Serco in Scotland

On Friday 4th May at teatime, whilst the Scottish media’s eyes were firmly fixed on the local election counts being totted across the country, the Scottish Government slipped out the announcement that the preferred bidder for the contract to run lifeline ferries to and from the Northern Isles (Orkney and Shetland) was Serco Ltd. (see Bella on Serco here)

The contract, due to start from July 2012 and which in line with European procurement rules, runs to six years, is estimated to be worth a total of £254 million. The preferred bidder “ is the bidder who is selected by the vendor, usually to some predetermined criteria, as being the party to whom it intends to sell the business, or award a contract, subject to the completion of negotiations and legal arrangements”.  The announcement was subject to a ten day standstill during which the contract cannot be let, until the contract was due to take effect from today, Tuesday 15 May.

Serco were granted preferred bidder status above the other companies bidding, namely: the current operator, NorthLink Ferries Ltd, Pentland Ferries Ltd (biding for the Scrabster – Stromnes route) Sea-Cargo, P&O Ferries, Serco Limited and Shetland Line (1984) Ltd.

A life less ordinary?

So who exactly are Serco Ltd?  According to the Guardian, they are “the biggest company you’ve never heard of”[1] – a company of which 98% of its turnover and revenue are derived from contracts outsourced by public bodies. As their own website states: “The scale and scope of the services we operate are extensive[2], and quite breathtaking.

Serco are involved in operating speed cameras across the UK; the electronic tagging of  offenders; running the Manchester Metrolink; together with Abellio they operate the UK’s largest passenger rail franchise, Northern Rail, and Merseyrail; they operate the Docklands Light railway in London; provide care services in Cornwall; run the local education service in a contract with Bradford Council; manage 192,000 square miles of airspace in five countries; provide computer and software support service to all 66 UK law enforcement agencies; and have recently been awarded the controversial contract to review the cases of over 3.2million people in the UK who receive Disability payments. Serco employ over 100,000 people and have a have a forward order book that stands at a record £16.7 billion. [3]

Serco Ltd. aren’t just cheerleaders for privatization, they are privatization.

They are involved in 20 different nuclear power sites in the UK, and are part of Atomic Weapons Establishment (AWE) group (with Lochheed Martin and Jacobs) who provide and maintain nuclear deterrent in UK. Serco is now directly responsible for maintaining the UK’s nuclear warheads and dismantling redundant weapons – a £1.7billion contract: “Our work at AWE covers the entire life cycle of nuclear warheads; from initial concept, assessment and design, through to component manufacture and assembly, in-service support, and finally decommissioning and disposal.”[4]

In Scotland, Serco has “a strong and growing presence in Scotland, working on behalf of the Scottish Government, local authorities and the UK Government. [Their] contracts include operating Scatsta Airport on Shetland, the ACCESS joint venture with Glasgow City Council providing IT and property services, the management of a fleet of support vessels for the Royal Navy at Faslane, CCTV and roadside emergency phones for Transport Scotland, the operation of HMP Kilmarnock and offender tagging for the Scottish Prison Service, and facilities management for NHS Scotland[5] at the controversial PFI Forth Valley Royal Hospital in Stirlingshire and Wishaw General Hospital in North Lanarkshire.  In a scene worthy of the film A Life Less Ordinary, where Ewan McGregor finds his cleaning role usurped by robots, Serco have developed robot operatives, which “will be used to move the hospital’s waste, linen, patient food and clinical supplies.”[6]

From 2001 until 2003 Serco jointly ran the Dungavel Immigration Centre, where they aware criticized for treating refugees like prisoners and for incarcerating children.  There is nowhere that Serco won’t go – if euthanasia ever does become legal in Britain, you can be sure Serco would  provide the service to knock off your granny.

Full steam ahead?

So why are they interested in the ferry service to Orkney and Shetland?

According to current opertator Northlink, the service is increasingly busy.  Passenger numbers to and from Aberdeen have all but doubled from 79,854 in 2001 to  157,495 in 2009. [7]  Northlink themselves are a subsidiary of David Macbrayne, whose history providing ferries services in Scotland “go back to 1851 with the formation of the steamer company David Hutcheson & Co which had three partners – David Hutcheson, Alexander Hutcheson and David MacBrayne.

Since 1851, there have been several organisational changes, one of the most significant of which took place in 1969 when Caledonian Steam Packet Company Ltd., operating Clyde services, and David MacBrayne, operating Western Isles services, became subsidiaries of the state-owned Scottish Transport Group.

In 1973, the Caledonian Steam Packet Company Ltd. was renamed Caledonian MacBrayne Ltd. and took over responsibility for both the Clyde and Western Isles ferry operations and in 1990, the ownership of Caledonian MacBrayne Ltd. was transferred to the Secretary of State for Scotland.

In 2000 Caledonian MacBrayne Ltd. and the Royal Bank of Scotland formed a joint venture, NorthLink Orkney & Shetland Ferries Ltd., which was successful in the tender for the contract to operate the Northern Isles ferry services. Three splendid new ships were built for the routes and NorthLink Orkney & Shetland Ferries Ltd. took over the contract in 2002.

In 2006, major corporate restructuring related to the provision of both the Northern Isles ferry services and the Clyde and Hebrides ferry services took place. David MacBrayne Ltd., which had lain dormant for a number of years, was reactivated and became parent company to the companies which, following tender processes, took over operation of the Northern Isles services, NorthLink Ferries Ltd., and the Clyde & Hebrides ferry services, CalMac Ferries Ltd.[8]

The most recently audited accounts (201/11) shows Northlink turning a 1.4 million profit, resulting in a £1m payback to the company’s sole shareholder, the Scottish Government.

So the awarding of the Northern Isles ferry contract gives rise to a number of questions:

1. Why is the SNP government willing to give the license to private company Serco, who would retain all profits,  at the expense of the Scottish company, Northlink – a subsidiary of David MacBayne Ltd, a company whose sole shareholder is  the Scottish Government?  Whilst the exisiting 71 exmployees will be transfered under TUPE arrangements, there will no doubt be job losses at David MacBrayne’s central support functions.

2. Why is the SNP happy to hand over the contract to a company the Norwegian government has banned from making investments in from the Oljefondet  (Oil Fund), as they are ‘unethical’ due to their role in the Atomic Weapons Establishment?[9]

3. How is the SNP’s stance on a nuclear free Scotland consistent with the Scottish Government awarding contracts to the company that maintains the nuclear deterrent at Faslane?

Postscript: The deal which would see Serco take over the running of the lifeline ferry services that link Shetland and Orkney to the mainland has been put on hold. [10] The Scottish government said it had to postpone plans to sign a six-year contract with the firm after one of the other bidders mounted a legal challenge.  Streamline said it had a stronger case for running the route.  The General Secretary of the shipping Union, Bob Crow said:

“This whole botched privatisation plan has descended into chaos with one private bidder mounting a legal challenge to another. This is no way to run essential, lifeline ferry operations that are a fundamental public service.[11]


[1] http://www.guardian.co.uk/business/2006/feb/24/columnists.guardiancolumnists

[2] http://www.serco.com/about/ataglance/index.asp

[3] http://www.serco.com/about/ataglance/index.asp

[4] http://www.awe.co.uk/aboutus/what_we_do_27815.html

[5] http://www.sercoferries.com/

[6] http://www.serco.com/media/pressreleases/2010/forthvalleyrobots.asp

[7] http://www.scotland.gov.uk/Publications/2010/12/08124947/180

[8] http://www.david-macbrayne.co.uk/about-us/history.htm

[10] http://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-18043692

[11] http://hanger17.wordpress.com/2012/05/14/rmt-demands-halt-to-scottish-ferries-sell-off/

Comments (16)

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  1. ferguswalker says:

    Yes, It’s pretty scary. Have a look at this frankly frightening infographic piece on Serco by Australian TV programme Hungry Beast. http://www.youtube.com/watch?v=KaytzykSQzk

  2. longshanker says:

    1) “Why is the SNP government willing to give the license to private company Serco, who would retain all profits, at the expense of the Scottish company, Northlink.”

    Why would they keep quiet about future Corporation tax arrangements re: Amazon. Why would they be prepared to deal with Murdoch in such friendly terms when NewsCorpshad become such a toxic pariah?

    They may act and sound like the left when it suits them, but we all know from comments by Alex Salmond in 2008 that there’s a sneaking admiration for Thatcher and her sado-monetarist ideology.

    2) “Why is the SNP happy to hand over the contract to a company the Norwegian government has banned from making investments in from the Oljefondet”

    For the same reason the SNP are happy to deal with Chinese salmon exports after China broke off trading links with Norway for awarding the Nobel Peace Prize to Chinese dissident Liu Xiaobo in 2010. Salmond’s SNP are increasinly looking like they have no sense of ethics. This move alone makes them look like they support political repression.

    3) How is the SNP’s stance on a nuclear free Scotland consistent with the Scottish Government awarding contracts to the company that maintains the nuclear deterrent at Faslane?

    It will gain points in the referendum and keep the party on board to maintain its decades long stance on nuclear proliferation. It will be unceremoniously dropped if the independence referendum should be won. These contracts signal to the International Community (ie America) that an independent Scotland does not pose a potential ‘enemy within’ threat regarding nuclear defence. It’s a reflection of Realpolitik in action.

  3. DougtheDug says:

    1. Why is the SNP government willing to give the license to private company Serco, who would retain all profits, at the expense of the Scottish company

    It comes down to the tendering rules. If it is a public contract then it may not be legally possible for the Scottish Government to restrict it to companies based in Scotland or to a Government owned company.

    2. Why is the SNP happy to hand over the contract to a company the Norwegian government has banned from making investments in from the Oljefondet (Oil Fund), as they are ‘unethical’ due to their role in the Atomic Weapons Establishment?

    The Scottish Government may not be happy to hand over the contract to Serco but if they stopped Serco getting the contract if Serco offered the lowest bid because they didn’t like their involvement in AWE then that would lay the SG open to a legal challenge which they’d lose. The Scottish Government is not a sovereign government like Norway and investing is not the same as tendering for a public contract.

    3. How is the SNP’s stance on a nuclear free Scotland consistent with the Scottish Government awarding contracts to the company that maintains the nuclear deterrent at Faslane?

    See the above answer. Simple question. If Serco offers the most cost effective bid to run the ferries to the Shetland and Orkney what legal route can the Scottish Government use to refuse them the contract?

    Unless the Scottish Government can write conditions of no nuclear involvement into public service contracts which comply with both UK public contract tendering rules and European tendering rules then it is powerless.

    The whole article here seems a bit of a reverse Daily Mail Why-Oh-Why article without looking at what powers the Scottish Government has to stop a company like Serco from putting in a winning bid.

    1. johnny says:

      DougtheDug – thanks for your comments and replies to my questions posed in the article.

      I would suggest you have more experience with tendering that I do – so lets look at the powers that the Scottish Government has, when it awards public contracts, such as the lifeline ferry services to the Northern Isles.

      Is the sole factor taken into account when awarding contracts the cost? Does retaining jobs, wider questions of ethics, and the transferral of services from companies whose sole shareholder is the Scottish Government( which resulted in the £1m payback in 10/11) to companies with private shareholders (who would keep any profit) – do none of these get factored in when making decisions about public services? Surely they should…

      On what criteria does the SNP Government make this decision?

  4. johnny says:

    DougtheDug:
    Thanks for the comments and replies to my questions posted in the article.
    I would suggest you have more experience with tendering than I do – So lets have a look at the powers that the Scottish Government have in awarding contracts.

    Surely govenrnment decisions when awarding contracts is not based on cost alone? Jobs, ethics and the transferal of services from companies who has one sole shareholder (the Scottish Government – which results in the clawback referred to above) to companies with private shareholders who would retain all profit – are none of these taken into account when awarding public contracts? If not, why not?

    1. DougtheDug says:

      Johnny,
      Public tendering in Scotland is based on the “The Public Contracts (Scotland) Regulations 2006” which in itself is based on the “European Commission’s Consolidated Directive on public procurement (2004/18/ EC)”

      The relevant part of the “The Public Contracts (Scotland) Regulations 2006” for this discussion is:

      Criteria for the award of a public contract

      30.—(1) Subject to regulation 18(27) and to paragraphs (6) and (9) of this regulation, a contracting authority shall award a public contract on the basis of the offer which–

      (a) is the most economically advantageous from the point of view of the contracting authority; or

      (b) offers the lowest price.

      There’s a page on Outlaw.com which gives the basics about procurement.
      http://www.out-law.com/page-5964

      “Water Transport Services” fall under part B of the directive. There’s more on the Outlaw page about Part A and B.

  5. John Souter says:

    DD -your comments may be may have relevance but Serco is well on the way to gaining dominance in the administration of public services.

    Surely that is not a sensible position to be either encouraged or tolerated.

    1. DougtheDug says:

      John,

      Serco is well on the way to gaining dominance in the administration of public services. Surely that is not a sensible position to be either encouraged or tolerated.

      It’s not a question of toleration it’s a question of having to follow the rules as laid out in the legislation.

  6. R Louis says:

    When arrtanging tenders to contracts, it is the purchaser or buyer of the contract services which sets the criteria or contracting terms – in this case the Scottish Government. It is not simply a case of ‘which is the cheapest’, other criteria can be included such as, profit returns to Government, long term strategic commitments, viability of service provision, and in this case, quite importantly I think, EXPERIENCE of running the service.

    This decision by the Scottish Government does need properly scrutinised, because in situations such as this, invariably what happens is the winning lowest price bidder who has no experience of how to provide the service, merely subcontracts to the previous service provider (who lost the bid, but needs the work), but at a lower price, with lower rates of pay (for the unemployed staff who previously run the service), and nice big juicy private profits at the taxpayers expense.

    In effect the same company (in this case northlink) carries on providing the service, with half the staff, lower rates of pay, and an additional ‘middleman’ bid winner creams the profits.

    I’d actually love to know what ferries Serco owns up in Aberdeen for running the route? Or indeed experience it has with the route??

    I would have thought that John Swinney would have grasped the utter folly of such an approach.

  7. johnny says:

    DougtheDug

    Appreciate the links and further facts on procurement.

    I would of thought a potential £1m clawback from £1.4m yearly profit would be contribute to being “the most economically advantageous from the point of view of the contracting authority”. I would have also thought that that might allow room for interpretation in terms of retention of jobs (within the contracting authority’s area – i.e Scotland).

    I do take on board :
    So who made the rules? Do we need to look at adapting procurement practice so economic capital is not the only determinant factor when deciding? Should this be a part of any “new Scotland”?

    1. DougtheDug says:

      Johnny,
      The problem for the Scottish Government is that their procurement is done under rules set out in legislation. Unlike a private company who can decided on a supplier based on any criteria they like, price, reliability or the simply because they like the supplier’s haircut the Government are open to legal challenge if the don’t follow the rules exactly.

      At the end of every contract every other bidder will go over the winning bid and the legislation with a fine tooth comb to see if they’ve got any cause to challenge the choice. I’ve no idea about the financial or economic advantage that the Serco bid offered but it must have satisfied the regulations which unfortunately is what counts in a public contract.

  8. Tearlach MacDaid says:

    R Louis

    Serco does not have experience in running ferries, but they do have lots of experience in running public services, as that’s all this is. They own no ferries, but will simply use the vessels and crew from Northlink, as they will be TUPed over. Remember that Northlink (which was a JV between Cal Mac and the BoS (I think) ) has only run this service for 15 or so years, taking over from P&O in exactly the same circumstances as Northlink loosing out to Serco. P&O had been on that route for 50 years or more. This is like a rail franchise changing hands, its like the Aberdeen bus company first taking over Scotrail. And why does Serco want to run the service – cos they think they can make money.

    First knew nothing about running a railway, but knew about running a public transport system. Now they now know how to run a railway (or not depending on your point of view)

    I was in Orkney the day before this was announced, and the expecttaion was that Northlink would walk back in. But the procurement process (of which I have many scars) can throw up some very strange results, over the which the procurer often has little control, short of the stopping the process and starting again.

    Not very easy with a lifeline service.

    Also the procurement process would have had to be designed to ensure that Northlink would not have had any advantage as they are owned by the SG, and profit retention by the public sector would again form no part of that decision process., and to be frank its more than naive to think that it would.

    So unexpected but not unsurprising, although the legal challenge from Streamline certainly is. Either they are taking a flyer, or some one in Keith Browns Transport department has cocked up big time.

    On a brighter note, delighted to see a little bit of shake up in Orkney Island Council today with the election of Steven Heddle as Convener, albeit by one vote. An Orcadian Astrophysicist, whose wife (who runs UHI’s Nordic studies school) as SNP candidate for Orkney has made serious inroads into the Lib Dem vote in those islands.

  9. johnny says:

    DougtheDug:
    “The problem for the Scottish Government is that their procurement is done under rules set out in legislation. Unlike a private company who can decided on a supplier based on any criteria they like, price, reliability or the simply because they like the supplier’s haircut the Government are open to legal challenge if the don’t follow the rules exactly.”

    Tearlach MacDaid:
    “Also the procurement process would have had to be designed to ensure that Northlink would not have had any advantage as they are owned by the SG, and profit retention by the public sector would again form no part of that decision process., and to be frank its more than naive to think that it would.”

    So my, maybe naive, maybe daft-laddie questions is: Who makes the legislation? If the legislation allows for a companies such as Serco to bid and win, then I would contend that the criteria used is too narrow. Surely what we need is an ethical procurement process, one that includes criteria relating to ethics (which in this case directly contradict SNP’s policy for nuclear free Scotland) and other forms of capital.

    The Scottish Government’s Purpose is set out as “To focus Government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.” Does the awarding of the contract to Serco serve this?

    If the Scottish Governments hands are tied, then I’d like to know by who? This isn’t a “why-oh-why?” wail, more of a simple “why?”

    1. DougtheDug says:

      Johnny,

      If the Scottish Governments hands are tied, then I’d like to know by who?

      The “Public Contracts (Scotland) Regulations 2006” is a Scottish Statutory Instrument which is under the control of the Scottish Parliament however there are two other layers of Government who must be satisfied if changes are made.

      In the “PREPARATION OF SCOTTISH STATUTORY INSTRUMENTS: GUIDANCE FOR ADMINISTRATORS” it says in para. 2,
      Orders under the Scotland Act 1998 can only be made with the agreement of Whitehall colleagues including the Scotland Office as well as the relevant policy Department.

      The “Public Contracts (Scotland) Regulations 2006” also implements the “European Commission’s Consolidated Directive on public procurement (2004/18/ EC)” so any changes would also have to make sure they don’t contradict anything in that directive.

      How difficult it would be to put anti-nuclear clauses in the legislation is something I don’t know enough about.

      The Guidance is available on:
      http://www.scotland.gov.uk/Resource/Doc/1066/0006078.pdf

  10. Johnny Gailey says:

    Footnote: from BBC website, 19 October 2012
    http://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-20002237

    Serco Northlink Ferries to cut up to 36 jobs.

    The operator of the Northern Isles ferry service plans to cut up to 36 jobs, it has been announced. Serco Northlink Ferries, which took over the passenger and freight routes between Aberdeen, Shetland and Orkney in the summer, said it had already begun talks with staff and unions. It hopes to achieve the cuts without the need for compulsory redundancies.

    Serco was confirmed as operator of the service following a hearing at the Court of Session earlier this year. Ferry fares are to rise by 2.8% next year, it announced earlier this week. The number of sailings across the Pentland Firth are also to be cut. During the off peak season there will be two instead of three return sailings a day between Orkney and Scrabster.

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