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1. General
1.1 Introduction
1.1.1 This Invitation to Tender (" ITT") invites public transport shipping Operators to tender for a grant that is available to operate passenger and vehicle ferry services between the Scottish mainland and the Orkney Islands and Shetland Islands. The Orkney Islands and Shetland Islands are described collectively in this ITT as the Northern Isles.
1.1.2 This ITT has to be read together with the separate Scottish Executive document setting out detailed terms and conditions of a Draft Grant Agreement and other supporting documentation.
1.1.3 The ITT is divided into the following sections:-
- General - section 1 sets out general information about the background to the need for tendering and sets out the Scottish Executive ("the Executive") policy objectives.
- Notices and Instructions - section 2 explains the purpose and scope of the ITT and the financial assistance available. It also sets out the key principles behind the detailed terms and conditions of the Grant Agreement and Tripartite Agreement which will be entered into with the Operator.
- Service Specification - section 3 sets out the Executive's requirements for the service to be operated. It is structured largely as an output specification, explaining the services which are to be operated and provided, the routes/ports served, and arrangements for setting fares which will be set throughout the Grant Period. The Service Specification reflects the Executive's policy objective of supporting the economic and social needs of the communities in the Northern Isles.
- Service standards - section 4 summarises the key elements of the service standards and monitoring arrangements.
- Tendering Process and Evaluation of Tenders - section 5 outlines the timetable for the tendering exercise. The section also explains the process which the Executive will follow in evaluating Tenders.
- Form of Tender to the Scottish Executive - section 6 requires Tenderers to give a signed undertaking to provide the services set out in the Service Specification in accordance with the Annexes to the Service Specification and the Draft Grant Agreement.
1.2 Definitions, Interpretations and Abbreviations
1.2.1 The following abbreviations and definitions are used in this ITT:
Applicable Law | Regulation, Legislation, practice or concession or official directive, ruling, request, notice, guideline, statement of policy or practice by any relevant legislative authority, the EU, governmental, local, international, national or other competent authority or agency (whether or not having the force of law in respect of which compliance by ship owners and Operators is generally customary), including for the avoidance of doubt the Cabotage Regulation, EC Communication and EC Guidelines. |
Cabotage Regulation | Council Regulation ( EEC) No 3577/92 of 7 December 1992 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage). |
Commencement Date | The Commencement Date set out in the Grant Agreement |
CPI | Consumer Price Index |
Executive | The Scottish Executive. |
Expiry Date | The Expiry Date set out in the Grant Agreement |
EU | European Union. |
EC | European Commission. |
EC Communication | COM (2003) 595 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the interpretation of Council Regulation ( EEC) no 3577/92 (published December 2003) |
EC Guidelines | Commission Communication C(2004)43 - Community guidelines on State aid to maritime transport (2004/C 13/03) (published January 2004) |
Fleet Vessels | As defined in the Draft Grant Agreement. |
Grant | The subsidy payable to the Operator under the Grant Agreement. |
Grant Period | The period commencing on the Commencement Date and finishing on the Expiry Date or, in the event of early termination, the early Termination Date. |
Harbour | The harbour facilities at each or any of Aberdeen, Hatston, Lerwick, Scrabster and Stromness. |
Implementation Plan | The plan to be prepared by Tenderers in terms of Annex E. |
Information Room | System for the Executive to provide the information required by Tenderers to develop a comprehensive and realistic Tender. The information room will contain factual information about the operation of the existing services and related material e.g. for vessel charters and leases of other equipment. |
ITT | Invitation to Tender documentation. This is a term for all of the documentation issued in the tendering process, which will incorporate the Service Specification and other material. |
Legislation | Any Act of Parliament, including any local, personal or private Act of Parliament, any subordinate legislation (as that expression is defined in section 21(1) of the Interpretation Act 1978), any exercise of the Royal Prerogative and any enforceable community right (as that expression is defined in section 2 of the European Communities Act 1972) and any bylaws, statutory instruments, orders, notices, directions, codes of practice, consents or permissions properly and lawfully made or given under any of the foregoing (including for the avoidance of doubt, any legislation enacted by any Scottish Parliament or assembly or similar body and any subordinate or delegated legislation made by the Scottish Ministers or other person deriving authority from such legislation). |
Lessor | Royal Bank Leasing. |
MCA | Maritime and Coastguard Agency. |
Northern Isles | The Orkney Isles and the Shetland Isles |
NorthLink | NorthLink Orkney and Shetland Ferry Services Limited, the service provider operating the existing subsidised passenger and vehicle ferry service to the Northern Isles. |
NorthLink Information | The document containing detailed information prepared by NorthLink on various operational issues which document has been provided to Tenderers with the ITT or in the Information Room; |
Operator | The Operator in terms of the Draft Grant Agreement. |
Operator Vessels | As defined in the Draft Grant Agreement. |
PQQ | Pre Qualification Questionnaire, as used for the short listing of Tenderers in the earlier part of the tendering process |
PSC | Public Service Contract |
Pricing Submission | The Pricing Submission which is to be submitted by Tenderers to the Executive. It will set out the Tenderer's financial Tender. Tenderers are required to submit this separately from (but at the same time as) the Technical Submission and other documents contained in their Tender. |
Project | The provision of the Services in accordance with the Service Specification and the performance of all obligations of the Operator in terms of the Draft Grant Agreement. |
Relief Events | As defined in the Draft Grant Agreement |
Scottish Ministers | The party with whom the Operator will contract in terms of the Draft Grant Agreement, albeit that the Scottish Ministers' obligations under the Draft Grant Agreement will be performed by the Executive. |
Services | The services to be provided in accordance with the Service Specification, which comprise a subsidised passenger and vehicle lifeline ferry service, comprehensive roll on roll off freight service, from the Scottish mainland to (and between) the Northern Isles. |
Technical Submission | The technical submission to be submitted by Tenderers to the Executive. It should set out the Tenderer's proposals for meeting the requirements set out in the Service Specification. It must be submitted separately from (but at the same time as) the Pricing Submission and other documents contained in their Tender. |
Tender | The Pricing Submission and the Technical Submission, together with all additional statements and documents as further detailed herein, which comprise a Tenderer's response to this ITT. |
Tender Return Date | The date of submission of Technical and Pricing Submissions in response to the ITT given in section 5. |
Tenderer | Organisation invited to tender for the Northern Isles services |
Termination Date | The Termination Date set out in the Draft Grant Agreement. |
TRS | Tariff Rebate Subsidy |
Treaty | The Treaty of Rome |
Tripartite Agreement | an agreement among the Scottish Ministers, the Lessor and the Operator |
TUPE | Transfer of Undertakings (Protection of Employment) Regulations 1981 (as revised from time to time) |
Vessels | The Fleet Vessels and the Operator Vessels. |
1.3 Background
1.3.1 A subsidised passenger and vehicle ferry service is currently provided to the Northern Isles by NorthLink. NorthLink has provided these services since October 2002.
1.3.2 Prior to October 2002 the services were operated for a number of years by P&O Scottish Ferries Limited. In October 2002 NorthLink took over the subsidised service having won the contract to provide the services until 2007. The Scottish Executive, however, in line with NorthLink's views about its commercial prospects under that contract, has agreed with NorthLink that tendering for the next contract should be brought forward. Ministers announced their plans to begin the current tendering process on 8th April 2004.
1.3.3 The Northern Isles services are currently provided for passengers and vehicles with 2 or 3 return sailings per day between Scrabster and Stromness, and a daily passenger and vehicle service between Aberdeen and Lerwick with some sailings calling at Kirkwall (Hatston). NorthLink also operates 2 freight vessels between Aberdeen and Lerwick (again with some calls at Kirkwall (Hatston)).
1.3.4 Under the terms of the existing agreement with NorthLink and the Scottish Ministers, a grant is provided to NorthLink on an annual basis for the support of the approved services. This grant is intended to meet the operating loss incurred in operating the approved services on the approved routes. The grant covers passengers and accompanied cars only.
1.3.5 The transport of Northern Isles livestock is also subsidised, but under the TRS arrangements involving a flat rate grant enabling an approved shipping Operator to reduce by 50% tariffs chargeable to those wishing to transport livestock between the Northern Isles and the Scottish mainland. The Executive pays TRS in arrears on receipt of invoices from the shipping Operator specifying the number of animals carried in the relevant claim period.
1.3.6 The Executive has decided that the existing TRS arrangements for livestock should be terminated and livestock should be incorporated into the single Grant structure encompassing both freight and livestock for a lifeline ferry service. It is proposed to award this Grant under the terms of the Transport (Scotland) Act 2001 to a single shipping Operator after a Europe wide competitive tendering exercise. The issues relating to the requirement for a comprehensive roll on roll off freight service are explained in more detail in section 3.
1.3.7 Under this proposal the Executive considers that the Grant arrangements will be easier to understand both for Tenderers and users of the service because there will be a comprehensive roll on-roll off freight, passenger and car ferry service. There may also be a consequential advantage that the Grant arrangements might be easier to administer and be more coherent. This would also provide a clear link to implementation of the Executive's underlying policy to support lifeline services to the islands in line with the European Union rules and the State aid guidelines.
1.4 European Union
1.4.1 The European Commission has a duty under Article 88(1) of the Treaty to keep under review aid being provided in Member States and to ensure that Member States apply the appropriate measures required by the progressive development, or the functioning, of the single market. There has to be a level playing field across the EU in respect of how any grant is made available.
1.4.2 Under the Cabotage Regulation PSCs may be concluded on a non-discriminatory basis in respect of all ship Operators in the EC. The EC Communication and the EC Guidelines both provide guidance about entering into a PSC on a non-discriminatory basis.
1.4.3 Under the EC Communication the EC recognises that special rules are required to protect maritime links not adequately served by the market. The EC Communication and the EC Guidelines offer clarification about the conditions laid down by the Commission involved to ensure that public intervention is compatible with general European Laws.
1.4.4 The Executive is satisfied that a tendering process is required to enable the grant assistance to be made available by means of PSC within the terms of all Applicable Law. This tendering exercise is essential to enable the Executive's policy of supporting the approved ferry services serving the Northern Isles under a PSC. The procedures adopted are designed to comply with Applicable Law and the Executive's own procurement best practice.
1.4.5 In particular, Tenderers will wish to note that under the EC Communication and EC Guidelines:-
- the duration of a PSC should be limited and would normally be in the order of 6 years. A 6 year contract is required in this case;
- Grant for the PSC must be directly related to the deficit made by the Operator for the service;
- Grant given for PSCs must be granted in compliance with Applicable Law (in particular the Cabotage Regulation) and the Treaty rules and procedures governing State aid, as interpreted by the European Court of Justice. In practice this means that the Tender should be awarded (except in exceptional and duly justified circumstances) to the Tender as requiring the lowest financial compensation. The grant which the Executive is intending to pay is the amount necessary to cover all or part of the costs incurred in the discharge of the PSC which the Executive requires to be implemented in the Draft Grant Agreement, taking account of relevant receipts and a reasonable profit. Tenderers should note that whilst lowest financial compensation is a key criterion the services provided must also be of sufficient quality to meet the requirements of the PSC. The evaluation process has therefore been set up in such a way that it assesses separately the technical and financial aspects of each Tender i.e. only those Tenderers who submit an acceptable Technical Submission will have their Pricing Submission assessed;
- the Executive will apply the award criteria as set out in para 2.22 to identify the Tender which is capable of providing the Services at the least possible cost, and which fully complies with the Service Specification.
1.4.6 It is Tenderers' responsibility to ensure that for their part they comply with all Applicable Law in the establishment of their bidding entity and organisation and in their Tender. Any contravention of these requirements on a Tenderer's part may make them ineligible for the tendering process.
1.5 Objectives
1.5.1 The Executive support for ferry services to the Northern Isles falls within the policy context of supporting lifeline ferry services throughout the Highlands & Islands of Scotland. The Executive Partnership Agreement of 2003 commits the Executive to promoting public transport and continuing to support and invest in lifeline ferry links.
1.5.2 The underlying policy aim for the Executive is to provide Grant for sea transport where, in the opinion of the Executive, this is necessary for the social and economic wellbeing of the islands concerned. The Services are being tendered with that aim.
1.5.3 The exercise also fits with the Executive's wider policy objectives to meet islands and remote communities' needs by securing access by public transport links, which provide a continuing, safe, stable and affordable regime for users in line with Applicable Law.
1.5.4 A grant is available to provide a sea transport service adequate to meet demand for passengers and vehicles between the Northern Isles and the Scottish mainland throughout the Grant Period. The Services must also involve the use and, where appropriate, provision of effective, efficient and safe vessels fully compliant with current safety requirements and supported by appropriate shore infrastructure adequate to deal with vessel operations, and the loading, carriage and discharge of freight, hazardous goods and livestock.
1.5.5 The Project is designed to identify, by competitive tender, the Tenderer meeting the award criteria to provide the defined service requirements and outputs. The key service requirements include operational issues, quality standards, vessel operation, capacity requirements, financial requirements, corporate structure, use of appropriate ports facilities, and service safety. The Project is also designed to encourage appropriate operational and service innovation.
1.5.6 In pursuing these objectives the Executive have set the following key parameters for the tendering process that: -
the Grant Period is six years;
the Services will operate all year round in line with the service schedule, routes and capacity designed to meet the expected pattern of demand;
the Operator shall comply with all Applicable Law including, but not limited to, all Applicable Law relating to sea-going vessels, their registration, operation and maintenance, and all vessel, crew and passenger safety requirements and for the transport of freight including the Animal Health Act 1981, the Welfare of Animals (Transport) Order 1997 as amended, the Environmental Protection Act 1990 and the Health and Safety at Work Act 1974.
The Executive will be proceeding with the Project on the basis of the above objectives and parameters. The Executive reserves the right to reject Tenderers not complying with the requirements set out in the Invitation to Tender. The Executive will consider any practical innovative solutions about how these requirements can be met within the Draft Grant Agreement conditions.
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