SERCO has won the right to continue providing lifeline ferry services between the Scottish mainland and Orkney and Shetland.

The outsourcing giant, led by former Aggreko chief Rupert Soames, was this morning named as the preferred bidder to continue managing and operating the Northern Isles ferry service.

Serco has been running the NorthLink Ferries passenger and freight franchise for seven years, having won contract from public previous public sector operator NorthLink Ferries Ltd in 2012.

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The new deal, which is expected to start in the fourth quarter, has a total estimated revenue value to Serco of approximately £450m over the initial six-year term. Scottish ministers have the option to extend the public service contract for a further two years, with that valued at a further £160m.

The outcome of the tender was announced by Paul Wheelhouse, Minister for Energy, Connectivity and the Islands, to the Scottish Parliament this morning, when he also unveiled a package of fare reductions for Orkney and Shetland islanders. He said that from January islanders will be entitled to a 20 per cent discount on cabin fares on Aberdeen-Kirkwall-Lerwick routes. A three-year fares freeze for passengers, non-commercial vehicles and cabins on those routes was also announced.

Serco will upgrade 10 cabins on vessels which operate the Aberdeen-Kirkwall-Lerwick routes to premium class, and improve terminal facilities at Hatston, Orkney’s largest commercial pier, located on the outskirts of Kirkwall, under the new contract.

Mr Wheelhouse added: “We are acutely aware of the particular seasonal and time-sensitive challenges faced by key industries on Orkney and Shetland. The new contract includes the flexibility to allow timetabled freight and ferry services to be amended to better reflect changes in demand across the year and from sector to sector.”

Mr Soames said: “We are delighted to have been awarded this contract by Scottish Ministers. We are very proud of our track record over the past seven years, during which time we have improved almost every aspect of the lifeline service for the communities and businesses of the Northern Isles, while also reducing materially the annual subsidy and thereby reducing the burden on the Scottish taxpayer. We look forward to further improving the service in the coming years.”