The Ferries and the Last Resort:
how the Government is putting the public interest at risk
Provision for an Operator of Last Resort who could take over immediately in the event of failure or default on the part of the incumbent operator is standard practice in the case of essential public services such as water, gas, electricity and rail. I have warned for several years that the government has failed to deal with the issue of Operator of Last Resort for Scottish lifeline ferry services. This risks serious consequences for those users and communities dependent on these essential services, as well as the taxpayer
An unpublished document accessed on the Web now suggests that it was
known at least by Spring 2005 that the government's public assurances
on the issue of how an Operator of Last Resort would be dealt with were
wrong. But in turn this was not acknowledged publicly, instead all references
to Operator of Last Resort were removed in the government's final Invitation
to Tender documentation for the current Clyde and Hebrides ferry services.
This implication is that it appears that the present CalMac and Northlink
services are being run with no Operator of Last Resort, and that it
is unlikely that any such Operator could be obtained in a reasonable
time span in the event of failure or default on the part of the incumbent.
It is difficult to come to any conclusion other than responsible authorities
were aware of this, have not made this public, and are effectively operating
a crossed fingers approach hoping that nothing will go wrong and expose
the fact that they have failed to put these necessary safeguards in
Events in recent years relating to CalMac and Northlink tenders have
shown how necessary a pre-arranged Operator of Last Resort is for such
services. Private operators will also be aware that if they displace
and replace CalMac in the upcoming tender for Clyde and Hebrides services
that the absence of a back-up Operator of Last Resort means they will
have great opportunities to renegotiate the contract to their own advantage
once they have incumbency, especially with CalMac no longer around to
(1) The document in question
I have just come across a remarkable document on the Web which reinforces
my frequently expressed concerns regarding the issue of Operator of
Last Resort in the case of tendering of Scottish ferries - and adds
The document in question was from a draft CalMac submission for the
2005 consultation on the proposed tender for the Clyde and Hebrides
network, dated 14th March. It reads in part in a section marked for
"Operator of Last Resort: Despite statementsassertions (sic) in the service specification that VesCo will be the Operator of Last Resort (section 1.3.6) we understand that it has been determined that this is not possible and that the Scottish Executive itself will now assume this responsibility".See the document at this web address:
In case this now disappears from public view I have also saved a copy
It is difficult to identify any body other than the Scottish Executive who could determine that for VesCo to be Operator of Last Resort "is not possible and that the Scottish Executive itself will now assume this responsibility" - no-one else would have the authority to determine this.
If that is indeed the case, then it suggests that there was awareness
on the part of responsible authorities that the assurances given to
Parliament and the public regarding protection of essential services
in the event of operator default in the case of Scottish ferry services
were wrong and misleading. Yet the government took no steps to publicise
or deal with the potential risks to users, communities, and the taxpayer
that such services now face.
The draft document itself was in the process of being formatted, and
this section was marked for deletion, but with no replacement section
indicated. It is not made clear why it was being removed with no substitute
comments made in this connection.
The final version was submitted to the government consultation (also
dared the 14th March 2005) and is here
It is effectively the same document as the draft which contained the
passage on Operator of Last Resort, except that passage is now deleted.
The final draft was sent with a covering note from CalMac's Director
of Strategic Development.
The draft Invitation to Tender in 2004 in the section (1.3.6) referred
to above had actually stated:
The document is available on this website here
And so it proved. What the officials advising Ministers either did not realize or refused to accept - despite being repeatedly pressed on these points - is that there are very stringent regulatory requirement for operators to pass if they are to qualify as Operator of Last Resort, this supported on very good grounds of safety given experience of ferry disasters in European waters. CalMac outlined what would be necessary later in 2008 in a written submission on the question of Operator (or Company) of Last Resort see here
The problem is that you need an Operator of Last Resort to be available overnight if required - as is the case for other essential services such as gas, electricity and water. You cannot wait days or weeks for a replacement operator to be found and commissioned in the event the incumbent has withdrawn or told to withdraw.
(2) How did the government then deal with the question of Operator
of Last Resort?
So how did the government act in the period following the draft CalMac
submission (March 2005) that noted that VesCo could not handle the question
of Operator of Last Resort? Later in 2005 officials found one "solution"
to the problem: they removed all reference to Operator of Last Resort
in the actual tender itself, which is here
But officials also maintained the fiction of VesCo involvement in role of Operator of Last Resort when they wrote::
That was written by government officials in September 2005 and is in
the spirit of the role set out for VesCo in the draft invitation to tender
despite the fact that the CalMac Spring 2005 draft document had made clear
earlier that VesCo would not have powers in those areas
(3) Why is all this important?
Why is all this important? First the (unpublished) CalMac draft submission
makes clear that it was known (but not publicised) early in 2005 that
VesCo could not qualify as Operator of Last Resort. As for the idea that
the Scottish Executive itself could act as the "Operator of Last
Resort", any objections that VesCo would not be able to display the
competences required to act in this role would hold even more strongly
for the prospect of a group of civil servants and Ministers trying to
secure the necessary licenses as qualified operators from the MCA (the
safety regulator) in the event of an incumbent has defaulting. Scottish
Ministers are the notional Operator of Last Resort for rail services in
Scotland but they are not and cannot be the Operator of Last Resort for
Scottish ferry services. In any case, the extensive and systemic arrangements
that have been put in place to deal with the case of Operator of Last
Resort for rail at UK level (with input into provision for this in the
case of the Scottish rail network) are explained and shown here
and explains in detail the level of skills qualifications and expertise
needed to perform such a function.
Further, even if were possible for Scottish Ministers to act as Operator
of Last Resort for Scottish ferry services, they would have to have the
necessary documentation in place before any emergency arose (as with UK
and Scottish rail) and there is certainly no notification to the effect
that such steps have been taken to ensure this.
So the only obvious conclusion is that Scottish ferry services have no
Operator of Last Resort, there is no reasonable chance of securing one
in the emergency and urgent circumstances that could prevail in the event
of operator default.
When CalMac was awarded the contract to service the Clyde and Hebrides
routes in September 2007, it is also difficult to conclude other than
that the government must have been aware of the fact that there was no
Operator of Last Resort ready to step in if CalMac failed.
The draft Invitation to Tender for the present CalMac contract in 2004
(see section 1.3.6 above) rightly stated it was essential to put arrangements
for an Operator of Last Resort in place before the new contract began.
If there was any doubt as to why it is essential such arrangements in
place at the start of such contracts, then events in recent years relating
to CalMac and Northlink tender have shown how necessary this is.
The first Northlink contract was renegotiated in 2004 in favour of the incumbent following "advice from NorthLink that they were unlikely to be able to complete their existing contract on current terms" see here
The point here is not whether or not the renegotiation was justified.
The point is that the absence of a back up Operator of Last Resort meant
that the Scottish Executive had no choice but to pay up to the incumbent's
satisfaction (with a substantial increase of millions of pounds of extra
subsidy burden to the taxpayer) or face the indefinite cessation of lifeline
The recent investigation of State aid issues by the European Commission
in relation to payments made to CalMac and Northlink in connection with
their respective tenders also raises this issue. The Commission felt they
had reasonable grounds for launching their investigation and had they
found against the operators in the respective cases it would have led
to the forced return of subsidy and the probable insolvency of the operator.
There would have been no Plan B for who could take over the tender in
such circumstances. Users and communities could have been deprived of
these essential services for an indefinite period of time.
There is also the considerable scope for moral hazard these failures
create. For example, in the near future, private operators will be aware
that if they undercut a CalMac bid and displace and replace it in the
upcoming tender for Clyde and Hebrides services that the absence of a
back-up Operator of Last Resort means they will be free to renegotiate
the contract to their own advantage once they have incumbency - especially
with CalMac no longer around to clean up any mess.
There are also the crucial issues of whether relevant information has
been deliberately withheld and whether Parliament and the public have
All this clearly raises a number of public interest issues which should
be pursued until the facts are fully uncovered and those responsible for
this continuing fiasco are held to account - though given past experience
that latter hope at least may be unlikely to be fulfilled.
Neil Kay July 17th 2010