Freedom of Information (FoI) answer on Operator of Last Resort (OLR) for Scottish ferry services

I have received a reply here from the Scottish government to my FoI request regarding the issue of Operator of Last Resort (OLR) for Calmac's ferry services in the Clyde and Hebrides, the relevant sections of the letter are reproduced here This note should be read in conjunction with my July postings here and here on the subject.

My FoI question read:

"could you please advise who is presently the operator of last resort (or company of last resort) for the current Clyde and Hebrides tender for ferry services mandated to take over in the event of the incumbent having to withdraw from providing these services?"

The Government's response reads:

"There is no "operator of last resort" in respect of the 2007-13 Clyde and Hebrides ferry services (CHFS) contract. Work on the tender for the next CHFS contract has not yet started.

In relation to the above request I should explain there is no requirement to have an Operator of Last Resort. The contracts for the Northern isles and Clyde and Hebrides ferry services were drafted to provide flexibility which together with careful management and monitoring of the operators' performance and the resolution procedures within the contract negates the need for the services of an Operator of Last Resort. The Scottish Government will continue to keep the issue under review particularly in the context of future ferry service contracts."

The letter is about par for the course here - at best it demonstrates a blinkered and dismissive approach to issues that are crucial to the public interest. As far as the response "In relation to the above request I should explain there is no requirement to have an Operator of Last Resort" is concerned, of course there is no requirement because it was the Scottish Government itself who failed in ts duty to protect the public interest by putting one in.

The rest of the response is just waffle. If these "solutions" were practical alternatives to providing an OLR, then the obvious question is why have similar solutions not been adopted for other essential services subject to competitive tendering where provision for rapid replacement of a failed or failing operator may have to be made? The obvious answer is that "careful management and monitoring of the operators' performance and the resolution procedures within the contract" may not be sufficient to deal with unexpected financial or technical operator failures or opportunistic operators. There is no reason to believe that ferry services are unique amongst essential services subject to competitive tendering and/or privatization in being somehow immune from these dangers.

An OLR is a standard safeguard for other formerly nationalized or public sector essential services in the UK such as rail, water, gas and electricity services. As I have explained on several occasions over the past few years, including in invited evidence before the Scottish Parliament, If you do not have an OLR then you run the risk of exposing those dependent on those services and/or the taxpayer to unacceptable risks in the event of failure or unacceptable behavior on the part of the incumbent operator running the tender.

The key is the word "competitive" in competitive tendering. Under EC rules the lowest (subsidy) bid has to be accepted in the tender process, and even though the Government might like its own public service operator such as CalMac to win the tender every 6 years when it is re-opened to bids, it cannot guarantee such an outcome without breaching EC rules. And if you do not have an OLR then you face the dual threat of adverse selection in the tender process and moral hazard once the tender is in operation. As I have already discussed, not only could these failures impose severe costs on users, communities and the taxpayer in the future, they may already have imposed real costs on these fronts already.

The closest UK parallel to Scottish ferry services are Scottish rail services and indeed many such ferry services are designed to connect and integrate with rail services at mainland ports. There is a well established OLR in the case of rail at UK and Scottish level, but for every case that can be made for a need for an OLR for rail there can be made an even greater case for an OLR for Scottish ferry services. There are more likely to be reasonable transport alternatives for specific rail services than there are for particular ferry services, especially (but not only) islands where the single regular transport link with the outside world may be the CalMac ferry service. And while there are a number of operators of publicly franchised rail services in the UK who could serve as alternative operators if called upon to do so, it is more difficult to identify alternatives to CalMac (or to be more precise, David MacBrayne, the holding company for CalMac operating Clyde and Hebridean services and Northlink operating Northern Isles services).

The forced stranding of users and dependent communities with the current breakdowns of CalMac's MV Clansman shows what can happen if a vessel suddenly fails. The situation would be many times worse if an operator suddenly fails and there is no immediately available substitute operator in the form of an OLR for the CalMac network as whole. As discussed in the earlier posts, this is not something that is likely to be arranged in days or even weeks once the need arises. This is not an abstract possibility, we have already seen rail franchise failure in the UK and I have already documented how these issues affect and could affect both the CHFS and Northern isles tenders.

As I have also pointed out, there is also the question as to whether the Scottish Parliament has been misled over this issue. The OLR issue was the subject of much debate in the Scottish Parliament for several years from 2001 to 2006. The debate was typically framed in terms of how the OLR function would be delivered, not whether or not it was needed - it was typically taken for granted (quite rightly) than an OLR function was necessary.

The last references I can find to this issue in the Scottish Parliament or in terms of advice or information from the government was to the effect that what was to become CMAL would either provide or arrange the necessary OLR services for Clyde and Hebridean ferry services, for example in the consultation documentation for what was to become the current 2007-13 CHFS contract.

I can find no reference by the Scottish Government to any subsequent variation in this intention to provide or arrange an OLR, either to Parliament or the public until the response to my FoI request this week.

If some years have been spent by responsible authorities saying that the body that was to become CMAL would be responsible for providing or arranging an OLR for CalMac's Clyde and Hebridean ferry services, then it is understandable if Parliament and the public continued to believe that this would be the case in the absence of official advice or information to the contrary. Certainly there is no evidence that I can find of any debate or discussion in the Scottish Parliament as to the news and the implications that there is no OLR for such services, and that there are no plans to appoint an OLR for such services. That is why there are reasonable grounds for asking if Parliament and the public have been misled over this issue. A simple first approach to this would be for members of the Scottish Parliament's Transport Infrastructure and Climate Change Committee to ask themselves (or, in turn, to be asked) what they thought the current state of affairs on this issue was.

It is hoped that MSPs will pursue this issue, not just to establish whether or not information has been kept back from them that they should have been given, but to pursue what are absolutely critical and urgent issues affecting the public interest.

Neil Kay 6th August 2010