Ferry Tendering Fiasco: Herald Editorial 21st September 2007

When Ministers confirmed yesterday that Caledonian MacBrayne, the publicly-owned ferry operator, had been awarded the contract to run more than 20 Clyde and Hebridean routes, the worst-kept secret in Scotland's transport sector was finally exposed. It has been known since May that CalMac was the only bidder for the services, which it already operated. Shoo-ins have rarely enjoyed such an easy ride to the finishing line. In another sense, however, the journey from bidder to winner has been as fraught as crossing the Pentland Firth in stormy weather; expensive, too.

Ridiculously and wantonly so, it has become clear. The cost of tendering for the routes, which involved creating seven companies where one had existed before, comes in at more than £15m - roughly one-half of the operator's annual subsidy from the taxpayer (though the total will increase to £43m a year to fund staff and service improvements). What is infuriating about the process is that tendering for the routes was unnecessary. It has been evident for some time that the nature of the ferry services (providing essential links with the islands on the basis of public need) meant that it was not necessary to put the routes out on the open market for rival bidders to fight over.

The Altmark ruling in the European Court of Justice in 2003, a test case, found that payments, or subsidies, by governments in the EU to companies providing essential services should not be considered as state aid, as long as they were clearly defined and covered the costs of providing the service, including a "reasonable" profit. The previous Scottish administration was aware of this ruling. CalMac obtained a legal opinion that Altmark enabled the then Scottish Executive to halt the tendering process. Ferry industry experts, including Professor Neil Kay, sent ministers a proposal which met the Altmark criteria without the need for a tender.

The executive's legal advisers disagreed with CalMac and Professor Kay, and went full steam ahead for tendering (they said Altmark was not relevant in this case). The journey has come full circle, back to where it began, to the benefit of no-one but at a cost, in wasted time and effort, to CalMac and, in hard cash, to the taxpayer. CalMac has acquired a complex corporate structure which will entail a paper chase in subsidies and payments back to the Scottish Government. The money involved would have more than paid for the increased subsidy to cover CalMac costs and might, perhaps, have helped fund a service between South Uist and Mallaig.

Ministers at Holyrood and Westminster have been accused, sometimes unfairly, of rushing over themselves to comply with EU directives without giving proper consideration to the domestic implications. Yet it is probably not true to suggest the CalMac tender is an object lesson of what happens when there is just such a headlong rush. There was no directive to ministers. There was a ruling (Altmark) that, if anything, offered a way out of tendering if only its implications had been fully realised and contrary opinion had been given a fair hearing. The behaviour of ministers and officials at the time the decision to put the routes out to tender was made suggests an arrogance on their part (that they were right and everyone else was wrong). The truth of the matter should shame them.

Competition is healthy and serves the interests of the customer when it can thrive. Lifeline routes which come at a cost that needs to be borne to serve a public interest are a different matter. So long as everything about that sort of service is transparent, that, in effect, was the message of the Altmark ruling. Why was it not heeded?