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MSPs Briefing – ‘Clyde & Hebrides Ferry Services (CHFS)’

Committee Room 5, Scottish Parliament 4th February 2015

Key points

  • We are opposed to the re-tendering of CalMac ferry services but if the Scottish Government presses ahead, we demand that employment and pension safeguards in the new CHFS contract are at least as robust as those contained in the previous contract.
  • Scotland’s ferry services are a valuable source of quality jobs in often fragile, remote economies. Excellent ferry services underpin local economic development. The quality of the CHFS services will therefore help determine whether west coast communities thrive into the future.
  • Following the Government’s decision to award Serco the 2012-18 Northern Isles contract, privatisation of the much bigger CHFS contract would not be in the interests of passengers, communities, workers, safety, businesses or the taxpayer.
  • Privatisation risks exposing Clyde and Hebrides services to the sort of exploitative crewing practices used elsewhere in the maritime industry.
  • We welcome the Government’s decision not to unbundle CHFS routes but remain concerned that the ability for an operator to sub-contract less profitable routes will lead to a two tier service, as well as fragmenting terms and conditions of employment.
  • We oppose the use of the ‘competitive dialogue process’ in Transport Scotland’s discussion of contract specifications with bidders for the 2016 CHFS contract.
  • Caledonian MacBrayne trains more UK seafarers than private sector ferry companies who often seek to crew vessels with cheaper publicnational maritime skills base relies heavily on maintaining the CHFS in the public sector and returning the Northern Isles services to the public sector from 2018.

Workforce safeguards

The CalMac unions and STUC believe that the Scottish Government’s tendering process is unnecessary, expensive, disruptive and pro-privatisation. We simply ask what has changed between 2007 (when CalMac were awarded the current contract which was extended in 2013) and now that requires revisiting the employment pension protections that our members in CalMac are currently covered by.

Following a concerted campaign from trade unions and others, the Scottish Government postponed the original plan for re-tendering CHFS contract and agreed to extend CalMac’s existing contract for 3 years to 2016. The then Minister, Keith Brown personally committed to the late RMT General Secretary, Bob Crow in a letter of 27 September 2012 that there would be sufficient time for a meaningful dialogue between the Scottish Government and trade unions regarding employment and pension protections for CalMac workers in the next contract. These assurances were repeated by the Minister and Transport Scotland to CalMac union officials on 29 July 2013 at a meeting organised by the STUC.

After some considerable delay, the Pensions Working Group (which will also address employment as well as pension protections for workers in the next CHFS contract) met for the first time in December and has yet to reach any agreement on the key issues, unsurprisingly. Given that the ITT documents (which will not be consulted on) for the CHFS are planned for publication by Transport Scotland in October, time is running out, although the Scottish Government could easily bring these discussions to a satisfactory conclusion by committing to honouring existing workforce protections in the next contract.

The present contract with CalMac contains workforce protections successfully negotiated by trade unions and STUC which we are asking to be included in any future contract, although we remain opposed to re-tendering.

The Scottish Government confirmed in a written answer of 16 December 2005 (see Annex 3) to Des McNulty MSP that the new contract would go beyond TUPE in protecting the terms and conditions of existing staff in the event of a transfer to a new operator:

“the...Invitation to Tender document will invite bids on the basis that the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) applies. This provides some protection for the CalMac workforce. However, we are also aware that TUPE offers protection only at the point of transfer. It is still possible that a prospective operator could contemplate replacing the current staff with others on different terms and conditions. Consequently, we will include provisions in the contract, and make it clear to the bidders that, if this were pursued, the new operator would have to pay for any redundancy or other compensation involved, and that such payments would not qualify for subsidy. These would have to be met from the operator’s own resources. In addition, any saving of staff costs that arose would be clawed back through an equivalent reduction in subsidy.”

These protections feature in the 2007-13 contract. This contract was extended to 2016 after successful campaigning by the CalMac unions and STUC in 2012. We demand that they are maintained in any future CHFS contract.

If re-tendering goes ahead, RMT also demand that a non compulsory redundancy clause is included, as exists in the ScotRail contract awarded by the Scottish Government to Abellio last month.

Tendering

It should also be noted that the Scottish Government has stopped talking of the next CHFS contract as a six year one and have stated on the record that under existing procurement rules they could tender a CHFS contract of up to 12 years in duration from 2016. This makes pension and workforce protections even more imperative, should the Scottish Government go ahead with re-tendering these lifeline services.

We believe that the Government could have made a successful argument to the European Commission for lifeline Scottish ferry services to be exempted from relevant EU Directives on the regular tendering public sector contracts. The current requirement to re-tender these vital public services every 5-6 years are disruptive, expensive and biased toward private sector bidders and the Scottish Government has clearly made some progress in extending contract length, otherwise they would not have postponed (at the insistence of trade unions) the original tendering process for three years.

The EU maritime Cabotage Regulation1992 was only applied to Scottish Ferry Services relatively recently, in 1997 and there is a legitimate legal argument over whether tendering these services is unavoidable as the Scottish Government claim. In an email of 29th August 2013, in response to questions from RMT on the procurement rules, Transport Scotland official Graham Laidlaw made the following statement:

Scottish Ministers have lobbied the European Commission for longer ferry contracts, more in line with the timescales for rail franchises. The Scottish Government remain hopeful of some movement on that from the Commission soon.

A recent written answer confirms that the Government has made progress in increasing contract length but appear to have dodged the fundamental issue of whether a tender competition for lifeline Scottish ferry services is necessary in law:

Nicola Sturgeon: The preliminary arrangements for the Clyde and Hebrides Ferry Service are underway and it is expected that the formal procurement process will commence in early 2015 and will therefore be subject to the existing, and not the forthcoming, Regulations.

The duration of public contracts is not an issue that it [sic] governed by the Procurement Directives. In respect of maritime contracts, guidance issued by the European Commission on Council Regulation No. 3577/92 (maritime cabotage) advises a duration of 6 years, which may now be extended up to 12 years where justified.[1]

We repeat that we are not aware of anything that has changed in European law that makes re-tendering essential but provides greater flexibility over contract length.

Privatisation of Northern Isles services

The SNP Government in May 2012 announced its decision to award the2012-18 Northern Isles contract to Serco, despite a concerted campaign against privatisation from trade unions, passenger groups and others. The Northern Isles is much smaller than the CHFS network with 5 ports, compared to 49 on CHFS but this merely shows how important it is to keep a network of ferry services with differing needs under a single, public sector operator.

The Government’s£243m deal with Serco was a bad one for the taxpayer, with the public payingnearly £40m more to Serco than it had to the public sector operator David MacBrayne for the 2006-12 contract (see appendix 1 for breakdown of contract costs). Serco put the full value of the contract as £350m, including fares and other revenues, meaning that state subsidy accounted for 70% of the contract value, with passenger fares largely making up the rest of the £107m difference. The public sector just does not take these large sums of money out of the service.

The following examples from Serco’s tenure to date confirm that privatisation leads to higher costs for a worse service, driven by a policy of aggressive profiteering:

  • Exploitation of passengers – Serco have quickly become deeply unpopular with passengers, as a result of above inflation fare increases, including concessionary fares for pensioners, young people and schools, and even 20-40% increases for sporting and community groups. Passengers also resent Serco’s introduction of charges for the use of on-board facilities such as the restaurant, showers and even toilets.
  • Worsening industrial relations – Despite assurances given to the union that they would not change crewing levels before the winter, Serco announced redundancies in October without prior consultation barely three months into the contract, causing the first industrial action on Scottish ferry services for over 30 years. The company has also used zero hour contracts for a small number of staff working on vessels on these routes.
  • Attacks on pension rights– one month into the contract, Serco announced their plan to switch all Northern Isles staff on to an inferior Serco scheme. Only the threat of industrial action persuaded the company to respect our members’ existing pension rights.
  • Decline in service levels and price increases – freight deliveries, including food to the island communities have become less reliable since Serco took over the routes and the cost to passengers of food and drink on these vessels were immediately subject to increases way above inflation.
  • Vessel maintenanceand safety –The serious mechanical breakdown of the MV Hamnavoe in April 2013 not only revealed that Serco had no spare vessel to cover a breakdown it also exposed the taxpayer to the cost of major repair and highlighted Serco’s policy of conducting dry dock maintenance and repair of vessels every two to three years, compared to the annual dry docking conducted in the public sector.[2] The Cemfjord tragedy in January vividly demonstrated how dangerous and severe sea conditions can be in the Pentland Firth and other Northern Isles ferry routes.
  • Manning levels – Serco have implemented reduced manning levels on the three vessels working the Northern Isles routes – the MV Hamnavoe, MV Hjaltland and MV Hrossey. Whilst the MCA approved the company’s applications on each occasion, there is concern at the safety implications of these manning levels, including amongst catering ratings where during the high season the company only rostered 4 chefs for vessels carrying around 320 passengers on each journey.

Despite Transport Scotland stating in June 2013 that it was ‘pleased’ with Serco’s performance in the first year of the 2012-18 Northern Isles contract, the reality of worker and passenger dissatisfaction is clearly acknowledged in the politically cautious opinions of the Transport Minister, Keith Brown MSP and the then First Minister, Alex Salmond MSP. On a visit to the Shetland Isles in July 2013, the Minister stated that he had been ‘surprised’ that Serco had been awarded the 2012-18 contract (despite being the Minister in charge of the process) and the First Minister commented that local communities should be more involved in the future tendering process for ferry services. The refusal to consult local people over the CHFS ITT specifications would appear to contradict that.

Local politicians have also criticised Serco’s performance in operating Northern Isles ferry services. Cllr Allan Wishart, Chair of the Regional Transport Partnership in the Shetland Isles commented: “...things altogether are accumulating into, I think, quite a groundswell of cynicism and resentment on the new ferry services. I was quite willing for a year to let it go, see how it worked out...but people are getting more and more disenchanted with the service.”

The same mistake of handing lifeline ferry services over to the private sector must not be made on the CHFS network.

Public investment in Scottish ferry services

The Final Ferries plan commits to nearly £400m of spending on 11 new vessels and repair and maintenance work on the ports and harbour infrastructure, mainly on the much larger Clyde and Hebrides ferry network. This does not include the annual subsidy to Serco for the Northern Isles contract which is an average £40.5m over the six year contract to 2018.

Public sector investment in Scottish ferry services must not be used to attract private bidders to the CHFS contract.

Bad practice in the maritime sector

Profits amongst companies in the UK and international shipping industry are reliant on keeping labour costs down, at the expense of seafarers’ employment, pension and other rights. We believe that if the CHFS contract is privatised then the Government would be exposing Scottish seafarers and the taxpayer to the sort of low cost crewing practices common in other areas of the UK shipping industry, including on vessels that are already operating under contract to the Scottish Government. The following table provides an illustration of the sort of exploitative wage rates paid to non-UK seafarers working on vessels around the Scottish and UK coastline.

Operator / Routes / Basic rate of pay (per hour) / Flag of vessel / Seafarer
Nationality / Crew (total ratings)
Condor Ferries / Portsmouth, Poole and Weymouth to Jersey and Guernsey / £2.35 / Bahamas / Ukrainian / 80
Streamline
(MV Daroja) / Aberdeen-Lerwick;
Aberdeen-Kirkwall / £2.25 / Cyprus / Indian & Russian / 20
P&O Ferries (Irish Sea) / Larne-Cairnryan; Dublin-Liverpool / £4.70 (passenger) & £3.65 (freight) / Bahamas & Bermudan / Filipino, Latvian, Spanish,
Lithuanian / 200
Seatruck / Heysham-Dublin; Liverpool-Dublin; Heysham-Warrenpoint / £3.66 / Isle of Man and Bahamas / Polish / 30
Seatruck / Ullapool-Stornoway
(Clipper Ranger – chartered by CalMac) / £4.19 / Isle of Man / Estonian / 10
Seatruck / Aberdeen-Lerwick (MV Helliar & MS Hildasay – Chartered by Serco NorthLink) / £3.66 / Isle of Man / Estonian / 20
Irish Ferries / Dublin-Holyhead; Rosslare-Pembroke / £5.55 / Cyprus, Bahamas & Italy / Estonian & Polish / 50
P&O Ferries (North Sea) / Hull-Zebrugge; Hull-Rotterdam / £4.70 / Bahamas / Portuguese / 300
Stena Line (North Sea) / Harwich-Hook of Holland / £2.39 (freight) / UK / Filipino / 60
DFDS / Rosyth – Zeebrugge
(Finlandia Seaways) / £1.64 per hour / Lithuanian / Lithuanian / 30

Estimated total or crew potentially affected: 800

The rates of pay for seafarers working on the Seatruck vessels chartered to work on the existing CHFS and Northern Isles contracts illustrate the sort of exploitative practices that private sector shipping companies are predisposed to using in order to maximise profits. CalMac has even agreed to pay the extra necessary to bring the wage of seafarers on the Clipper Ranger up to the collectively bargained rate but Seatruck (which also benefits from the Tonnage Tax) have refused.

However, with the exception of cargo vessels over 650 gross tonnage, EU legislation protects domestic seafarers and the national flag register of vessels engaged in island cabotage from exploitative practices. At present, this does not appear to be being enforced properly in Scotland, with the Seatruck charter vessels and others in the above table demonstrating this.

‘Competitive dialogue’

This is the name of the tender process used for the 2012-18 Northern Isles contract. It allows bidders to meet with Transport Scotland officials for un-minuted private meetings where they barter over, amongst other things, workers’ terms and conditions, including pensions with only minimum contract specifications applying.

The Final Ferries Plan in the section Open the Market to Greater Competition committed the Scottish Government to using a ‘similar’ process for the tender of the CHFS contract to that used for the Northern Isles:

“Dialogue with the market, in advance of the Northern Isles tender, made clear that operators seeking to bid for the contract wanted to see a much less prescriptive tender specification than had been the case in earlier procurements.On the other hand, other stakeholders were equally keen to know in advance of the tender process commencing what the details of the service would be in terms of the service specification - timetables, frequency of sailings, fares etc.

“Our approach was to strike a balance between these two positions... For example, a minimum number of sailings on each route was specified, leaving bidders scope to propose a service at or above the minimum level...Our intention will be to adopt a similar approach, to that taken during the Northern Isles tendering, when tendering for the next Clyde and Hebrides ferry services contract.”[3]

Competitive dialogue lacks transparencyand excludes employment and pension protections from the basic contract specifications. It should not have been used to tender Northern Isles services and it should not be used for the CHFS contract. The former Minister has even stated on the public record with some candour that

Minutes of Competitive Dialogue meetings are not a requirement of the tendering process and no minutes[during such meetings with bidders for the Northern Isles contract] were taken.[4]

The Scottish Government has lately started to meet with trade unions representing CalMac unions to discuss employment and pension protections in the next CHFS contract. These talks are at an early stage, despite a ministerial commitment in July to set these talks up in a timely manner, and the CHFS ITT which will not be consulted on will be published in October.