This article appears as part of the Scotland's Ferries newsletter.

State-owned ferry operator CalMac is expected to get a new contract for the beleaguered west coast ferry services by "default" while ministers have ruled out opening routes up to private operators.

Ferry user groups have told The Herald that they accept it is the "least worst" option after ministers ruled out the breaking up of Scotland's ferry route network to improve ferry provision.

Industry insiders are expecting CalMac to get a direct award of the Clyde and Hebrides Ferry Services contract from the Scottish Government when the current deal expires in September 2024.

It has been confirmed that Transport Scotland officials who are looking at the best way to continue west coast ferry operations are looking at the potential to provide a direct award using what is described as a Teckal procurement exemption to avoid unlawful state aid.

The current First Minister Humza Yousaf has previously indicated that he wanted CalMac to get the job indefinitely.

The Teckal exemption removes the legal obligation on a public authority to tender public contracts when it can be proven that the public authority can provide the services itself, subject to certain ‘control’ and tests.

It comes after a Holyrood inquiry gave the nod to retain the status quo in terms of operating ferry services in the shorter term despite the ferry operator receiving some £10.5m in poor performance fines in the six-and-a-half years since CalMac took the franchise – nearly eight times more than in its first nine years in charge of the west coast fleet.

The Competition and Markets Authority has previously warned about the "potential risks" of state control over the way ferries are operated, run and paid for in Scotland.

Teckal was developed through EU case law to allow contracting authorities to award a contract to a supplier without the recourse to a regulated procurement procedure.

Before CalMac were awarded the current contract in 2016, the RMT union’s legal advice, provided by a European procurement law specialist, is that the exemption could be applied to Scottish ferry contracts tendered by the Scottish Government. They believed that the successful application of a Teckal exemption would not contravene European rules on state aid.

The QC for the RMT said that the rules leave the authority able to supply goods and services by itself and therefore not have to seek a tender.

Gordon Nardell said that where the authority makes that supply through a body that is legally distinct but which is sufficiently under its control and does not act as a market player in its own right – EU law as laid down in Teckal treats that as "tantamount to the authority supplying the service itself".

He believed that the relationship between CalMac with the Scottish ministers satisfied that 'control test' and that a direct award would not constitute unlawful state aid.

The intent of state aid rules is to avoid financial assistance given by a government that favours a certain company or commercial group and which has the potential to distort market competition and give a supplier an advantage.

The Herald:
But the QC indicated that under Teckal, a direct award would be allowed where the supplier who benefits is carrying out public interest functions of the state body rather than undertaking a "significant activity of a commercial character".

The RMT, who believe CalMac should remain in permanent public ownership, said at the time that the opinion showed that the Scottish Government did not have to continue with the "unnecessary and unpopular tendering of CalMac ferry services".

Mr Yousaf, who was transport minister, indicated in 2017 while considering the Teckal exemption that it was his intention to scrap future tendering processes for the Clyde and Hebrides ferry services and appoint the contract to CalMac "indefinitely".

Ferry user groups The Herald spoke to all believed that giving CalMac the contract was a formality but said unbundling of routes to give to private operators should have been properly explored saying the term had become a "taboo" subject in the corridors of Scottish power.

The deadline for re-tendering the Clyde and Hebrides Ferry Services contract is believed to have passed.

It is estimated to take at least 18 months to draw up specifications in the contract and to launch a tendering process for Clyde and Hebrides Ferry Services.

John Daniel Peteranna of the South Uist Business Impact Group, which organised an island demonstration in June after ferry failures meant the island lost services for a month, said: "In the current situation there would be reluctant acceptance over an award to CalMac. But the caveat is that the current management must be willing to change.  

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"If you unbundle the service it would improve because it would be exposed to commercial pressures. CalMac has never been a commercial thing – it is a Scottish Government-owned company and behaves as such. They have not been customer focussed."

Mull and Iona Ferry Committee chairman Joe Reade said: "CalMac will always get it whether there is a tendering process or not. It is a foregone conclusion.  The process is a sham and not competitive.

"More radical change is needed – the contract should be divided into smaller parcels that more operators could bid for. Scotland has a vibrant commercial shipping and ferry sector that could deliver improved services and better taxpayer value – if only they were given the chance.

"Island-based private businesses could well emerge as bidders – or even community-owned companies as we on Mull have been investigating. That’s what islanders increasingly want – more direct control and accountability than distant and staid central-belt organisations currently offer."

The Herald:
Sam Bourne, chairman of the Arran Ferry Action Group added: "The Scottish Government now does not have time to run a full competitive tender process before the current contract expiry in September 2024, so some form of direct award is now inevitable.  However, given the Government has rejected the option of debundling, there would appears to be few (if any) rival bidders who would want to bid for the contract as it stands.  

"If there was to be a change of operator, they would be left with all of the same current challenges of the ageing fleet and harbours and the same service levels required by Transport Scotland.  There would be very little actual change with the assets available and operating within the current structures.

"The fundamental issues across the CalMac network are primarily related to the timely replacement of vessels and harbour infrastructure that CalMac themselves are not responsible for and the urgency to get new vessels into the fleet remains.

"The proposal to direct award to CalMac is probably the ‘least worst’ option at the present time to ensure some level of continuity of service and minimise disruption.   "It should not be ‘business as usual’ and the length of any direct award must have reviews and conditions such as more islander representation on the CalMac board and greater consultation with communities to shape the service to better suit their needs.

"The proposals for the future of the lifeline ferry services to the islands must be debated in the Scottish Parliament as a matter of urgency."

A Transport Scotland spokesman said: “Scottish Ministers remain committed to ensure the most efficient and best value arrangement to deliver our key lifeline ferry services.

"Work is underway by Transport Scotland to consider the most appropriate approach and content of future contracts.

“All options are currently being explored, with no final decision on the detailed requirements of the contract taken at this point, but the views of communities and other key stakeholders will inform the approach taken. We will continue to work with all key stakeholders, including the trade unions, to ensure the most efficient and best value arrangement to deliver our key lifeline ferry services.”

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