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SECTION 2
NOTICES AND INSTRUCTIONS

2.1 Introduction

2.1.1 Tenders are invited in accordance with the following Notices and Instructions to tender for the provision of the CHFS Services. This Invitation to Tender should not be construed as a commitment by the Executive to contract with any particular Tenderer. Finalisation of the PSC will be subject to the Executive's consideration of the bids received and their compliance with the conditions set out in this ITT and in the draft Contracts. Any expenditure, work or effort undertaken during the tendering process is a commercial judgement for the Tenderer and is at the Tenderer's own risk and expense. The Executive will not be liable for any costs incurred by any of the Tenderers.

2.1.2 The Executive reserves the right not to accept any tender and to end the competition without awarding a contract. Tenderers should be aware that it is unlikely that the Executive will be in a position to go forward with any tender that fails to meet the Minimum Standard. The Executive also reserves the right to issue supplementary documentation at any time during the tender process to clarify an issue or amend any aspect of this ITT. Any additional documentation issued by the Executive during the tender process shall be deemed to form part of this ITT and shall supersede any part of the ITT where indicated. The Executive may also exercise the option to extend the tendering period and/or postpone the Tender Return Date in the event that subsequent documentation is issued.

2.1.3 Except when specifically authorised by the Executive, Tenderers shall not approach any member, officer or employee of the Executive who is not named in this document with a view to providing additional information in respect of any part of their submission or proposals or attempting to support or enhance their tender evaluation. Any such approach or attempted approach by a Tenderer may lead to the Tenderer's exclusion from the process. Any collusion between Tenderers may, at the discretion of the Executive, also lead to the exclusion of all or any of the Tenderers involved.

2.2 Purpose of Tender Exercise

2.2.1 As previously outlined, the purpose of this tendering exercise is to meet the Executive's policy objectives to deliver lifeline ferry (and associated harbour) services in the Clyde & Hebrides which will be subsidised by the Executive through a public service contract complying with the Cabotage Regulation and the EU maritime State Aid rules.

2.2.2 The service requirements are set out in Section 3. In preparing the Service Specification the Executive has had particular regard to the following key principles:

2.2.2.1 Safety Standards _ Safety of passengers and crews is a fundamental issue which under no circumstances can be compromised or diluted;

2.2.2.2 Standards and Quality _ Emphasis has been placed not only on accurately defining the existing level of services supplied but also on quality. Tenderers will be required to submit quality plans, a Customer Services Undertaking and set out minimum standards;

2.2.2.3 Reliability _ Emphasis is placed on the ability to deliver consistently the required levels of service, hence reliability is a fundamental principle;

2.2.2.4 Performance _ Continued high standards of punctuality and availability of vessels, passenger accommodation thereon and appropriate shore facilities together with the provision of the required services at the Harbours and the Ports;

2.2.2.5 Compliance - Continued compliance with all relevant laws, rules and legislation is essential;

2.2.2.6 Objectivity _ As many aspects of the Service Specification as possible must be capable of objective measurement; and

2.2.2.7 Impartiality _ In the evaluation of bids and treatment of Tenderers.

2.2.3 This exercise is designed to identify, by competitive tender, the Tenderer requiring the lowest financial compensation (in all but exceptional and duly justified circumstances) to meet the service requirements. This is in line with EU rules.

2.3 Scope

2.3.1 The ITT covers the lifeline ferry services on specified routes in the Clyde & Hebrides together with the provision of access to, and the operation and maintenance of, the Harbours. Tenders are to include the provision of efficient and safe services, be fully compliant with all the current safety requirements, and be supported by appropriate on board and shore facilities adequate for handling passengers and the loading, carriage and discharge of accompanied and unaccompanied vehicles, loose freight and parcels, livestock lorries and dangerous goods. The CHFS Services are described in Section 3 and attached Annexes.

2.3.2 The routes on the CHFS Network will be the only ferry and harbour services in the immediate area in receipt of direct operating subsidy from the Executive and the subsidy will be granted in respect of all of the CHFS Services.

2.3.3 Tenderers will wish to note that there are other commercial ferry providers (local authorities, Western Ferries, etc.) operating services within the Clyde & Hebrides area and competitors are free to enter the market.

2.3.4 Tenderers are encouraged to investigate alternative innovative revenue streams over and above the Minimum Standard which add value beyond the publicly supported part of the project.

2.3.5 Tenderers will note that additions to the CHFS Services which require extra subsidy will jeopardise Tenderers' competitiveness. Tenderers should strive to include proposals for generating extra revenue and which reduce the level of subsidy, thereby improving the competitiveness of the bid.

2.4 The Tender Process

Propriety and Fairness of Evaluation

2.4.1 The Executive believes that it is necessary to evaluate Tender Submissions transparently and fairly both to meet the standards of public accountability and to achieve the best lifeline ferry services possible. To this end, the Executive has produced Evaluation Criteria that will be strictly adhered to.

2.4.2 The Evaluation Criteria include emphasis on quality as well as price. Each Tender Submission will be the subject of a technical, legal, commercial and financial analysis. The aim of the evaluation is to select the Tender Submission that requires the lowest financial compensation for the provision of the Minimum Standard.

Technical Submissions

2.4.3 The Executive will consider the information provided in each Technical Submission and will reach an objective decision as to whether or not, in its view, the organisation and arrangements described in the Technical Submission will be capable of meeting the requirements outlined in this ITT. This process may involve a period of clarification with Tenderers. The Evaluation Criteria which include but are not limited to the following:

• general understanding of the Service Specification, i.e. provision of Ferry Services and Harbour Services on the CHFS Network;
• assessment of proposals against the Minimum Standard;
• analysis of the technical viability of the proposals;
• operation of proposals with particular emphasis on quality and performance measurements;
• staffing proposals;
• proposals for safety management;
• experience of key staff; and
• suitability of any additional vessels proposed.

2.4.5 The Executive intends to utilise the services of external consultants to assist in the tender evaluation process.

2.4.6 Tenderers will wish to note that the Executive may wish to visit Tenderers' headquarters to carry out an operational audit and/or to audit vessels (chosen by the Executive) from Tenderers' fleets before taking a final view on the Technical Submission.

2.4.7 Only Tenderers whose Technical Submissions are deemed compliant will have their Costed Bids considered. Any Technical Submission not complying with the requirements set out in this ITT will be rejected and the associated Costed Bid will not be considered. Commercial and financial analysis will be applied to the Costed Bids to establish the full price of tenders.

Costed Bids

2.4.8 Tenderers should note that Costed Bids must be submitted along with but must not be included in the Technical Submission. However, Tenderers should note that Costed Bids require to provide detailed financial and other information to enable the Executive to make a full assessment of the bid cost. The Executive also needs to be confident that the Successful Tenderer has a clearly identifiable organisational and financial structure to allow the subsidy award to be transparent, ring-fenced and auditable as part of the financial and monitoring arrangements. The information required in the Costed Bid will therefore include (but is not limited to):

To the extent that the Costed Bid relies on external financial support evidence that such support and the terms of such support would be agreed must be submitted with the Costed Bid.

2.4.9 Further guidance is provided about the format for Costed Bids at Section 5.

2.4.10 The PSC will be awarded following evaluation of Costed Bids. The Successful Tenderer will be, in all but exceptional and duly justified circumstances, the one who meets the Mininum Standards and requires the lowest financial compensation.

Calmac Ferries Limited

2.4.11 Tenderers will be aware that the Executive is involved with the sponsorship of CFL which, as noted earlier, is being invited to tender for the CHFS Services. Organisational measures have been implemented to ensure that CFL is treated in exactly the same way as other Tenderers. This involves clear delineation and separation of tasks and responsibilities within the Transport Group of the Executive.

Electronic Tendering

2.4.12 The Executive has introduced electronic tendering to its procurement processes, beginning with a small number of procurements in late 2003 and early 2004. Under this system, companies expressing interest in submitting a Pre-Qualification Questionnaire ( PQQ) or responding to an Invitation to Tender ( ITT) to the Executive may be asked if they would prefer to submit the documents electronically.

2.4.18 Tenderers may like to gain some practice on the system before undertaking a real tender. The Executive has set up a dummy (or "demonstration") PQQ and ITT so that Tenderers can see the process from end to end and practice their role. To receive the demonstration PQQ/ ITT Tenderers should simply send an e-mail to eprocurementscotland@scotland.gsi.gov.uk

Clarification

2.4.19 If any bid is found not to comply with the Executive's requirements, to lack any information necessary to enable evaluation or to contain inconsistent information, the Executive may:

• evaluate the bid as submitted;
• seek additional information or clarification from the Tenderer; or
• reject the bid.

Opportunity to Submit Comments on Contracts

2.4.20 Should the Executive accept a specific proposal, a PSC between the Executive and the Successful Tenderer will be concluded. Section 2.5 summarises the additional Contracts that the Operator will require to enter into. Copies of each of the Contracts are in the Information Room. The Conctracts in the Information Room at the date of this Tender are, except for the PSC, subject to final review by CMAL and final drafts (track changed) will be placed in the Information Room on 12 January 2007.

2.4.21 Having regard to the timetable set out in Section 2.4.25 and the process described in this ITT, Tenderers are invited to submit to the Executive, no later than 14 February 2007, comments and proposed drafting to address such comments on such of the Contracts as it chooses. The Executive and CMAL will consider these comments and drafting. Where comments and drafting are acceptable to the Executive and/or CMAL, as appropriate, or where the Executive and/or CMAL consider that other amendments should be made to any of the Contracts as a result of such comments and drafting, updated versions of each of the Contracts will be placed in the Information Room. These should inform Tender Submissions. The provisions of each Contract will be identical for all Tenderers.

2.4.22 Tenderers should note that this project is advertised under the restricted procedure described in the Public Contracts (Scotland) Regulations 2006. Consequently, once a Tender has been accepted and a Successful Tenderer appointed each of the Contracts will be updated only to incorporate the proposals in the Tender Submission agreed by the Executive as described in Section 2.4.23. The Executive and CMAL will not enter into negotiations on the Contracts after selection of the Successful Tenderer.

2.4.23 The Executive recognises in Section 2.4.22 that there are some matters in the PSC that cannot be finalised until Tender Submissions have been received, such as insertion of the Initial Base Case (as defined in the PSC) and the Customer Services Undertaking. In respect of these matters only, the Executive will incorporate in the Contracts matters submitted with the bid following the expiry of the period referred to in Section 2.4.21.

2.4.24 If a Tenderer chooses to make a Tender Submission following the issue of the final versions of the Contracts then, with the exception of the matters referred to in Section 2.4.23, they will be deemed to have accepted the terms and conditions of the Contracts as they have been re-issued in accordance with Section 2.4.21.

Timetable for Tendering

2.4.25 The project timetable envisages the PSC commencing on 1 October 2007 although this may be subject to change. Key dates for the tendering process are as follows:

Communication during the Tender Period

2.4.26 Should Tenderers have any questions or wish to seek clarification on any element of this ITT or the tender process, then they should contact the Executive (as set out in Section 2.4.27). Under no circumstances should Tenderers direct any other questions or seek clarification about the scope of this ITT to or from any of the advisors that are supporting the Executive throughout this process.

Tenderers' Queries and Requests for Clarification

2.4.27 Should Tenderers wish to contact the Executive, they should submit their query through the Electronic Tendering system. Alternatively, they should contact Chris Garbutt at the Scottish Procurement Directorate at the following address (preferably by email):

Email: Chris.garbutt@scotland.gsi.gov.uk

2.4.28 Tenderers must nominate a representative who will be responsible for submitting queries and requests for clarification on behalf of the Tenderer. Queries and requests for clarification submitted by any other individual will not be considered by the Executive.

2.4.29 Tenderers are encouraged to identify issues on which they would like clarification only once they are satisfied that the information is not in the Information Room at https://clydehebrides.lightershade.com. Any queries must be submitted in accordance with Section 2.4.27.

2.4.30 All queries and requests for clarification or meetings during the Tender Period must be made in written form using the standard proforma issued to Tenderers (attached at Annex 13). These should be submitted by post, facsimile, or e-mail and must be addressed to Chris Garbutt at least 1 month before the due date for return of Tenders.

2.4.31 The Executive will endeavour to respond to Tenderers' requests for clarification within 10 business days . Tenderers should note that responses to queries and requests for clarification will be published in the Information Room and notice of that publication will be sent to all Tenderers without publishing the identity of the Tenderer seeking the clarification. Tenderers are therefore advised to submit their requests as early as possible.

2.4.32 This procedure is designed to preserve equity between Tenderers by ensuring no premature disclosure of information can take place.

Information Disclaimer

2.4.33 Outline information on the Harbours and the CMAL Vessels is available in the Annexes hereto.

2.4.34 In addition the Information Room will contain:

2.4.35 While every effort has been and will be made to provide accurate information, Tenderers should note that the Executive does not guarantee the accuracy of the information provided and it is provided for guidance only. It is for Tenderers to fully satisfy themselves as to the accuracy and relevance of all of the information provided in connection with this ITT. It is the responsibility of Tenderers to verify and interpret the information provided and to obtain for themselves, at their own expense, any additional information necessary for the preparation of their tender. Tenders will be accepted by the Executive on the understanding that the Tenderer is deemed to have satisfied itself on the scope of the requirement from the information provided.

Confidentiality

2.4.36 Tenderers are reminded of the undertaking they provided at Pre-Qualification Questionnaire stage which confirmed that all information supplied by the Executive in connection with this ITT shall be treated as confidential by Tenderers except that such information may be disclosed for the purpose of obtaining sureties and quotations necessary for the preparation of the Tender Submission.

Changes in Circumstances

2.4.37 Tenderers are required to inform the Executive immediately of:

2.4.38 Tenderers must include, as part of their Technical Submission, a clear statement confirming that they have complied and will continue to comply with this requirement.

Guidelines for Submitting a Tender

2.4.39 Tenderers must provide their detailed proposals for operating the CHFS Services in their Tender Submission. Tenderers should note that the operational details, service standards and other statements on service provision and legislative compliance made by the Tenderer as part of their proposals will form a binding part of the final PSC for the operation of the CHFS Services.

2.4.40 Tenderers may submit their Tender Submission using their own text creation facilities. However, the content layout must address, in the same order, all of the elements set out at Section 4. Technical Submissions must be submitted separately from Costed Bids although both are to be submitted at the same time.

2.4.41 If Tenderers do not wish to submit their proposals through the Electronic Tendering system then they should submit the following:

2.4.42 Each copy of each element of the Tender Submission must include the following information relating to the principal contact for the Tender Submission:

2.4.43 The copies of the Technical Submission and Costed Bid, if not submitted electronically, must be submitted in separate sealed envelopes bearing the attached label to the address shown thereon, for receipt before 3.00 p.m. on the Tender Return Date. Late tenders may not be considered.

Freedom of Information

2.4.44 The Executive is committed to open government and to meeting their responsibilities under the Freedom of Information (Scotland) Act 2002. Accordingly, all information submitted to the Executive may need to be disclosed and/or published by the Executive. If Tenderers consider that any of the information included in their tender is commercially confidential it should be identified and an explanation given (in broad terms) of what harm might result from disclosure and/or publication. Tenderers should be aware that, even where they have indicated that information is commercially sensitive, the Executive may be required to disclose and/or publish it, whether or not the tender is accepted. The Executive may also be required to disclose and/or publish details of unsuccessful Tenderers. The Executive will publish, on its website, the names and contact details of companies who have been issued with an ITT document.

2.4.45 Tenderers will wish to note that the Freedom of Information (Scotland) Act 2002 may be applicable to the CHFS Services. The Executive may, by order under Section 5 of the Act, designate any persons who are (a) exercising functions of a public nature or (b) providing a service under contract with a Scottish public authority. Before making such an order the Executive will consult with any such persons. The Executive will be consulting on the criteria for determining candidates for such a Section 5 order.

2.5 Key Terms and Conditions

Contracts with CMAL

2.5.1 The Successful Tenderer will be required to enter into the following Contracts with CMAL as a condition of the PSC:

(i) a Fleet Charter Agreement ( FCA) and individual Charterparties in respect of each of the CMAL Vessels. Tenderers should note that the CMAL Fleet is registered in the UK and the CMAL Vessels will be expected to remain so throughout the duration of the PSC;

(ii) a Harbour Access and Operating Agreement in respect of access to and operation of the Harbours;

(iii) a Property and Equipment Licence in respect of equipment, land and buildings owned by CMAL at Harbours and Ports;

(iv) the Licensing Agreements in respect of the use of the CalMac Brand; and

(v) a Tripartite Agreement (to which the Executive will also be a party) which will regulate how the FCA, Harbour Agreement; Property and Equipment Licence and Licensing Agreements will be managed and, if appropriate, terminated.

2.5.2 Pursuant to Sections 2.4.20 to 2.4.24, Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts all the terms and conditions in the Contracts as issued or as re-issued in accordance with Section 2.4.21 (as the case may be).

Income and Expenditure

(i) The Operator will receive the following payments:

(ii) The Operator will be responsible for making the following payments:

Allocation of Costs

2.5.4 The Successful Tenderer will be responsible for all its costs relating to mobilisation of the CHFS Services, the operation of the CHFS Services as described in this ITT including crewing and other staff costs, upkeep of vessels, the provision of any replacement vessel when required (unless provided to CMAL pursuant to the FCA) and obligations relating to the handover of the CHFS Services at the end of the Contract Period (if the Operator is not appointed to provide the same or similar services thereafter pursuant to a subsequent tendering exercise). Such costs are to be included as a separate line entry in the Costed Bid. Tenderers must include, as part of their Technical Submission, a clear statement ( Section 7) to this effect.

Financial Structure

2.5.6 Tenderers are required to make full disclosure to the Executive of any relationships with other companies.

2.5.7 Any Tenderer meeting the Minimum Standard, but sharing the cost of assets involved in the provision of other services, will be required to satisfy the Executive that adequate systems would be put in place - and if a contract is placed the Successful Tenderer will have to satisfy the Executive that such adequate systems have been put in place - to ensure no cross-subsidisation occurs between the CHFS Network and any other ferry route or any other activities. Tenderers may wish to consider whether it might be appropriate to set up a separate special purpose company to provide the CHFS Services to ensure that there is adequate transparency. Details of charging arrangements in respect of CHFS Services provided by other parts of the Tenderer's group must also be provided.

2.5.8 The Successful Tenderer will be required to account for the subsidy in a transparent and auditable fashion so that it is able to demonstrate that there is no cross-subsidisation with other business activities. Tenderers must include, as part of their Technical Submission, a clear statement ( Section 7) confirming that they will comply with this requirement and detail proposals setting out how they intend to satisfy this requirement.

Insurance

2.5.9 The Successful Tenderer will be required to ensure that all chartered, leased and rented assets or assets provided by any arrangement other than with CMAL are fully insured at the appropriate commercial value. The Successful Tenderer will also be required to provide the insurances required by CMAL under the Contracts. Additionally, the Successful Tenderer will be required to carry the necessary insurances sufficient to cover for all and any third party claims which may occur as a result of providing the CHFS Services.

2.5.10 The Successful Tenderer will be responsible for providing demonstrable evidence that all the necessary insurances are in place prior to contract commencement and thereafter copies of policy renewals on the specified date will be submitted to the Executive and/or CMAL as appropriate.

2.5.11 Under no circumstances shall the Successful Tenderer be allowed to provide the CHFS Services without appropriate insurance being in place. The payment of all associated premiums, deductibles and other costs will be for the Successful Tenderer's account.

Contract and Compliance Legal Jurisdiction

2.5.12 The Executive will enter into the PSC with the Successful Tenderer relying on the Transport (Scotland) Act 2001 Section 70.

Compliance with EU and Domestic Law

2.5.13 This tender exercise and the terms of the PSC are designed to comply with the public service contract requirements of the EU regulations and guidelines referred to in Section 1.

2.5.14 Tenderers will wish to note that a public service contract may only be concluded with a Community shipowner as defined in the Cabotage Regulation. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer complies with this requirement.

2.5.15 The Successful Tenderer will be required to ensure compliance with all applicable International Conventions, EU Council Directives and Regulations, and national regulations and to ensure that relevant industry codes, guidance and standards are fully taken into account.

2.5.16 The statutory framework for regulating the safety standards of ferries in UK waters is administered by the MCA. Tenderers should note that the Successful Tenderer will be required to comply with international, European and national regulations, codes and procedures at all times and, in particular, with the requirements of the International Safety Management ( ISM) Code and merchant shipping legislation enforced by the MCA. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement and detailing how the Tenderer will comply with this requirement.

2.5.17 The Successful Tenderer will be required to comply with all relevant rules and regulations including Health and Safety at Work Regulations enforced by the Health and Safety Executive and the Port Marine Safety Code as applicable. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement and detailing how the Tenderer will comply with this requirement.

2.5.18 The Successful Tenderer will be required to comply with the terms of the Terrorism Act 2000 (as amended by the Anti-Terrorism, Crime and Security Act 2001) in relation to the collation and distribution of information on the carriage of passengers, cars, and loose freight and parcels. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement and detailing how the Tenderer will comply with this requirement.

2.5.19 Tenderers should include as part of their Tender Submission a clear statement ( Section 7) confirming that, if successful, they will provide all information which may be required in order to allow the Executive to comply with the provisions of Directive 80/723 (as amended) (The Transparency Directive) in so far as it applies to the Operator of the CHFS Services.

2.5.20 The Successful Tenderer will be required to have regard to the legislative framework and obligations in relation to disabled people ² and to consider the needs of disabled travellers. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement and detailing how the Tenderer will comply with this requirement.

TUPE

2.5.21 Tenderers' attention is drawn to TUPE. The application of TUPE to any situation is a matter of law and can only be conclusively determined by an Employment Tribunal or court of law. Whether or not TUPE is likely to apply to a situation will depend on the facts and circumstances of the particular case.

2.5.22 It is the responsibility of the Tenderer to consider whether or not TUPE is likely to apply in the particular circumstances of this tender exercise and to act accordingly. Tenderers should therefore take their own advice regarding the likelihood of TUPE applying. However, it is the Executive's view that TUPE is likely to apply to the transfer of responsibility for operating the CHFS Services and Tenderers will wish to note recent case law where similar circumstances have been considered by an Employment Tribunal. Tenderers should also note that following the introduction of TUPE, it is more likely that TUPE will apply to situations where there is a change in service provider, than had been the case under the Transfer of Undertakings (Protection of Employment) Regulations 1981. Tenderers may also wish to note that, immediately prior to the commencement of the PSC, the on-shore human resource employees engaged in relation to the CHFS Services will be employed by Caledonian MacBrayne HRUK Limited, all other shore staff will be employed by CFL, and the sea farers will be employed by Caledonian MacBrayne Guernsey Limited and CFL.

2.5.23 Where TUPE applies, it provides the following main protections for employees:

2.5.24 Tenderers are required to cost their bids as if TUPE applies and to make clear the cost that they are attributing to TUPE. For example, they should set out those additional costs which they expect to incur if TUPE does apply and which they would not expect to incur if TUPE did not apply.

2.5.25 Tenderers should note that in the event that the Operator becomes liable for certain employment liabilities which have arisen prior to the commencement of the PSC, additional monies may be paid to the Operator provided that such claims have been notified within 3 months of the commencement of the PSC. Tenderers should refer to the PSC for the detail of this provision.

2.5.26 If it is found after the commencement of the PSC that TUPE does not (as a matter of law) apply, there will be a reduction in subsidy throughout the PSC, equivalent to any reductions in the Successful Tenderer's costs as a consequence of that decision. Similarly, if it is found on termination of the PSC that TUPE does not (as a matter of law) apply, there will be an adjustment to the Base Case for the benefit of the Operator for the final Service Year to take into account any statutory redundancy payment costs incurred by it as a result and which exceed the sum of the greater of either (i) the Successful Tenderer's agreed profit margin for the final year of the PSC or (ii) £250,000.

Pensions

2.5.28 Tenderers must submit tenders which, in respect of any staff who may transfer by virtue of TUPE or otherwise ( Transferring Employees) and any employees who are assigned to the CHFS Services ( Assigned Employees), comply with the principles set out in respect of Transferring Employees in:

2.5.29 By virtue of these requirements, the Successful Tenderer will be required both in respect of past service and future service to provide retirement and life assurance benefits for Transferring Employees and Assigned Employees which are broadly comparable to those currently provided to Transferring Employees under the CalMac Pension Fund, the Merchant Navy Officers' Pension Fund, the Merchant Navy Officer's Pension Plan and the Merchant Navy Ratings Pension Plan.

2.5.30 Tenders will be regarded as compliant which (as appropriate) envisage the provision of such benefits under the Calmac Pension Fund, the Merchant Navy Officers Pension Fund, the Merchant Navy Officer's Pension Plan, the Merchant Navy Ratings Pension Plan or one or more alternative arrangements nominated by the relevant Tenderer which provide broadly comparable benefits. Where an alternative arrangement is specified, it will be required to receive a transfer value and grant day-for-day past service credits, and to pay a transfer value at cessation on the same basis.

Staffing Issues

2.5.31 Tenderers will be required to detail proposals for staffing related issues. This will include crewing and other staffing arrangements such as training, recruitment and retention, and industrial relations. Tenderers will wish to note that crews on the CMAL fleet are employed under offshore arrangements. Details are provided at Section 2.5.22 above.

PSC Duration

2.5.32 The Contract Period under the PSC will be for six years, and is expected to commence on 1 October 2007 and terminate on 30 September 2013, subject to the Executive's right of earlier termination on default under the PSC. This is the maximum permitted period under the Cabotage Regulation.

Subsidy

2.5.33 The purpose of the subsidy is to allow the Operator to provide a lifeline ferry service which would not otherwise be commercially viable. The basic calculation of subsidy is:

(cost + an agreed level of profit margin) - revenue = subsidy

ie the cost to the Operator of providing the services, allowing for an agreed level of profit margin, less the revenues that the service generates, including if applicable grants and contributions from other bodies. If the Operator's revenue is greater than its costs (plus agreed profit) no subsidy will be payable.

2.5.34 The Costed Bid will set out the projected subsidy for each Service Year (the Base Case) using projected cost and revenue figures, and the subsidy payable during the first Service Year is calculated from those figures.

2.5.35 At the end of each Service Year the Base Case for the remaining Service Years is revised to reflect the actual experience in the past Service Year (a Revised Base Case), and each subsequent Service Year's subsidy is calculated from the Revised Base Case figures for that Service Year. The Base Case can also be revised during a Service Year in exceptional circumstances as set out in the PSC. A reconciliation is carried out at the end of each Service Year.

2.5.36 The subsidy will be paid monthly in arrears within 5 business days of the first day of each month. The monthly instalments will be paid in two separate streams: (a) the "Assets Portion" which represents the monthly payments due by the Operator to CMAL pursuant to the Contracts (other than the PSC) and which will be paid in full in all circumstances so long as the PSC is in force; and (b) the balance from which performance deductions, if applicable, may be deducted.

Funded Assets

2.5.37 One off payments of subsidy can be requested if the Operator considers that a capital asset is needed to permit or assist in the provision of the CHFS Services and (if approved) payments will be made by the Executive to permit the Operator to settle invoices for the relevant asset as they fall due. These may include assets to be acquired by the Successful Tenderer from CFL. A register is to be maintained of such assets and they must be delivered to the Executive or a replacement operator on expiry or termination of the PSC. Such assets will require to be maintained outwith the scope of any floating charge which the successful Tenderer may grant or have granted over all or any of its assets.

Fuel Supplement

2.5.38 The PSC contains provisions for a separate fuel supplement to be paid monthly in arrears to the Operator. This is the Operator's projected cost of fuel payable for each month of the next year (including the cost of any fuel cap or hedging arrangement) based on the projected tonnage of fuel oil which the Operator estimates it will need to provide the CHFS Services. The fuel supplement is reconciled monthly and annually in the light of actual costs.

Performance Regime

2.5.39 The PSC contains the performance regime for the CHFS Services and deductions from the subsidy will be made if the standards set out in the performance regime are not met. These arrangements are summarised at Section 3.15 and Annex 12. The PSC sets out the scheme in detail in Clause 9 and Schedule Part 8. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts the terms of the performance regime. Technical Submissions should also include proposals setting out how the Tenderer intends to provide the information required by the Executive under the PSC in relation to the performance regime ( Annex 13 of this ITT and Schedule Part 7 of the PSC).

Relief Events

2.5.40 The PSC contemplates that certain events will allow the Operator "relief" from the usual consequences of not performing their obligations under the PSC. The occurrence of a Relief Event will not result in additional subsidy and the Executive will not be liable to the Operator for any loss of earnings. More information is set out in Section 3.15 and the detailed provisions can be found in the PSC at Clause 9 and Schedule Part 8.

Variations

2.5.41Tenderers should note that although the CHFS Services represent the minimum route network for the Contract Period, the PSC allows for variations to cater for unforeseen and/or changing needs during the Contract Period. The Operator will be required to operate any changed services proposed by the Executive throughout the Contract Period should the Executive consider that the CHFS Services have or are to become inadequate or inappropriate for any reason. The arrangements for re-calculation of subsidy in respect of such variations to the PSC are set out in the PSC at Clause 10.

Monitoring and Audit

2.5.42The Executive intends to place a contract to assist with monitoring of the PSC. In accordance with the terms of the PSC, the Operator will be required to provide detailed monitoring and accounting information on a route-by-route and harbour-by-harbour basis. These arrangements are intended to ensure that the standards set out in the performance regime are being met. The PSC describes at Schedule 7 the information that the Operator must provide for the purposes of monitoring its performance.

Disputes

2.5.43 Disputes relating to Outcome Statements, the Revised Base Case or Base Case Recalculations (as set out in more detail in Clause 5 of the PSC) will be referred to an expert nominated by the Executive and the Operator or, if they do not agree on the identity of the expert, by the President of the Institute of Chartered Accountants of Scotland. The PSC at Clause 22 makes provision for a dispute resolution mechanism for all other disputes to an arbiter to be selected by the Sheriff Principal of Grampian, Highlands and Islands. The Operator will be responsible for continued delivery of the CHFS Services while any dispute is unresolved.

Transfer or Assignation

2.5.44 The Operator may not transfer or assign the PSC or any part thereof without the written approval of the Executive. Relevant provisions are set out in Clause 17 of the PSC.

Termination

2.5.45 The Executive may terminate the PSC for breach of its terms by the Operator. Clause 12 of the PSC sets out these provisions. Provision is also made for breaches and other performance failures to be remedied in accordance with the Cure Plan.

Tripartite Agreement

2.5.46 The Tripartite Agreement links the FCA, Harbour Agreement, Property and Equipment Licence and Licensing Agreements to the PSC. In certain circumstances, breaches of these agreements may result in termination of the PSC. Termination of the PSC will result in termination of the other Contracts. The Tripartite Agreement also allows the conjoining of disputes under the PSC and the other Contracts. Tenderers should review the relevant provisions in the Tripartite Agreement and the PSC (at Clause 12) in accordance with Sections 2.4.13 - 2.4.15. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts these provisions.

Consultation between the Executive, CMAL and the Operator

2.5.47 Tenderers will see that the Harbour Agreement contemplates the establishment by CMAL and the Operator of a project committee to discuss various aspects of the Harbour Agreement. The FCA also contemplates that the parties will meet to discuss certain matters. The Successful Tenderer will be required to comply with these requirements. More detailed information about the nature and frequency of these meetings is set out in the Harbour Agreement, the FCA and the Tripartite Agreement. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement and details setting out how the Tenderer intends to address it.

2.5.48 CMAL will take account of the Operator's views with regard to replacement CMAL Vessels but will not be bound by them. CMAL's programme of capital expenditure will be subject to the approval of the Executive.

2.5.49 The Executive also plans to undertake comprehensive research during the early part of the PSC. While the programme is still to be finalised it will include routes, service patterns and fares. This research will inform the service specification for future contracts. The Operator must attend and contribute to meetings in relation to this research if asked to do so by the Executive. The Executive will meet the reasonable costs incurred by the Operator in complying with this requirement. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement.

2.5.50 The Operator will also be required to attend regular meetings with the Executive as part of the monitoring and management of the PSC. Normally this would comprise quarterly meetings between relevant members of the Operator's management team and the Executive contract sponsorship team. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement.

2.6 Constraints, Risks and other Key Points to note

2.6.1 The main legal and financial constraints on the key elements of service provision are outlined in this ITT.

2.6.2 Tenderers must be aware of the high importance the Executive attaches to the safety of the CHFS Services and to the requirement for the Operator to meet all applicable safety requirements both onshore and afloat for vessels, passengers and crew in operating the CHFS Services. While specific safety requirements are set out in Section 3, it is for the Operator to ensure that it complies with all relevant national and international legislation, Conventions, Directives, as well as Industry Codes and Standards. Technical Submissions should include a clear statement ( Section 7) confirming that the Tenderer accepts this requirement.

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