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ANNEX C: STAFFING AND EMPLOYMENT ISSUES

1. The Executive attaches importance to the future of the Caledonian MacBrayne workforce. If tendering goes ahead the Executive would do everything it could, within EU and domestic legislation, to secure the continued employment of those staff and the protection of their terms and conditions, and pension rights. This Annex sets out the Executive's proposals, in relation to employment issues, should tendering go ahead:

• Transfer of Undertaking (Protection of Employment) Regulations 1981 (as amended) ( TUPE)
• Off Shore Status
• Pensions
• Protection of Terms and Conditions
• New Appointees
• Clawback
• 2002 Protocol on Public Private Partnerships in Scotland (agreed by the Executive and the STUC)
• Flagging(Registration of Vessels
• Service Specification Requirements in relation to Staffing
• Language
• Nationality of Crews
• Nationality of bidders
• Location of Headquarters

Caledonian MacBrayne has also given assurances in relation to:

• Protection of terms and conditions
• Redundancy
• Location of its Headquarters

Transfer of Undertaking (Protection of Employment) Regulations 1981 (as amended) ( TUPE)

2. Where TUPE applies it provides the following main protections for employees:

(a) Employees would transfer automatically to the employment of the new contractor with their period of continuous service recognised for statutory purposes;

(b) Employees would be entitled to be employed on the same terms and conditions of employment as they had immediately prior to the transfer (with the exception of entitlement to certain occupational pension rights);

(c) Employees would have the right not to be unfairly dismissed for a reason connected with the transfer, unless there was an economic, technical or organisational reason for the dismissal; and

(d) Employees would have the right for their representatives to be informed and consulted in connection with the transfer.

3. The Executive could not require, through the contract, that a new operator takes on the existing workforce. To do so would be in breach of the non-discrimination requirement of the Maritime Cabotage Regulation. However, the Executive is of the view that TUPE would be likely to apply to the main Clyde and Hebrides bundle. Similar circumstances were considered recently in relation to the Northern Isles ferry services which support this view. Further, the Executive would require bidders to cost their bids as if TUPE applied and would evaluate bids on that basis. If it was subsequently found that TUPE did not (as a matter of law) apply, there would be a reduction in subsidy throughout the contract equivalent to any reductions in the operator's costs as a consequence of that decision. This means that there would be no financial incentive to the operator to challenge TUPE.

4. In relation to the Gourock-Dunoon route the applicability of TUPE would depend on a number of factors including whether the ferry service that was to be provided was similar to that provided at present and what assets were used by the new operator. However, it should be noted that Caledonian MacBrayne agreed in March 2005 that, whilst it is the employer, there would be no compulsory redundancies.

Off Shore Status

5. If transferring employees are employed 'on shore' prior to a TUPE transfer the new operator would have the same ability subsequently to transfer seafarers offshore as Caledonian MacBrayne currently has. The Executive could not require that the crews are employed 'on shore' or, if employed 'off shore' that the agency employing them is based in the EU.

6. However, employees would continue to be employed within the UK and on UK flagged vessels. As such they would continue to have the same statutory rights they currently enjoy in relation to their employment such as rights to redundancy consultation and payments and protection against unfair dismissal.

7. Off shore crewing would have some implications for entitlement to social security benefits. However, Caledonian MacBrayne has confirmed that it would ensure that there would be no financial detriment to any employee as a result of these changes and that this commitment would be included in employees' terms and conditions and so would be protected by TUPE. The detailed changes are as follows:

• Employees would no longer be eligible for Statutory Sick Pay and Statutory Maternity Pay. However, broadly equivalent arrangements would apply with employees eligible, respectively, for Incapacity Benefit and Maternity Allowance. The employee would claim these directly from Department of Work and Pensions rather than being paid by the employer. Caledonian MacBrayne has confirmed that it would ensure that there is no financial detriment to employees and that this would be encompassed in employees' terms and conditions.
• Statutory Redundancy Pay is normally paid by the Department of Trade and Industry in the event of insolvency of the employer. It is unlikely that the DTI would make such a payment for a non- UK employer. However, the operation of the Clyde and Hebrides ferry services would continue and the Scottish Executive is of the view that TUPE would be likely to apply.
• Employees would have no right to Statutory Paternity Benefit or Statutory Adoption Pay. Caledonian MacBrayne has confirmed that it would ensure that there is no financial detriment to employees and that this would be encompassed in employees terms and conditions.
• There would be no effect on employees' entitlement to contributory benefits including Incapacity Benefit, Industrial Injuries Disablement Benefit, Basic Retirement Pension, Second State Pension (if not contracted out) and Job Seekers Allowance.

8. If Caledonian MacBrayne or a future operator were to take its crew 'off shore' prior to the start of a new contract this would not affect the applicability of TUPE to the undertaking in the UK, provided that TUPE would otherwise apply. This is because the employees would be employed within the UK for the purposes of TUPE.

Pensions

9. The TUPE Regulations do not currently apply so as to transfer employees' contract terms in relation to an occupational pension scheme. The Pensions Act 2004 does require that, where there is a transfer of an undertaking to which the TUPE Regulations apply and there is an existing occupational pension scheme to which the previous employer had contributed, then the new employer must deliver a prescribed level of pension provision to transferring employees. However, these provisions do not require that transferring staff have access to an actuarially equivalent pension scheme and entitlements. The Scottish Executive would, however, make it a requirement of a Clyde and Hebrides tender contract that the operator provided an actuarially equivalent pension scheme to transferring staff.

10. The Executive has made clear, since 2002, that it would require a successful tenderer to ensure that transferring staff had access to an actuarially equivalent pension scheme and entitlements. This would be a requirement of the contract. Tenderers' schemes would be subject to the approval of the Government Actuary Department. This is in line with the Cabinet Office Staff Transfers in the Public Sector: Statement of Practice ¹¹.

Protection of Terms and Conditions

11. The Executive could not require, through the contract, that transferring employees terms and conditions were protected. However, as set out above, the Executive is of the view that TUPE would be likely to apply and, as such, transferring employees would be entitled to be employed on the same terms and conditions of employment as they had immediately prior to the transfer.

12. It should also be noted that Caledonian MacBrayne agreed in March 2005 that pay and conditions now or in the future will not be worsened. The company also confirmed that it has no intention to introduce a 2 tier workforce now or at any future date.

New Appointees

13. The Executive would not able to require that the operator employed new staff on no less favourable terms than transferring staff or provide them with an equivalent pension scheme.

Clawback

14. Where the operator has made allowance in his bid for a cost and this cost changes during the contract period a clawback clause in the contract could be used to claw back any financial benefit to the operator. This could include changes to:

• TUPE
• pensions
• on shore status of crews, and
• staff terms and conditions

2002 Protocol on Public Private Partnerships in Scotland (agreed by the Executive and the STUC)

15. The Protocol states that under EU Public Procurement legislation certain workforce matters may come into consideration at the Pre-Qualification and Tender Evaluation stages. However, only those workforce matters which directly affect the suitability of a bidder can be considered. The Executive is of the view that in relation to this issue the Maritime Cabotage regime and the wider procurement rules on pre-qualification of bidders are substantially the same. Subject to ensuring the criteria are correctly applied in the pre-qualification and award assessments the factors set out in the Protocol would be taken into consideration. The factors, as listed in the Protocol, are:

• arrangements for managing the application of TUPE where transfer of employees is involved
• management arrangements for the workforce
• pay, terms and conditions of transferees and new appointments including pension arrangements
• workforce training and development
• framework for and conduct of employee relations including their approach to trades union recognition and facilities, such as the deduction of union subscriptions at source
• health and safety
• equal opportunities
• principles of human resources strategy
• identification and approach to use of subcontracted labour including being assured that there will be safeguards to prevent individuals being wrongly classified as self employed

16. The Protocol also states that trades union representatives should be invited to hold discussions ( e.g. through interviews) with all short listed bidders. This would be facilitated by the tendering organisation (in this case the Executive) and trades unions should be invited to provide a report to the tendering organisation on the outcome of the discussion. In evaluating bids the tendering organisation should take into account the report from trades unions following their discussion with bidders.

17. It should be noted that the ability of any contracting authority to take account of the views of third parties who are not directly part of the evaluation committee is very limited under the procurement rules. Accordingly, whilst the evaluation committee may consider any reports which are relevant to specified award criteria, it must ultimately come to its own decision based on the information it has itself gathered through the tendering procedure. Further, as the Trades Unions would have no obligation to treat bidders equally this could have implications for the Executive's compliance with the requirement to treat all bidders equally. However, providing these issues are appropriately dealt with, the Executive is of the view that there would be benefit in seeking the views of the trades unions representing the Caledonian MacBrayne workforce, should tendering proceed, and the Executive would make arrangements for this at Technical Bid stage. The relevant trades unions would be invited to discuss workforce matters with the short listed bidders. The discussions would relate solely to the bidders' proposals for the Clyde and Hebrides ferry services. After the meetings the trades unions would have an opportunity to submit a written report to the Executive setting out their views on workforce related issues and highlighting any areas of concern. This report would be taken into consideration in both the Executive's discussions with bidders about their proposals and in the evaluation of bids.

Flagging (Registration) of Vessels

18. The Executive can restrict, through the tender process, the flagging (registration) of vessels to EU/ EEA states. Article 1 of the Regulation states that the freedom to provide maritime transport services shall apply to all Community shipowners who have their ships registered in, and flying the flag of a Member State. This means that the Executive could not require, through the contract, that the operator uses vessels flagged (registered) to the UK.

19. However, the Caledonian MacBrayne fleet would be owned by the Vessel Owning Company (VesCo) and leased, on a bareboat basis, to the operator. The operator would be bound to charter from VesCo sufficient vessels to meet the service specification (including requirements for relief and special events). These vessels would be flagged (registered) in the UK and the Executive is of the view that the VesCo would be able to require that the vessels remain flagged (registered) in the UK. The operator would only be able to bring its own vessels either to provide services outwith the subsidy arrangement or where the they have taken all available VesCo vessels.

Service Specification Requirements in relation to Staffing

20. Should tendering proceed, tenderers would be required to detail proposals for staffing issues and would be evaluated on those proposals. This would include:

• details of the tenderers approach to crewing in relation to the CHFS services.
• details of training policies for the development of seagoing and shore staff on the CHFS services. These must adequately provide for the continuing and long term requirements of the services.
• details of policy on retention and how the tenderer would avoid high staff turnover. The proposals must ensure that there would be sufficient numbers of appropriately trained staff available at the end of the contract to ensure the continuation of the services into the next contract. Together with policies on training, there should be long term planning to ensure that there would be sufficient numbers of appropriately trained staff available for the continuation of the services well into the future.
• industrial relations and other related policies _ for example on Fairness at Work. The successful tenderer would be expected to work in partnership with the relevant unions. The operator's human resource management policy would be required to set out and demonstrate a commitment to foster constructive relationships and a partnership approach in line with the Executive's objectives.
• either a statement that the tenderer was content to continue Caledonian MacBrayne's current policies in relation to staff (as set out in the Staff Handbook, Disciplinary policy, Dignity at Work policy, Drugs and Alcohol policy and Equal Opportunities policy) or a copy of the policy/policies which the tenderer intended to negotiate with the staff and his proposals for doing so. If the latter, the Technical Submission would have to satisfy the Executive that the tenderer would be able to negotiate the changes with staff.
• detailed explanation of any proposed changes to the terms and conditions of existing staff. If tenderers proposed such changes they would have to set out in the technical submission how they would achieve this whilst meeting the minimum standards set out in the specification. In particular, the service specification would require that tenderers considered negotiations with the unions representing the Caledonian MacBrayne workforce and relations with staff. The Technical Submission would have to satisfy the Executive that the tenderer would be able to negotiate the changes with staff.

Language

21. The Maritime Cabotage Regulation restricts the language requirements that the Executive could set through the contract terms and conditions. Should tendering proceed the Executive would require that:

• the operator ensured that the Maritime Coastguard Agency requirements relating to language would be met ( i.e.ISM Code and STWC 95 in relation to the ability to communicate with passengers and to each other)
• the operator ensured that the crew and shore staff who deal directly with users were proficient in English
• tenderers considered whether there were benefits attached to ensuring a number of sea-going or shore based jobs for competent Gaelic speakers

Nationality of Crews

22. Section 4.1 of the Maritime Cabotage Regulation states that 'a Member State may require the crews of such ships to be composed entirely of Community nationals'. Should tendering proceed the Executive would set this restriction in relation to the Clyde and Hebrides ferry services.

Nationality of bidders

23. The Regulation states that public service contracts and obligations can only be concluded with 'Community shipowners'. Community shipowners are defined in the Regulation as:

• nationals of a Member State established in a Member State in accordance with the legislation of that Member State and pursuing shipping activities;
• shipping companies established in accordance with the legislation of a Member State and whose principal place of business is situated, and effective control exercised, in a Member State; or
• nationals of a Member State established outside the Community or shipping companies established outside the Community and controlled by nationals of a Member State, if their ships are registered in and fly the flag of a Member State in accordance with its legislation.

24. Should tendering proceed the Executive would comply with this requirement when assessing bidders.

Location of Headquarters

25. Should tendering proceed the Scottish Executive could not require that the operator had its headquarters at a particular location. This would be in breach of EU rules. However, it would be appropriate for the Scottish Executive to require that appropriate management systems were in place to deal with the day to day running of the services. Given the needs of the services in this case, the Executive would require that the operator had sufficient management personnel located close to the actual point of delivery of the services, both to deal with day to day running issues and to enable regular and ad hoc meetings to take place between Ministers and officials and representatives of the operator.

26. It should be noted that Caledonian MacBrayne has indicated that, if it is successful in a tendering process, it would have no plans to move its Headquarters from the Gourock site.

Assurances given by Caledonian MacBrayne

27. The Chairman of Caledonian MacBrayne, Dr Harold Mills, wrote to the then Minister for Transport, Nicol Stephen on 3 June. He noted that whilst, at that time, discussions with the European Commission were ongoing he wished to confirm the company's position in relation to staff and location issues should tendering go ahead:

• Redundancies - Dr Mills confirmed that in March Caledonian MacBrayne had given a guarantee to the Trades Unions representing the Caledonian MacBrayne workforce that there would be no compulsory redundancies in relation to either the Gourock-Dunoon route or the main Clyde and Hebrides bundle. He noted that in the event of any voluntary redundancies the redundancy package would be no less favourable than in the current Collective Agreements.
• Protection of terms and conditions - Dr Mills confirmed that pay and conditions now or in the future would not be worsened and that the company had no intention of introducing a 2 tier workforce now or at any future date.
• Location of Caledonian MacBrayne's Head Quarters - Dr Mills also confirmed that the company had no plans to re-locate its headquarters from the current location at Gourock, either now or in the future.

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