‘bareboat charter’ agreement
•
Procures new vessels. This includes concept design, running the tendering
process and overseeing the build
•
Inspects vessels twice a year, and is responsible for statutory works and
owner upgrades
CalMac Ferries Ltd
•
Wholly owned subsidiary of David MacBrayne Ltd, created in 2006
•
Employs 564 land-based staff
•
Its subsidiary, Caledonian MacBrayne Crewing (Guernsey) Limited,
employs 1,050 seagoing staff
•
Current operator of the Clyde and Hebrides Ferry Services (CHFS) contract
•
Leases 33 vessels from CMAL, including the MV
Loch Seaforth,
and
decides where they should be deployed
•
Operates CMAL’s harbours, which includes undertaking routine
maintenance
•
Responsible for arranging consultation meetings with relevant councils and
Regional Transport Partnerships (RTPs) and ‘local community liaison’ with
ferry users and the wider public
•
Leases out one vessel to Argyll Ferries Ltd during winter months
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58 |
Argyll Ferries Ltd
•
Wholly owned subsidiary of David MacBrayne Ltd, created in 2011
•
Employs 28 staff
•
Operates the Gourock-Dunoon contract
•
Leases two vessels from its parent company, David MacBrayne Ltd
•
Leases one vessel from CalMac Ferries Ltd during winter months
Serco NorthLink
•
A subsidiary of Serco Group Plc
•
Employs 265 seagoing staff and 79 land-based staff
•
Current operator of the Northern Isles Ferry Service (NIFS) contract,
since 2012
•
Leases three passenger and vehicle vessels from The Royal Bank of
Scotland on a ‘bareboat charter’ agreement
•
Leases two freight vessels from CMAL, who in turn lease the vessels from
Fortress, a private company
•
Responsible for arranging consultation meetings with relevant councils and
RTPs and ‘local community liaison’ with ferry users and the wider public
Council, private and independent harbour owners
•
Charge harbour users, including ferry operators, a ‘harbour due’ for using
their harbours
•
Responsible for the safe operation, maintenance and improvement of
harbours
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Appendix 3. Audit methodology | 59
Appendix 3
Audit methodology
Evidence for our audit was based on four main components:
1. Desk research
We reviewed a range of published and unpublished information from Transport
Scotland, CMAL and the ferry operators, including:
•
the Ferries Plan, including all the underpinning reports and analysis
•
corporate plans, annual reports and accounts, and board papers
•
Vessel Replacement and Deployment Plans (VRDPs) and harbour
maintenance schedules
•
ferry and harbour contracts and contract management reports
•
RET evaluation reports
•
procurement documentation – which included:
– Transport Scotland’s corporate procurement strategy and investment
decision-making guidance
– a range of CHFS2 specific documents, for example the procurement
strategy, business cases, ITTs, steering group papers and gateway
review reports.
2. Interviews
We met with a number of staff from Transport Scotland, CMAL and the ferry
operators. We also spoke to a range of other bodies which are involved, or
have an interest, in ferry operations including: commercial operators; Regional
Transport Partnerships; councils; trades unions; VisitScotland; Highlands and
Islands Enterprise; the Road Haulage Association; consultants with an interest in
the ferry industry; and academics.
We also attended or observed meetings of: the Expert Ferries Group; the
tripartite group; and Ferry User Groups.
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3. Data analysis
We analysed a range of published and unpublished data from Transport Scotland,
CMAL and the ferry operators, including:
•
Transport Scotland’s total spending on ferry subsidies and assets – from its
internal Section 70 reports
•
spending on individual ferry contracts (reported in
Exhibit 5
and
Case
Studies 2, 3 and 4).
Data is presented by contract years, which differ as
follows:
– CHFS – 1 October to 30 September
– NIFS and Gourock-Dunoon – 1 July to 30 June
•
contract data from each ferry operator’s Annual Outcome Statements
(AOS), which are reported to Transport Scotland. The AOS data is available
up to the contract years which ended in 2016. We have presented the data
in real terms, at 2016/17 prices
•
CalMac and Serco NorthLink’s spending on harbour dues, paid to individual
harbours.
Figures for these three data sets are all presented in real terms, at 2016/17 prices
using GDP deflators at market prices (Quarterly National Accounts, June 2017).
We also used the following data sources:
•
Transport Scotland’s analysis of its spending on pier and harbour
improvement works since 2007/08.
•
The 2016
Scottish Transport Statistics
and data provided by Transport
Scotland and individual operators to analyse trends in passenger, car and
commercial vehicle traffic. Note:
– The total for the CHFS network includes traffic on the Mallaig-
Lochboisdale route which was introduced in 2015. This route is not
included in the Scottish Transport Statistics
– Passenger numbers on the Corran ferry are estimated
– Due to the unavailability of data, 2016 carrying figures for routes run by
Argyll and Bute Council and Highland Council were estimated, based on
2015 figures
– Trend information excludes traffic numbers on a few routes due to
unavailable or incomplete data. These routes are marked in
Appendix 1.
•
CalMac, Serco NorthLink and Argyll Ferries’ data on: number of sailings;
capacity utilisation; reliability and punctuality.
•
CMAL’s estimate of the investment required in their harbours over the next
30 years.
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Appendix 3. Audit methodology | 61
4. Visits
We spoke to a small sample of ferry users across ten communities which rely on
ferry services – Arran, Barra, Benbecula (which covered North and South Uist),
Cumbrae, Dunoon, Islay, Mull, Orkney, Skye and Shetland.
We met a range of individuals, including representatives from:
•
ferry committees
•
the business sector
•
the tourist industry
•
community councils
•
hauliers
•
the fishing, farming and whisky industries
•
disability and access groups.
This was not a representative sample of ferry users but was used to understand
the range of users' experiences and views.
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62 |
Appendix 4
Advisory group
Audit Scotland would like to thank members of the advisory group for their input and advice throughout the audit.
Member
Michael Craigie
Robbie Drummond
Stuart Garrett
Richard Hadfield
Kevin Hobbs
Graham Laidlaw
Paul McCartney
Ranald Robertson
Gordon Ross
Organisation
Shetland Transport Partnership (ZetTrans)
David MacBrayne Limited, Argyll Ferries Limited and CalMac Ferries Limited
Serco NorthLink Ferries
Transport Scotland
Caledonian Maritime Assets Limited
Transport Scotland
Peter Brett Associates
Highlands and Islands Transport Partnership (HITRANS)
Western Ferries
Note: Members sat in an advisory capacity only. The content and conclusions of this report are the sole responsibility of Audit Scotland.
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Transport Scotland’s
ferry services
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ISBN 978 1 911494 38 6
AGS/2017/7
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