Rathlin Ferry Investigations Report [searchable]

Investigation into the Procurement of the Rathlin Ferry Service December 2008

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List of Abbreviations CALMAC Caledonian MacBrayne Ltd CMAL Caledonian Maritime Assets Ltd CPD Central Procurement Directorate DRD Department for Regional Development EU European Union HSENI Health and Safety Executive NI ISM International Safety Management MEP Member of the European Parliament MCA Maritime and Coastguard Agency MV Motor Vessel NIAO Northern Ireland Audit Office OJEU Official Journal of the European Union PIN Prior Information Notice PSNI Police Service of Northern Ireland POCVA _ Protection of Children and Vulnerable Adults PPTD Ports and Public Transport Division RDCA Rathlin Development and Community Association RFL Rathlin Ferries Ltd RIFL Rathlin Island Ferry Ltd SLA Service Level Agreement TUPE Transfer of Undertakings (Protection of Employment) Regulations 2006

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INDEX TO REPORT l.0 INTRODUCTION 2.0 BACKGROUND 3.0 REVIEW PROCESS FINDINGS 4.0 THE PROCUREMENT PROCESS 5.0 POST TENDER ARRANGEMENTS 6.0 CONTRACT MONITORING 7.0 MANAGEMENT AND PERSONNEL ISSUES 8.0 OVERALL CONCLUSION AND RECOMMENDATIONS ANNEXES Annex 1 Chronology Annex 2 Three Strand Investigation: Terms of Reference Annex 3 Summary of Key Allegations Annex 4 Parties who have made allegations/complaints/raised concerns Annex 5 Enhanced Service - Tender Requirements Annex 6 Compliance of Mr. O'Driscoll’s tender with the tender requirement Annex 7 Contract Monitoring Checklist Annex 8 July 2008 e-mail correspondence

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INTRODUCTION 1.1 On 18 April 2008, following a competitive tender competition, the Northern Ireland Department for Regional Development (DRD) awarded a contract for the operation of passenger and vehicle ferry services between Ballycastle and Rathlin Island to a new operator, Mr. Ciaran O'Driscoll, operating as Rathlin Island Ferry Ltd. 1.2 Following the award of the contract a number of allegations and complaints were received by DRD and the Northern Ireland Audit Office (NIAO) about the propriety of the process and whether the procedure complied with public sector procurement regulations. In light of these allegations and complaints the Permanent Secretary of DRD concluded that an investigation into the allegations and complaints should be carried out on an independent basis by individuals with the relevant expertise and experience. Steve Rowsell, an independent procurement consultant (and former Director of Procurement of the Highways Agency in England) was appointed to investigate the procurement process and Wilfie Hamilton, a retired senior civil servant, was appointed to carry out an investigation into the complaints against members of DRD staff involved in letting the contract. These strands of the investigation were to run in parallel with work previously commissioned by the Permanent Secretary from his Internal Audit Unit and which was being taken forward by Mark Stranaghan (Audit Manager). A chronology of the procurement is shown at Annex l and terms of reference for the investigation are shown at Annex 2. 1.3 In so far as the allegations in relation to staff are concerned the review was undertaken as a preliminary investigation in accordance with Disciplinary Procedures as set out in paragraphs 4.1.1 - 4.1.3 of the NICS Staff Handbook. The staff involved were made aware of this approach and that the Department may consider formal disciplinary action, depending on the outcome of the review. 1.4 This report sets out the findings of the investigation team.

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BACKGROUND 2.1 Rathlin Island is located six miles from the coastal town of Ballycastle, off the northeast Antrim coast and is Northern Ireland’s only inhabited offshore island. Up to 1996, access to Rathlin Island was provided by the Islanders themselves using converted fishing boats. However, that operation was unable to meet the increasing standards demanded by new legislation and, following a tender competition, the responsible Department at that time (Department of the Environment (NI)) awarded a contract to Caledonian MacBrayne to operate the Rathlin Island ferry service from the 1996/97 year. Caledonian MacBrayne, now known as CalMac (to avoid confusion we have referred to "CalMac" throughout the body of the report), is part of David MacBrayne Ltd which is wholly owned by the Scottish Executive on behalf of Scottish Ministers. CalMac was successful in a further tender competition in 2003 and continued to operate the ferry service until 30 June 2008 when a new contract commenced operated by Rathlin Island Ferry Ltd. The service currently carries approximately 50,000 passengers per year. 2.2 The contract for the provision of ferry services between Ballycastle and Rathlin Island awarded in 2003 followed a procurement process in which only one bidder, CalMac, was able to offer a suitable vessel. The intention had been to establish a contract for a minimum period of five years, but due to an anticipated corporate reorganization of the parent company, CalMac was only able to enter into a renewable annual contract. The 2003 award was therefore a qualified award. 2.3 The corporate restructuring of David MacBrayne Ltd took place in 2006. In 2006 DRD decided to initiate a new procurement process to replace the 2003 contract arrangements. Central in the Department’s thinking was the desire to maximize value for money and to secure as good a service quality as possible on the route. DRD utilized the services of the Central Procurement Directorate (CPD) of the Department of Finance and Personnel (DFP) to undertake the procurement procedures. The work was undertaken by the Supplies and Services Division of CPD under the terms and conditions of a Service Level Agreement (SLA) between the two Departments.

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2.4 A Prior Information Notice (PIN) had been published in the Official Journal of the European Union (OJEU) in July 2005 which alerted potential operators across Europe to the new competition for the ferry services contract. The procurement was not commenced during the following 12 month period and so the PIN was resubmitted and published in the OJEU in June 2006. 2.5 The formal procurement process commenced in May 2007 when expressions of interest to bid for the contract were invited. In due course, following the tender period, three tenders were received by the closing date of October 2007. These were assessed by an Evaluation Panel but it was concluded in November 2007 that none of the bids was acceptable, two because of non-compliance and one on grounds of non-affordability. The non-compliance issues related mainly to the inability of alternative operators to guarantee the availability of an acceptable vessel before the award of the ferry contract. 2.6 In parallel with this procurement process there had been growing local pressure for the Rathlin Island ferry service to be enhanced to provide an improved level of service in terms of capacity and comfort for the benefit of local users and to help promote tourism. This followed the publication of the Rathlin Island Sustainable Tourism Strategy in June 2005 which highlighted the importance of a modern ferry service. 2.7 Following the unsuccessful outcome of the first procurement procedure in November 2007, a new procurement process was commenced in January 2008. This included a new requirement for the bidders to offer enhanced services in addition to the basic lifeline service highlighted in the original tender documentation. Central in the Department’s thinking was not only a desire for a longer term solution, but also concerns about increasing costs on the route and a desire to secure the best possible scenario for the islanders within affordable limits. DRD had also had discussions with Caledonian Maritime Assets Ltd (CMAL), the owners of the MV Canna which provided the existing ferry services, and they reached agreement that the vessel would be made available under a leasing agreement to any new operator of the ferry service.

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2.8 The new procurement procedure again resulted in three bids being received, one of which was determined at an early stage to be non-compliant. The remaining two were assessed under the oversight of CPD by an Evaluation Panel which comprised of DRD staff, a member of the Ballycastle Harbour Authority and a marine consultant and the bid of Mr. Ciaran O'Driscoll was ultimately determined to be the most economically advantageous. He was subsequently awarded the new contract. 2.9 The new operator commenced the new service on 1 July 2008 following a handover period from the previous operator, CalMac. A number of complaints and allegations followed the tender action and it is these which form the substance of the report.

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REVIEW PROCESS 3.1 The investigators quickly concluded that while aspects of the review could be pursued separately it was not practical to carry out the three strands of the investigation in isolation, given the number of inter-related issues and a need to see the issues in context. It was agreed that a joint approach, with a pooling of relevant information, leading to a single comprehensive report, would best ensure a thorough investigation of the allegations. On areas relevant to procurement the team relied heavily on Mr. Rowsell’s expertise, on management and personnel issues, Mr. Hamilton, and on matters of record, Mr. Mark Stranaghan (the lead Internal Audit official). A further consideration for the investigation team was a need for the matters to be investigated as quickly as was practicable, given the on-going confusion, the likely negative impact on the various parties concerned and possibly on the effective operation of the Rathlin Island ferry service. 3.2 The following approach was adopted by the investigation team: • Internal Audit working papers relating to the original queries under review in the Department were made available and scrutinized by the new investigators; • further examination of documents and records held by CPD and DRD; • the investigation team liaised with NIAO to agree a way ahead and to facilitate meetings with ‘whistleblowers’ made known to NIAO; • meetings were held with ‘whistleblowers’ to provide an opportunity for them to substantiate their complaints and for the investigators to probe the allegations made and to seek supporting evidence; • the allegations made were put to the relevant DRD and CPD staff directly involved in the procurement of the Rathlin Island ferry service and explanations sought; • Evaluation Panel members involved in the procurement were interviewed; • CalMac officials and their company solicitor gave evidence to the review; • interviews and written submissions were received from a number of other parties named in the correspondence, to seek corroboration or refute; and • A meeting was held with Mr. Jim Allister (MEP), who had raised a number of concerns, to explain the nature of the review and ascertain if he had any direct evidence or other sources who may be able to inform the review.

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3.3 The Team was to report to the Permanent Secretary of DRD at end September or as quickly as possible thereafter (depending on the availability of witnesses). Allegations/Complaints 3.4 In discussions with NIAO regarding the allegations and complaints made directly to them, we were advised that the term ‘whistleblower’ was being used in the generic sense and disclosures were not necessarily qualifying disclosures as described under the Public Interest Disclosure Act 1998. We made it clear to NIAO that we would fully respect the position of those making disclosures and deal sensitively with any information provided. 3.5 We have summarized the key allegations in Annex 3 of this report and Annex 4 provides detail of the parties who have made allegations / complaints / raised concerns in direct correspondence with the department. In the course of the investigation we have also accepted written submissions from parties detailing specific allegations and complaints.

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FINDINGS 4.1 THE PROCUREMENT PROCESS 4.1.1 Public Contracts Regulations · , The Public Contracts Regulations 2006 4.1.2 The procurement of the Rathlin Island ferry service contract was covered under statute by the Public Contracts Regulations 2006 (the Regulations) which came into force in Northern Ireland on 31 January 2006. The Regulations set out the requirements of [European Directive 2004/18/EC on the coordination of Procedures for the Award of Public Works Contracts, Public Supply Contracts and Public Service Contracts. 4.1.3 Schedule 3 of the Regulations sets out categories of services covered by the Regulations. This identities services involving "Transport by water" as Category 19 in Part B of the schedule. The categorization of the contract as a Part B service has important implications for the procurement process as explained below. Part B Services 4.1.4 The application of the Regulations to Part B services is set out in Regulation 5 paragraph (2) The contract is not one excluded by virtue of Regulation 6 or 8 and therefore, the contracting authority is required to apply the following parts of the Regulations: (a) Parts 1, 8 and 9: and ` (b) the following provisions in Parts 2 to 7:• Regulation 9 (technical specifications in the contract documents); • Regulation 31 (contract award notice); • Regulation 40(2) (statistical and other reports); • Regulation 41 (provision of reports); and . • Regulation 42 (publication of notices).

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4.1.5 This means that procurement procedures normally required by Parts 2 to 7 of the Regulations covering the matters set out below do not apply to Part B services:• 3 Part 3 Procedures leading to the award of a public contract; A • Part 4 Selection of Economic Operators; • Part 5 The award of a public contract (except Regulation 31); • Part 6 Specialized contracts; and • Part 7 Matters relating to a public contract. 4.1.6 Although most of the procedures normally applicable to public contracts do not apply to Part B services, Part l of the Regulations does still apply and places an overarching obligation on contracting authorities to act in a fair, transparent and non-discriminatory manner. Regulation 4 (3) states:"A contracting authority shall (in accordance with Article 2 of the Public Sector Directive):(a) treat economic operators equally and in a non-discriminatory way,· and (b) act in a transparent way. " 4.1.7 In broad terms therefore, the procedures used by a contracting authority for the procurement of a Part B services contract are not constrained by the Regulations except to the extent that they must be fair, transparent and non-discriminatory. Within this overarching constraint DRD / CPD had discretion and freedom as to the process that they adopted and applied. They chose to use some of the standard procedures that would be used with Part A services but not all elements of those procedures. This partial application of common practices may have given rise to some of the complaints but DRD/ CPD did follow the obligations in respect of Part B requirements. EC Communication on Maritime Transport Services 4.1.8 In December 2003 the European Commission issued Communication 595 setting out its views on the interpretation of Regulation 3577/92 which relates to the provision of maritime transport services. This includes a section on the procedures for concluding public service contracts for small island ferry services.

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4.1.9 The Communication document highlighted the cumbersome procedures which overcomplicated the procurement of ferry services for small islands and allowed a simplified procedure to be adopted. The definition of small islands meant islands where the total annual number of passengers carried by sea to and from the island was around 100,000 or fewer. 4.1.10 The simplified procedure allows the selection of a suitable operator entrusted to serve a small island to be carried out following a simple call for expressions of interest without launching a formal tender, provided that a Community-wide announcement of the service is maintained, i.e. the publication of a Prior Information Notice (PIN). 4.1.11 On 12 May 2006 the Commission provided an update clarifying that public authorities can use the simplified process if the maritime services involve less than 300,000 passengers per year. The Rathlin Island ferry service falls within this definition of a small island and so a simplified process was permissible. Application of the Regulations to the Rathlin Ferry Contract 4.1.12 Our investigations have established that the procurement procedures for the Rathlin Island ferry service contract were based on those required for a Part B services contract as set out in the Regulations and went further than the simplified process permitted under the EC Communication on Maritime Transport Services. We have identified issues relating to the application of the procedures which we have examined in detail and we set out our findings later in this report. Allegation: Procurement Procedures were not complied with. 4.2.1 Complaints and allegations made about the award of the Rathlin Ferry contract have included concerns about the appropriateness of the overall procurement procedures that were applied. It has been suggested by complainants that the normal processes used for Part A services should have been followed. Specific allegations have related to: • the assessment criteria; • the adoption of an open rather than a restricted procedure; • the lack of a standstill (Alcatel) period before the award of contract; and

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• post-tender negotiations. 4.2.2 As noted earlier, while there is an overarching requirement for the process to be fair transparent and non-discriminatory, DRD and CPD had discretion within the requirements of the Regulations governing Part B services, and the dispensation in relation to small ferry services. In our opinion the specific complaints about the application of the Regulations to the Rathlin Island ferry contract are based on a misunderstanding of the Regulations: DRD / CPD were not required to apply the full Part A procedures. Key Stages in the Procurement Process Previous Contract awarded in 2003 4.2.3 The previous contract to provide ferry services between Ballycastle and Rathlin Island commenced in April 2003 and was operated by CalMac. The contract duration was originally intended to be for an initial five year period extendable by two years in the first instance and then with three further periods of one year to provide a possible total of ten years. 4.2.4 The CalMac tender had been the only compliant bid received but due to a planned corporate restructuring they were unable to enter into a long-term contract at that time. This meant that the annual subsidy required by the company to operate the service had to be renegotiated on an annual basis and the amount of subsidy increased over time without further competition to test the value for money. Over the period of the contract the subsidy increased. While on the face of it, it appears that the annual increase in subsidy since 2003 was not unreasonable, both the original subsidy and the subsequent increases had not been subject to any competitive challenge. 4.2.5 We are of the opinion that this was an unsatisfactory position and it was necessary and justifiable for DRD to undertake a new procurement as soon as was practicable.

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Advertising the New Contract 4.3.1 A PIN was published in the OJEU on 19 July 2005 giving early notice that a new contract was to be procured. This was not taken forward over the next twelve months and so a new PIN was published on 28 June 2006. In both PINs the ferry services were, in our opinion, correctly defined as service category 19 which identified the service as a Part B service as set out in the Regulations and as explained above. 4.3.2 Following the publication of the second PIN an advertisement was placed on CPD website in May 2007 inviting Expressions of Interest (EOI) from companies in bidding for the new Rathlin Island ferry service contract. An electronic tendering system was used to support the process and the return date for EOI was 18 June 2007. 4.3.3 Over this period DRD and CPD developed and agreed a SLA setting out the procurement service that CPD would provide in line with the standards / principles set out in the Northern Ireland Public Procurement Policy. The procurement for the Rathlin Island ferry service contract was covered by this SLA. In addition a Procurement Initiation Document was drawn up to cover this specific procurement which set out the roles and responsibilities of the two Departments in taking forward the procurement. 4.3.4 We consider that the development of the SLA and the use of Procurement Initiation Documents do represent good practice. Our investigations have however, revealed some gaps in the roles and responsibilities which resulted in a lack of ownership of some specific duties. This would suggest that the scope and clarity of the initiation documents should be reviewed. The Evaluation of Expressions of Interest There were a total of seven requests for the prequalification documents which resulted in three tender applications being submitted from: • West Cork Coastal Cruises (Mr. Ciaran O'Driscoll); • Rathlin Ferries Ltd (a CalMac Group company); and • Cove Caravans.

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4.4.2 Following an assessment by the Evaluation Panel, all three firms who submitted an EOI were invited to tender. We have reviewed the assessment of the EOI and we are of the opinion that it was appropriate for all three firms to be taken forward to the tender stage. The incumbent operator, Rathlin Ferries Ltd (CalMac), were considered by the panel to have made the weakest prequalification submission. As a result they received the lowest score and were the company at greatest risk of being omitted. We found this surprising but we consider that the Evaluation Panel took the sensible view that they should be included on the tender list. 4.4.3 Prior to the invitation of tenders in August 2007 DRD visited its counterparts in the Republic of Ireland as they operated services similar to the Rathlin Island ferry. In the context of this process there were discussions about general levels of subsidy, contractual arrangements and about operators of the services in the Republic of Ireland. The Department of Community Rural and Gaeltacht Affairs confirmed that in its experience Mr. O'Driscoll was a potential candidate who had done well on other routes. The Department of Community Rural and Gaeltacht Affairs has since said that "on three occasions financial penalties have been imposed on the operator in accordance with the terms of the contract. They went on to state that “Notwithstanding this however, it is the Department’s considered view that the service provided by Tithe Saoire Cleire Teo to Cleire rates on a par with the majority of other island Ferry Services subsidized by it". The First Tendering Procedure 4.5.1 Tenders were invited by CPD on behalf of DRD on 29 August 2007. The objectives of the service set out to be: • to maintain a "life-line" service to Rathlin Island; • to offer a contract term for the service of six years; and • to ensure that the maximum annual amount of subsidy to be made available for the support of the service is based on the most economically advantageous tender. 4.5.2 Whilst the services required under the contract were essentially a continuation of the existing service, there was a clear indication to tenderers that an improved service to

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customers was important. At para: 1.2.4. the tender document highlighted the deficiencies with the current service at that time. It stated that:- . “The ferry is Rathlin’s lifeline and a critical part of its ability to attract visitors. It is attractive as a relatively cheap means of access but it almost certainly fails to meet the expectations of many visitors, in terms of quality, due to the amount of shelter provided, the design and layout of the passenger accommodation. In addition the crossing is frequently rough." 4.5.3 In addition, para 2.3.2 of the tender document stated that:"Tenderers are encouraged to develop the service provided over and above the minimum service requirements which add value to the service." 4.5.4 The tender documents also advised bidders that the issue of the Invitation to Tender should not be construed as a commitment by the Department to place an order as a result of the tendering exercise. 4.5.5 Tenders from the three bidders were received by the tender return date of 11 October 2007 . There was a short delay until 22 October 2007 to finalize the details of the scoring matrix to support the marking of the assessment criteria before the tenders were opened. The assessment criteria and weightings had been set out in the tender documentation but the more detailed scoring guidance used by the Evaluation Panel in the marking of the tenders was not agreed until after tenders were received. CPD recorded on the file that the bids would remain unopened until agreement had been reached with DRD. In our view the action taken by CPD was appropriate to protect the propriety of the process but we consider that DRD / CPD should have ensured that the scoring matrix was established and agreed before the tenders were submitted. There are also issues about whether the scoring matrix was transparent and fully aligned with the assessment criteria which we address later in the report. 4.5.6 During the tender period Mr. O'Driscoll had submitted a tender enquiry asking whether he could submit the tender in his personal capacity rather than in the name of one of his two companies involved in offshore island ferry services in the Republic of Ireland. It is

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understood that this was because the company names were specific to the routes that they served and would not have been relevant to the Rathlin Island service. We note that CPD replied that provided that the position was transparent and in line with the position set out in the prequalification submission then it would not be a problem. We consider that the position as regards the programme for the establishment of the new company should have been clarified at contract award stage, although in the event Mr. O'Driscoll’s new company was established before the commencement of operations. The October 2007 Tender Proposals The CalMac Proposal 4.6.1 The technical proposal from CalMac was based on the ongoing use of the existing vessel, the MV Canna. There was a limited improvement in the current service in relation to the winter timetable, with an additional return sailing on a Monday, Wednesday and Friday. 4.6.2 CalMac stated in their tender that they had consulted with Moyle District Council and the RDCA about the possibility of implementing both a passenger-only service as well as an early morning sailing but had concluded that "it was not appropriate at that time to implement such aspirations". 4.6.3 The subsidy required by CalMac for the first year of the new six year contract would have represented a 25% increase in the subsidy paid to CalMac for operating the service over the financial year 2007/08. We asked the company the reasons behind such a large increase and were advised that this was as a result of sharp increases in key costs such as fuel and insurance and an allocation of a portion of central management costs against each route under operation. The Department advised that the level of subsidy required was above the DRD budget available in 2008/09 for operating the ferry service, without offering significant improvements to the service. The O'Driscoll Proposal Mr. O'Driscoll proposed a two-vessel solution; a second hand ro-ro vessel identical to the current vessel in service on the route and a new purpose designed and built aluminium

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catamaran to be available in summer 2009. It was proposed that the two vessels would operate all year round. 4.6.5 The subsidy required by Mr. O'Driscoll would have been within DRD’s available budget but in the event he was unable to guarantee a suitable main vessel at that time. Cove Caravan’s Proposal. 4.6.6 The Evaluation Panel’s comments on this bid were that "the submission from Mr. Grant failed to demonstrate compliance with the vast majority of the essential requirements as stipulated within the terms of reference. The panel therefore agreed that the bid could not be considered compliant. Assessment of the First Tenders Allegation: An Evaluation Panel Member had a potential conflict of interest. The Process 4.7.1 Some complaints have raised questions about conflicts of interest on the Evaluation Panel. Conflict of Interest forms were signed by the Evaluation Panel members at the end of October 2007 / early November 2007 prior to the Panel undertaking the assessment of the tenders. These show that there were no declared conflicts of interest. It should be noted that these forms also covered the second competition and were not updated because there was no delay in moving on to the second competition. We have found no evidence to indicate a possible conflict of interest but in our view it would have been advisable to require Evaluation Panel members to sign new forms. A specific question was posed about the Clerk and Chief Executive of Moyle District Council (Moyle DC) being on the Panel: we do not consider that either his position in the council or as Harbour-Master should have precluded his participation. Allegation: The Department was attempting to purchase the MV Bruernish for one of the Bidders 4.7.2 DRD’s Marine Consultant, accompanied by DRD and CPD officials carried out inspections of possible vessels proposed by the tenderers, on the 5th, 6th and 8th November 2007; this included the MV Bruernish which had been proposed by Mr.

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O'Driscoll. The owner of the MV Bruernish informed a contact in CalMac that it appeared the Department was interested in the vessel. Having discussed the matter with the Marine Consultant who led in the discussions and with DRD staff present, we are content that the Department’s only interest was in checking whether the vessel was available and suitable for the Rathlin route. In the event it was not. We have concluded that there is no evidence to support the allegation that the Department was attempting to purchase the MV Bruernish for one of the bidders. 4.7.3 The Evaluation Panel met on 9 November 2007 to consider the clarification issues. DRD and CPD followed up on these issues and it became clear over this period that the O'Driscoll and Cove Caravan tenders would not achieve the necessary technical requirements and that the CalMac financial bid exceeded the funds available, in 2008/09. 4.7.4 During November 2007 it became apparent to DRD and CPD that the process was unlikely to result in an acceptable outcome. By this stage it was also known by DRD that the NI Executive had proposed additional funds for an enhanced level of service on the Rathlin Island Ferry from 2009/10 onwards. In the circumstances they wrote to the DRD Minister on 27 November 2007 requesting approval to the abandonment of the competition on the basis that the process had failed to attract a compliant and affordable bid within the budget for the ferry service. The minute identified that extra funds had been made available for future years but that these were linked to an improved level of service which the only compliant bid would not deliver. The minute referred to the discussions that had been held with CMAL about the purchase or lease of the existing ferry to make it available to tenderers as part of a new competition. The Minister approved the abandonment of the competition and the commencement of a new procurement to achieve improved service on the route. We recognize that DRD officials were keen to have kept their Minister informed. 4.7.5 The Evaluation Panel met again on 28 November 2007 to formally assess the suitability of the bids for the delivery of the Rathlin Island ferry service contract. They noted that the amount of subsidy required by Rathlin Ferries Ltd to operate the service was not acceptable to the Department, both in terms of the resource budget available for the

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service and the proposed increase in cost over and above current levels. The Evaluation Panel therefore, agreed to reject the bid. The Evaluation Panel also agreed that the bids submitted by Mr. O'Driscoll and Cove Caravans were non-compliant. 4.7.6 In overall terms, the Evaluation Panel decided that no contract should be awarded on the basis that:• the CalMac tender was financially unacceptable; and • Mr. O'Driscoll’s and Cove Caravan’s tenders were non-compliant in terms of the technical requirements. 4.7.7 All three unsuccessful tenderers were advised of the outcome in letters sent on 29 November 2007. The letter also advised them that a new competition would be commenced shortly. Allegation: The CalMac tender should have been accepted as it was the only compliant bid. 4.7.8 It has been suggested by complainants that the CalMac tender should have been accepted as it was the only tender that was compliant. We are of the opinion that DRD were fully within their rights to abandon the procurement for the following reasons: • two of the three bids were non-compliant; • the CalMac financial bid exceeded the available budget and represented a substantial increase over the current level of subsidy (a trend the Department was concerned about when it commenced the tender) with little increase in the levels of service; • NI Executive had earmarked additional funds to permit improved service levels which were not provided by the tender; • DRD had been in the position of negotiating annual subsidies in a noncompetitive environment since 2003 and the procurement process had failed to test the value for money offered by CalMac; • if the contract had been awarded to CalMac the only way of achieving improved services would have been through further non-competitive negotiation;

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• the non-compliant tenders had indicated that better value for money could be achieved if an appropriate vessel were available; • CMAL had agreed to the proposal of leasing the existing ferry to any new operator which would mean that an effective competition could be run to properly test value for money; and • the tender documents had advised bidders that there was no commitment to award a contract as a result of the competition and so DRD was entitled to abandon it. 4.7.9 The Evaluation Panel could have suggested the Department enter into negotiations with CalMac but decided that, in the light of the above, this was unlikely to produce the optimum result. 4.7.10 We questioned DRD officials as to why a submission was made to the Minister recommending a new competition prior to the formal evaluation of the three bids by the Evaluation Panel. The Department has said that it took this course because it allowed the Panel to begin planning the second phase of the competition immediately and time was of the essence if a second competition was to be delivered in 2008. Notwithstanding the fact that the Department was the primary arbiter on affordability, we consider that the sequencing of events did not follow best practice and that it would have been preferable for the Evaluation Panel to have completed their considerations before reverting to the Minister. The decision not to move forward on the basis of the first tender was nevertheless in our view the right one to take. The Availability of New Funding Allegation: Funding was being made available for the purchase of a vessel for the benefit of one of the operators Some of the complaints received about the procurement process relate to the additional funding that was made available. This appears to be based on a misunderstanding of the budgeting and funding process. Complainants have expressed concern that funding was

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being made available for the purchase of a vessel for the benefit of one of the operators and that other bidders were not advised of the availability of these funds. 4.8.2 We reviewed file documentation and noted that PPTD bids for additional funds in early 2007 were made on an entirely contingent basis against the possibility that the forthcoming tender would not produce an acceptable outcome. The bid identified £7 million as the cost of a Ro-Ro vessel and £1.2 million for a cheaper alternative. The Department had no desire to purchase or lease ferries. In the event, the £1.2 million bid was endorsed by the Executive in its October 2007 draft budget settlement. Central in this was the expectation of enhanced service and DRD could therefore have proceeded with a compliant bid which delivered improved service quality. Unfortunately, as set out above. the only compliant bid received did not offer a significant improvement in the services on the route and exceeded the budget available for 2008/09. 4.8.3 It has been suggested by complainants that details of the additional funds made available were not communicated to all. We have no evidence of the position on additional funding having been communicated to any of the bidders. It would not in any event have been sensible to advise tenderers of the amount of money available as this would have undermined the competitive nature of the process. The concern about the funding position is, in our opinion, a misunderstanding of the impact of finance on the tender process. The money was available to DRD only if it had been necessary for them to purchase a vessel which could then have been made available to a successful bidder and thereby to enhance service levels. There were obvious reasons as to why it would not have been sensible for DRD to be the owner of a vessel and to carry all of the responsibilities that would have involved. In addition, DRD was able to reach agreement with CMAL about the lease of the MV Canna to any new operator of the ferry services and it was therefore no longer necessary to pursue the purchase option. As a result the bulk of funds which were available for the purchase of a new vessel were released and reallocated to meet other budgetary pressures.

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4.8.4 It has also been suggested in the complaints made about the contract that the subsidy provided by DRD under the contract should not be used for the purposes of purchasing a new vessel. The tender documents stated at paragraphs 1.51 and 1.5.2 that:“The assistance available to the successful tenderer will be a subsidy towards the running costs of operating the service. This will be provided to supplement the Operator’s revenues earned for running the route. The Department will not be offering assistance for capital expenditure for upgrading any vessels used during the period of the contract." 4.8.5 It appears that the complaint relates to the fact that Mr. O'Driscoll is proposing to purchase a new vessel. However we have found no evidence of any offer or expectation of capital grant for this purpose. It would clearly be inappropriate if subsidy was directly used as capital for the acquisition of the vessel. It may however, be that finance charges in relation to the provision and operation of a new vessel could be regarded as an overhead cost associated with operating the new service. This need not, in our opinion, be a negative, provided the available amount of subsidy stays within the basis of the accepted tender. There is no reason to doubt that the decision to propose a new catamaran vessel was made entirely by Mr. O'Driscoll on the same information base as was available to the other bidders. Inviting New Tenders Advertising the New Competition Allegation: DRD failed to notify the existing provider (CalMac) of its intention to retender Allegations have been made that the Department failed to notify the existing provider (CalMac) of its intention to retender and that the new procurement process was not properly advertised. The allegation was not made by CalMac and in the course of the investigation CalMac officials confirmed that they were informed of the Department’s intention to retender. Our investigations have identified that a range of steps were taken by DRD and CPD to advertise the new opportunity:

23

• the letter to the unsuccessful bidders from the tirst competition sent on 29 November advised them that a new competition would commence shortly; • letters were sent to nine companies on 4 January 2008 who had previously expressed an interest in the service advising them that tender documents were about to be published on CPD's website; • the tender documents were placed on CPD's website on 7 January 2008 with a tender return date of 28 February 2008; • an advert was placed in the Belfast Telegraph on 14 January 2008 and in the Newsletter and Irish News on 15 January 2008 advertising the tender for the ferry services; and • the tender was advertised locally in the Ballymoney and Moyle Times on 21 January 2008. 4.9.2 It has been suggested in the complaints that a new PIN should have been published for the second procurement. In our view this was not essential as the second procurement followed straight on from the first procurement and it was for the same service as previously advertised. All firms who had previously responded were informed of the new competition and it is very unlikely that a new PIN would have attracted new bidders. 4.9.3 In our opinion the steps taken for advertising the second procurement were reasonable and we have not seen any evidence to suggest that any firm who may have wished to tender was not aware of the opportunity. Objectives of new tender 4.10.1 In the second tender the objectives for the service were changed as follows: "The objectives for the service are:· • To maintain a "life-line" service to Rathlin Island,· and • To provide an improved service for the islanders and visitors. " 4.10.2 There were many statements in the tender documents to encourage tenderers to propose enhanced services. These included paragraphs 1.6.1, 2.3.3, 2.3.4, 2.8.2, 2.10.3, 3.2.14 and 5.10.1 which are set out in Annex 5.

24

Other Changes to the Tender Documents Allegation - Changes were made to the tender documents to accommodate one specific bidder. 4.10.3 There have been allegations made that in addition to the requirement for enhanced services, other changes were made to the tender documents to accommodate one specific bidder. Our investigations have indicated that DRD, CPD and the Evaluation Panel reviewed the original tender documents in the light of lessons learnt from the first aborted competition. This in our opinion would be regarded as good practice. 4.10.4 Changes made included presentational issues, revised requirements and matters which were no longer considered to be necessary. Examples of changes and reasons for them are shown below: • the objectives of the contract were changed to reflect the new essential requirement to deliver improved services; • the option of extending the length of contract to twelve years was dropped because the leasing arrangement for the MV Canna with CMAL only covered a six year period; • the risk table was dropped because it was considered that it did not help clarify the position regards risk allocation and it did not add to the conditions of contract; and • one of the financial guarantees was dropped because it appeared that the Department would in any event pay the cost of the risk through the cost of the premiums. 4.10.5 We have not found any substantiated evidence to show that they were aimed at favouring any specific supplier and at that stage DRD and CPD did not know who would respond to the tender invitation. In addition the amended requirements were set out clearly in the document and applied on an equitable and transparent basis to all bidders.

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Harbour Works 4.11.1 The tender documents set out the position in respect of possible improvements to the existing harbour berths. Paragraph 3.2.27 stated that: "Tenderers should note that neither the Department nor Moyle District Council envisage providing for any significant investment in upgrading or improving the current berths. It is the responsibility of the tenderer to satisfy itself that the vessel proposed is compatible with existing berths and harbour facilities." 4.10.2 The use of the words "envisage" and "significant investment" in para 3.2.27 did appear to allow for the possibility of a small level of expenditure to improve the current berths. If there was no possibility of any money being spent then the word "significant" could have been omitted. 4.10.3 In addition the tender documents stated at paras 2.10.1 and 2.10.2 that: "Tenderers should investigate and satisfy themselves as to the compatibility of any vessels proposed with existing piers and slipways and arrangements for passenger boarding and disembarkation. " "Tenderers should note however, the key constraint that any vessel would have to be capable of use in all reasonable conditions at the existing harbour without the need for additional investment, and in time for service commencement." 44.11.4 However the tender documents, at paragraph 3.5.13 also stated that:"The Operator must consider and make suitable arrangements for disabled access to and from any vessel. In doing so, the guidelines issued by the international maritime organization in respect of the carriage of elderly and disabled passengers, should be taken into account and complied with where possible. Where constraints of design with an existing vessel prevent full compliance the closest possible alternative should be achieved. Such constraints and alternatives must be detailed in the tenderer's technical submission. Tenderers should pay particular attention to the harbours at Ballycastle and Rathlin when considering the suitability of any vessel for the embarkation and disembarkation of elderly and disabled. "

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4.11.5 Our understanding of the above paragraph is that DRD was inviting tenderers to consider options for improving the access arrangements for elderly and disabled passengers at the harbours in association with any vessels proposed for use on the service. Mr. O'Driscoll did submit options on this basis. He identified in his tender that following extensive discussion with the Ballycastle harbour master that expenditure of £50k would be required to make berths at both harbours wheelchair accessible and available to all boat users as well as the ferries. However, Mr. O'Driscoll is firmly of the view that the proposed works are solely for the purposes of enabling disabled access and are not necessary to allow the second vessel to be berthed. 4.11.6 Mr O'Driscoll is clear that the passenger only vessels he will be using on the service can be berthed at the existing harbours without new works and that there are examples of this currently happening elsewhere in Ireland. We have discussed this with both MCA and the Department’s Marine Consultant and while neither is in a position to offer a definitive view, each said that in their general experience and from sight of papers, drawings etc successful berthing within the existing harbour infrastructure may well be possible. In these circumstances we cannot conclude that the Evaluation Panel was wrong to accept this aspect of Mr. O'Driscoll’s bid as being compliant. The proposed harbour work is to accommodate improved elderly and disabled access which was highlighted in the tender documents. The final proposals and the cost estimates were established by DRD / CPD (we are advised that the current estimate is circa £100k) following clarification meetings about the option Mr. O'Driscoll had set out in his tender 4.11.7 Complainants have protested that amounts of £50k-£150k cannot be regarded as insignificant. Unfortunately they appear to have run together the provisions of paragraph 3.2.27 and paragraph 3.5.13 of the tender documents. Certain of the communications in the Department would appear to follow the same confusion. The bottom line would appear to be that DRD and CPD have concluded that £100k of harbour works is reasonable to enhance access arrangements for the elderly and disabled. The "reasonable" test appears to have been related to the total cost of the contract and the

27

overall value of the harbour. In our opinion Mr. O'Driscoll does appear to have complied with the requirements set out in the tender documents. 4.11.8 Specifically, CalMac representatives queried Official 2’s e-mail of 16 April 2008 which says "...We are therefore content to invest this money to secure the bid from Mr. O'Driscoll" as evidence that Mr. O'Driscoll’s bid was non-compliant i.e. that it could not have operated without incurring significant costs and evidence of the Department’s bias towards O'Driscoll. However this was the covering e-mail to the final Tender Evaluation Report to the Evaluation Panel, explaining that all the clarification checks had been satisfactorily completed and that the Panel’s original decision could proceed. That it was loose drafting is not in doubt, but it is certainly not evidence that the Department was pursuing a particular outcome. The allegation also wrongly relates the spend to the paragraph 3.2.27 requirement of the tender documents, as opposed to paragraph 3.5.13. Complainants also cite 13 March 2008 correspondence between Official l and the Clerk and Chief Executive of Moyle District Council (about Council responsibilities for taking the final decision on the harbour works as possibly delaying the compliance decision on Mr O'Driscoll’s tender) as being evidence of a DRD view that Mr. O'Driscoll’s tender was at that time non-compliant. Having spoken to Official 1 and the Clerk and Chief Executive of Moyle District Council we do not share this view. While the drafting could have been better, we view this as a debate on ownership of the critical path on the exercise. As we note above, we consider the paragraph 3.2.27 requirement to have been met at that time and, in any event, decisions on the new vessel would not have been required for several months. 4.11.10 In overall terms, the position on possible harbour improvement works and available funding should in our opinion have been made clearer. We are satisfied however, that it was very clear that DRD was seeking an improved service with alternative or additional vessels which made it possible that some modifications may be required at the harbours. The tender documents did not rule out insignificant investment in improving the current berths and in respect of disabled access invited tenderers to submit alternative options. We are of the opinion that all bidders had an equal opportunity to consider and submit

28

alternative proposals which would not result in significant investment required to upgrade the berthing arrangements. We note that whilst CalMac say that they raised the question of potential harbour works at a meeting involving Moyle District Council and DRI) officials, they did not seek to pursue this matter formally with the Department, perhaps because they saw little prospect of switching to a new vessel in the foreseeable future Tender Proposals for the Second Competition 4.12.1 Three companies submitted responses by the closing date of 28 February 2008 - Rathlin Ferries (CalMac), Mr. O'Driscoll and Island Ferries. An initial eligibility sift was undertaken by CPD to determine compliance against the essential criteria. On this basis the tender from Island Ferries was deemed to be non-compliant. The remaining two proposals are described briefly below. The CalMac Proposal The technical proposal from CalMac was based on the ongoing use of the existing vessel, the MV Canna. In the peak summer months an increased timetable was offered with additional sailings operated by the MV Raasay. This was subject to the vessel not being required on the Clyde and Hebrides service which would take priority. There was also a proposal to increase the winter timetable with additional return sailings on the MV Canna on a Monday, Wednesday and Friday. CalMac have expressed concern that they were unfairly marked down because they could not guarantee that the second vessel would always be available. In our view it was right and proper for the Evaluation Panel to reflect the possible non-availability of the MV Raasay in their marking. To do otherwise would have been unfair on bidders who were offering a dedicated vessel. We have no reason to doubt or second-guess the assessment scores awarded by the Evaluation Panel. CalMac repeated the position they had set out in their first tender that they had consulted with Moyle District Council and the Rathlin Development and Community Association (RDCA) about the possibility of implementing both a passenger-only service as well as an early morning sailing. They had concluded "that it was not appropriate at that time to implement such aspirations". It is understood that this was based on their discussions

29

with Moyle District Council and RDCA during the first procurement process and that further advice or clarification from DRD had not been sought. DRD had at various times, during the regular contract quarterly review meetings, discussed with CalMac management the prospect of enhanced service provision on the route. We were advised by CalMac that it was unlikely that they would have been able to provide a second dedicated vessel for the foreseeable future. The O'Driscoll Proposal 4.12.4 Mr. O'Driscoll proposed a two-vessel solution based on the use of the existing vessel (the MV Canna) and the introduction of a new purpose designed and built aluminium catamaran. It was proposed that the two vessels would operate all year round. In the period up until the new catamaran was built (estimated to be one year) Mr. O'Driscoll proposed the use of the MV True Light as the second vessel. In the event, a problem was discovered with the certification of this vessel due to modifications made by previous owners. This meant that Mr. O'Driscoll could not proceed with the MV True Light and he identified an alternative and equivalent vessel. 4.12.5 The tender proposal also identified the need for certain minor works needed to be carried out at both harbours to make the berths fully wheelchair compliant for the new vessel. Compliance with Tender Requirements Allegation: The tender submitted by Mr. O'Driscoll was not compliant. 4.13.1 It has been alleged that the tender submitted by Mr. O'Driscoll did not satisfy all of the essential requirements and should have been treated as non-compliant. We have reviewed the tender submission to check it against the requirements set out in the tender documents. Para 5.2 of the tender documents sets out guidelines for submitting a compliant tender and Annex 9 of the Invitation to Tender provided further information on supporting material. The results of our review of the essential requirements are shown in Annex 6 of this report. It can be seen that there were some minor issues. The VAT form supplied by Mr. O'Driscoll was not fully completed but this was not critical to the assessment of the proposal and could be easily rectified. It has been suggested that Mr O'Driscoll's bid was non-compliant because he did not provide a performance bond

30

at tender stage. However, para 16 of the Invitation to Tender said that tenderers should price for the bond but the bond would only need to be put in place if the bid was successful. 4.13.2 Complainants have raised concerns about the adequacy of Mr. O'Driscoll’s responses on timetabling and operational management and implementation plans. We are of the opinion that the tender did contain all essential requirements. We noted however, that the level of detail in the O'Driscoll bid was less comprehensive than that contained in the CalMac bid and we consider that this may have reflected the different nature of the companies and the resources they have available to support public sector tender processes. 4.13.3 Insofar as the timetabling and ticketing are concerned, a complaint has been made that alter the bids were opened, but before the evaluation, RIFL Employee 1 provided additional information to CPD (on 6 March 2008). This followed an e-mail request from PPTD / CPD identifying that clarification was necessary in this area and also on the ticketing system. We are of the view that the process for the Part B Services Procurement allows such action. 4.13.4 The weakest areas of the O'Driscoll tender submission appear to have been the level of detail relating to the quality plan and also the risk assessment in relation to the proposed vessels. It is not clear from the tender documents however, whether the risk assessment was required at tender stage or needed to be in place before the commencement of the operations. It would in our opinion have been difficult for tenderers to complete a full risk assessment for a proposed vessel before the contract was awarded and possibly before they had acquired a vessel through purchasing or lease arrangements. 4.13.5 In our opinion the Evaluation Panel was justified in their decision that the O'Driscoll tender submission did achieve the necessary requirements for it to be considered alongside the CalMac tender. We also noted that the tender documents stated that "failure to comply may result in a tender being rejected " which gave DRD / CPD discretion as to whether a bid would be rejected or not. In our view it would have been

31

appropriate for DRD / CPD to take account of the degree of compliance before deciding whether to reject a bid. 4.13.6 We have also been made aware of allegations relating to issues connected with ferry services operated by Mr O'Driscoll in the Republic of Ireland. Whilst these issues are outside the scope of this investigation we have considered whether there are any implications or lessons to be learnt for the CPD procurement procedures. As described in para. 4.4.3 DRD officials did visit their counterparts in August 2007 to discuss procurement procedures and to consider potential suppliers in the ferry services market. We consider that it would have been desirable for CPD / DRD to require bidders to provide the names of other Clients so that appropriate checks could have been made if necessary during the evaluation process. This would need to have been done in a way which avoided discriminating against any tenderers who did not operate similar services in the Republic or in Northern Ireland but it would have allowed DRD / CPD to seek updated views on the performance of any relevant operators and for any issues to be discussed with the bidders. 4.13.7 We consider however, that if further references had been sought then this would not have affected the outcome of the process as the Department of Community Rural and Gaeltacht Affairs in the Republic has since expressed their considered view that the service provided by Mr O'Driscoll is on a par with the majority of other island Ferry Services subsidized by it. Some contractual penalties have been imposed by the Department in the Republic but these would not in themselves rule the operator out from bidding or for winning other opportunities. We are aware that some allegations relate to whether tender commitments have been delivered in the Republic of Ireland but we are not in a position to comment on those issues. In any event these would be matters which would be covered by the contract and remedial steps could be taken by the DRD as provided for under the contract if the required level of service on the Rathlin route is not achieved.

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Comparison of the Two Main Bidding Companies 4.14.1 The two bidders left in the competition after the initial assessment were fundamentally different size and types of company. 4.14.2 CalMac was the incumbent who had delivered a satisfactory service over a long period of time but had not demonstrated a commitment to significantly improve the level of service to customers. The turnover of CalMac in 2006/07 was £48.5m and they employ over 1100 people through their wholly owned subsidiary companies. The company is owned by the Scottish Executive and its core business is the coastal services on the west coast of Scotland. The Rathlin Island ferry service represents approximately 1% of their overall business. 4.14.3 RDCA told the review team that while the CalMac service had been reliable, the company had been unable to deliver on talk of better vessels and had, on occasion, been somewhat remote as regards contact with the Islanders. 4.14.4 Mr. O'Driscoll operates coastal ferry services in the Republic of Ireland but his company, West Cork Coastal Services, is in terms of size of operation, at the other end of the scale compared with CalMac Ferries. It is basically a family business with fewer than 10 staff and an annual turnover of less than £0.5m. He operates a similar scale service to the Rathlin Island ferry service and brings considerable personal experience and understanding of the needs of an island community. The Rathlin Island ferry contract represents a substantial proportion of his overall business and in our opinion it was reasonable for DRD to expect that it would be a high priority for him to make it a success. He appears to have demonstrated a good degree of commitment by bidding for it on three occasions and in each tender he submitted proposals for making substantial improvements to the service. RDCA told the review team that it had been impressed by Mr. O'Driscoll’s responsiveness to date.

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The Assessment of the Second Tenders Clarification Meetings Allegation: DRD was involved in illegal post-tender negotiations 4.15.1 Some of the complaints received have related to a number of clarification meetings or site visits held with Mr. O'Driscoll. The tender documents set out that clarification meetings and vessel inspections may be carried out as part of the evaluation process. 4.15.2 Para 2.10.6 (repeated at para 5.10.4) stated that:"The Department may wish to inspect any vessels as part of the tender evaluation process. Details of where this can be done should be provided by tenderers in their technical submission." 4.15.3 Para 5 . 2. 3 stated that: "The Department will consider the information provided in the proposal in response to this document and will reach an objective decision as to whether or not, in its view, this will be capable of meeting the requirements set out in this specification. This process may involve a period of clarification with tenderers." 4.15.4 In line with the process set out in the tender DRD, CPD and a Marine Consultant met with Mr. O'Driscoll on 10 March 2008 at Killybegs boatyard to inspect a vessel proposed for use on the route. This meeting has attracted complaints of improper negotiations as it was held prior to the evaluation meeting on ll March 2008; however there is no evidence to prove that any improper discussions took place. This approach was identified in advance as part of the tender evaluation process and it is in line with standard practice. 4.15.5 A clarification meeting was also held at Moyle DC on 13 March 2008 between DRD, CPD. the Harbour Master, the Marine Consultant, the Clerk and Chief Executive of Moyle DC and Mr. O'Driscoll to clarify the need for harbour works. This was followed by a further clarification meeting on the same subject on 20 March 2008 at Ballycastle

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harbour and which was also attended by a representative from CPD Civil Engineering section. 4.15.6 Questions have also been raised in the complaints as to why meetings were held with Mr. O'Driscoll and not with CalMac. In our opinion this was not surprising as DRD was familiar with CalMac and their main vessel and no meetings were likely to have been necessary. It was in our opinion appropriate that meetings should be held with Mr. O'Driscoll to clarify the suitability of his proposals for the vessels and the harbour arrangements. 4.15.7 There have also been suggestions that matters were discussed at these meetings with Mr. O'Driscoll which went beyond genuine clarification issues. We have not however, seen any evidence of this and it is denied by the people who attended the meetings. One of the clarification meetings was however held at Ballycastle harbour and we understand that it was, to some extent at least, observed or overheard by staff from CalMac who were involved in ferry operations at the harbour terminal. The meeting may have created the perception that Mr. O'Driscoll was being favoured even though, as noted above. the meeting was for a valid purpose. Having spoken with the complainant we are content that the concern expressed was genuine but that nothing improper actually happened. In our opinion this perception could possibly have been addressed by informing other tenderers that clarification meetings were being held and by possibly having an independent observer at the meetings. CPD should also have ensured that a formal record of each meeting was retained which fully documented the discussions and any decisions. A note was produced for one clarification meeting but in our opinion was not sufficiently detailed to provide the necessary assurance. We consider that the nonavailability of detailed minutes has fuelled the level of concern. The Assessment Process 4.15.8 Following the decision to abandon the first competition the Evaluation Panel reviewed the award criteria at their meeting on 28 November 2007 to consider whether any changes should be made for the new competition. The revised assessment criteria

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reflected the new objective of providing an enhanced service on the route. This is outlined in Table 1 below: Table 1: Agreed Assessment Criteria for 2nd Tender Competition Award Criteria as used in the evaluation scoring frame

Maximum marks

Service levels for passengers, cars, freight, livestock and hazardous goods.

300

Vessels, including relief, emergency services, disabled access, ship boarding practices, Port Assets. Compliance with Regulations.

250

Timetables, performance regime and ticketing .

100

Unscheduled events, integrated transport, consultation, marketing and website.

50

Subsidy required.

500

Total

1200

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Allegation: The Criteria used to evaluate the second tender competition differed from that published. 4.15.9 However, as detailed further at paragraph 4.16.1, the award criteria published in the tender documents differed from that agreed by the Evaluation Panel. Regrettably this appears to have been a breakdown in the quality assurance process, perhaps because of time constraints within which the procurement had to be completed. The differences between the published criteria in the first and second competitions are shown in Table 2 below. Table 2 - Comparison of the Published assessment criteria from the first and second competitions: Award Criteria First competition

Maximum mark

Award Criteria Second Competition (as set out in tender documents)

Maximum mark

Service levels for passengers, cars, freight, livestock and hazardous goods.

200

Service levels for passengers, cars, freight, livestock and hazardous goods. Timetables, timing and frequency of sailings, passage time

300

Vessels, including relief, emergency services, disabled access, ship boarding practices, Port Assets, compliance with regulations.

200

Vessels, including relief, emergency services, disabled access, ship boarding practices, Port Assets.

250

Monitoring and safety of Operations, financial guarantee and insurance.

100

Performance Regime and Operational, Quality and Implementation plans. Ticketing .

100

Timetables, performance regime and ticketing.

100

(item included above)

100

Unscheduled events, integrated transport, consultation, marketing and website.

100

Unscheduled events, integrated transport, consultation, marketing and website.

50

Subsidy required.

500

Subsidy required.

500

Total

1200

Total

1200

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4.15.10 Notes on Table 2: • the table shows that in the tender documents for the second competition the criterion referring to timetables was moved, together with the 100 points allocation, to the first criterion referring to service levels; • " Compliance with regulations" was omitted from the second criterion in the second competition because it was held to be a requirement; • the wording of the third criterion was also amended in the second competition to describe the overall performance regime; and • the weighting for the criterion referring to the vessels was increased from 200 to 250 points to reflect the new objective of improving the services. This was accommodated by reducing the weighting for unscheduled events by 50 points. 4.15.11 The Evaluation Panel met on 11 March 2008 to review compliance and to assess the tenders against the evaluation scoring frame and a note of the meeting was produced. We have inspected the paperwork to review the procedure for finalizing the approval of the assessment criteria and we are concerned that the amendments to the criteria and weightings following the first abandoned competition have not been fully documented. We also have a concern that while the electronic process for recording the development of key documents may in theory provide an adequate system, in practice there is a risk that it may not deliver the transparency requirements and can - as happened in this instance - lead to wrong versions of documents being tabled. Following the assessment meeting there were a number of outstanding matters of clarification which were resolved over the next few weeks, with some minor changes being made to the scoring. Again we have not been able to find a complete record of how these changes were made and approved. While we have since confirmed the rationale and accept that these changes were of only a minor nature, the process should have been better documented. The resolution of these issues delayed the issue of the tender assessment report to the Evaluation Panel and in our opinion the agreed scores and draft report should have been issued to the Panel within one or two days of the assessment - for their confirmation even if there were minor outstanding issues to be resolved which may have required amendments to the provisional scores.

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4.15.12 The final evaluation report was sent from CPD to DRD on 15 April 2008 who sent it to the members of the Evaluation Panel for approval on 16 April 2008. Approval from all members of the Panel was received on 18 April 2008 and on the same day. CPD issued the contract award letter to Mr. O'Driscoll and also sent letters to the unsuccessful tenderers. The Financial Assessment 4.15.13 The Financial assessment was completed by CPD with no input from other members of the Panel and there was very little difference in the subsidy requirements set out in the two bids. The initial financial assessment did not include allowance for the harbour works required as part of the O'Driscoll tender. Subsequently an assessment of the impact of these costs was undertaken. However, the estimated cost of £150k for the harbour works was the equivalent of only 4% of the total subsidy required over the six year period of the contract. We have been informed that the estimated cost for this work is now likely to be £100K. This would have represented approximately 20 marks in the financial calculation which would not have been significant as the O'Driscoll tender scored 103 marks more than the CalMac tender on the technical proposal. 4.15.14 In reviewing the financial assessments we have also noted that the subsidy requirements submitted by the tenderers were based on their own estimates of passenger volumes. This resulted in different assumptions being made in each bid. The CalMac predictions were significantly higher than those submitted by Mr. O'Driscoll even though his proposal offered much higher overall capacity. The significance of this is that the contract makes provision for a profit sharing system in the event that revenue exceeds the amount set out in the base case. The operator is allowed to retain 50% of the increased revenue with the remaining 50% being used to reduce the subsidy payment. 4.15.15 In our opinion DRD and CPD should have considered the potential opportunity of both bids to achieve profit sharing savings to DRD. If allowance had been made then this would have increased the attractiveness and scoring of the O'Driscoll bid due to the substantially higher overall passenger capacity provided by the proposal. Equally, the

39

harbour works expenditure of £150k on elderly and disabled access should have been formally weighed in a more transparent way against the O'Driscoll bid.

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Feedback Meeting 4.16.1 Although not formally required under the Regulations applicable to Part B services contracts, DRD held a debrief meeting with CalMac on 2 May 2008. During the course of the feedback meeting it became apparent that there was a discrepancy between the award criteria agreed by the Evaluation Panel and those set out in the published tender documents. The variations are shown in Table 3 below. Table 3 - Discrepancies between the criteria published in the tender documents and those in the evaluation scoring frame: Award Criteria as set out in tender documents

Maximum marks

Award Criteria as used in the evaluation scoring frame

Maximum marks

Service levels for passengers, cars, freight, livestock and hazardous goods. Timetables, timing and frequency of sailings, passage time

300

Service levels for passengers, cars, freight, livestock and hazardous goods.

300

Vessels, including relief, emergency services, disabled access, ship boarding practices, Port Assets.

250

Vessels, including relief, emergency services, disabled access, ship boarding practices, Port Assets. Compliance with Regulations

250

Performance Regime and Operational, Quality and Implementation plans. Ticketing

100

Timetables, performance regime and ticketing

100

Unscheduled events, integrated transport, consultation, marketing and website.

50

Unscheduled events, integrated transport, consultation, marketing and website.

50

Subsidy required.

500

Subsidy required.

500

Total

1200

Total

1200

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4.16.2 Notes on table 3: • In the assessment process the element referring to timetables was included in the performance regime criterion rather than as part of the first criterion on service levels; • In the assessment process in the second criterion "Compliance with Regulations" was introduced; and • The wording of the third criterion about the performance regime was amended. The reference to the operational, quality and implementation plans was removed but they can be described as being covered by the overall performance regime. 4.16.3 Until the feedback meeting on 2 May 2008 DRD and CPD staff were not aware of the discrepancies in the criteria, in particular that the wrong criteria had been inadvertently published in the second tender document. We were advised by CPD and PPTD officials that this came as a surprise to them. DRD and CPD accepted responsibility for the mistake and PPTD immediately asked CPD to review the matter with a view to going back to CalMac. Unfortunately the paper trail is not conclusive; it appears that criteria used in the tender assessment process were those agreed by the Evaluation Panel but that an earlier version of the table was mistakenly included in the tender document. 4.16.4 Clearly the mistake should not have occurred, not least given the increasing legal focus on transparency. In our opinion, even though the contract had been awarded, the effect of the mistake should have been formally reviewed by the Panel and the bidders notified of the outcome in writing. Being seen to be fair is extremely important in public procurement and transparent action to review the decision and award may have allayed certain of the concerns which subsequently came to pass. 4.16.5 That said, the key issues are whether the inclusion of the correct table in the tender documents would have affected the production of the tender submissions and whether the outcome of the competition would have been different if viewed against the published criteria.

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4.16.6 Following the feedback meeting CPD revisited the scoring and concluded that the overall difference between the two bids was such that the outcome of the competition was not affected by the discrepancy in the criteria. We have undertaken a separate analysis which we describe below.

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The Effect of the Discrepancy in the Criteria on the Scoring of the Tenders 4.17.1 In order to assess the possible effect of the discrepancy in the assessment criteria it is necessary to consider the scores that were awarded. The scoring for each criterion was based on an Evaluation Scoring Frame that was established prior to the assessment process, though there is evidence to suggest the scoring frame should have been completed earlier in the process. There is also an issue about the transparency of the sub-criteria and sub-weightings which we address later in our report. The scoring frame, together with the allocated marks for each tender, is shown in Table 4 below:Table 4 - showing the scoring frame and the scores of the two bidders Criteria Max Sub-criteria Mark 1

300

Max CalMac O'Driscoll mark score score

1A Max number of passenger journey’s (summer) IB Max number of car journey ’s (summer) IC Max amount of livestock/hazardous goods which can be carried (summer) ID Offset on passengers when carrying cars/freight (summer) IE Max number of passenger journey’s (winter) IF Max number of car journey’s (winter) IG Max amount of livestock/hazardous goods which can be carried (winter) IH Offset on passengers when carrying cars/freight (winter)

100 25 25

100 25 25

100 25 25

50

30

50

50 12.5 12.5

20 12.5 12.5

50 12.5 12.5

25

25

20

2

250

2A Suitability of main vessel(s) offered 2B Quality and comfort or main vessel(s) offered 2C Suitability of relief vessel offered 2D Quality and comfort of relief vessel offered 2E Extent of access to passenger vessel by disabled persons

50 100 25 25 50

30 20 25 10 30

40 80 20 15 40

3

100

3A Timetables, timing and frequency of sailing 3B Performance regime 3C Monitoring of operations 3D Ticketing

40 20 20 20

8 20 20 8

32 4 4 8

4

50

4A Unscheduled special events 4B Integrated transport 4C Consultation 4D Marketing and website

12.5 12.5 12.5 12.5

7.5 2.5 2.5 12.5

7.5 2.5 2.5 5

5

500

5 Subsidy required

500

499

500

Total

1200 Total

1200

945

1048

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4.17.2 It can be seen that the main sub-criteria where Mr. O'Driscoll scored significantly better than CalMac are: • 1D (more space for passengers in the summer); • 1E (more capacity for passengers in the winter); • 2A (new catamaran to be provided as one of two main vessels); • 2B (improved passenger comfort offered by catamaran); • 2E (disabled access improvements proposed); and • 3A (improved frequency of sailings with second vessel). 4.17.3 The main sub-criteria where CalMac scored better than O'Driscoll are: • 1B (more car journeys in the summer); • 3B (better assurance on the required performance regime); • 3C (better performance monitoring arrangements); and • 4D (better proposals for marketing and the website). 4.17.4 In our opinion the scoring of the tenders does appear to be reasonable in recognizing the improved service offered by Mr. O'Driscoll with the new second vessel whilst also reflecting the stronger management and operational systems provided in the CalMac bid. 4.17.5 The issue identified above is whether or not the scoring would have been affected by the discrepancy between the criteria in the tender documents and those actually used in the assessment scoring frame. Three differences are identified in Table 3 above: a) Timetables - in the tender documents timetables were shown in the first criterion which had an allocation of 300 marks. In the assessment scoring frame timetables were moved to the third criterion which had 100 marks. In the assessment O'Driscoll scored 32 marks for timetables compared to CalMac who only scored 8 marks. This indicates that if timetables had been in the first criterion then the higher weighting would have benefited the O'Driscoll tender. b) Compliance with Regulations - this wording was added to the second criterion in the assessment frame but was a requirement in any event. It was not actually

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scored but was considered as a pass or fail issue. Both tenderers passed and so this discrepancy did not affect the outcome. c) Performance Regime - timetables was added to the third criterion as set out above and allocated 40 marks with the maximum marks available of 100. The marks available for performance regime and operational monitoring could have been reduced by 40 marks as a result. This would have benefited CalMac who scored 40 marks compared to O'Driscoll who only scored 8 marks, which just about balances out the position with timetables being removed from the first criterion. 4.17.6 In overall terms, in our opinion the discrepancy in the criteria between the tender document and the evaluation scoring frame made little practical difference to the relative marking between the two bidders. Both of the bidders were assessed on the same basis and the effects of the discrepancy on the marking of the first and third criteria would have broadly balanced themselves out. There would have been little overall change on the total difference in the scoring between the two bidders of 103 marks, and therefore no change in the overall decision of the Evaluation Panel. 4.17.7 There is no doubt however that a mistake was made in publishing criteria which differed from that which was agreed and used in the evaluation and this could have had serious consequences if a formal complaint had been lodged. Transparency of the Sub-Criteria and Sub-Weightings 4.18.1 In addition to the discrepancy in the criteria there is a separate issue about the subcriteria and sub-weightings in the evaluation scoring frame which are shown in Table 4 above. There have been suggestions made that these should have been made available to the tenderers alongside the published criteria and their weightings. This is a complex area of procurement law and is further complicated in this case because the procurement related to a Part B service which is not bound by all parts of the Regulations. 4.18.2 Most public sector procurements relate to Part A services and the criteria for the award of contract are covered by Regulation 30. This sets out the type of criteria that shall be

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used to determine the most economically advantageous offer from the point of view of the contracting authority. It also requires that the weighting which it gives for each of the criteria to be stated in the contract notice or in the contract documents. DRD did do this for the five main assessment criteria even though this contract was not covered by this part of the Regulations. 4.18.3 In addition to the requirements of the Regulations there have been a number of recent legal cases where the judgments have established case law relating to the use of subcriteria, sub-weightings and scoring methodologies. In their submissions CalMac have referred to two such cases but they have failed to recognise that they related to Part A services and so, unlike the Rathlin Island ferry contract, they were subject to the full Regulations. In general terms the case law allows a contracting authority to divide marks between sub-headings provided that it does not alter the criteria for the award of contract set out in the contract documents; it does not contain elements which, if they had been known at the time the tender was prepared, could have affected that preparation; and was not adopted on the basis of matters likely to give rise to discrimination against one of the tenderers. 4.18.4 These three tests set out above need to be applied by contracting authorities in determining what needs to be disclosed in advance to tenderers for the procurement of Part A services contracts. The relevant part of the Regulations relating to criteria does not however, apply to Part B services although the overarching requirement for transparency does still apply. It is not clear therefore, if the same requirements arising from case law applicable to Part A services would apply in these circumstances. 4.18.5 The need for transparency is well established but it also needs to be recognized that important judgments have been handed down by the Courts since the procurement for the new Rathlin Island ferry service tender commenced in 2007. In the light of these judgments it would in our opinion, be prudent for the sub-criteria and sub-weightings to be disclosed on similar future contracts to avoid the risk of a potential challenge on this basis.

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Could the Outcome Have Been Challenged? 4.19.1 The only way to have established proper authority on the issues raised in this case would have been if the unsuccessful tenderer had challenged the outcome. On the basis that we have found no evidence of discrimination against either tenderer the three possible aspects on which they could have challenged were: • the discrepancy in the criteria between the tender documents and the evaluation scoring frame; • a lack of transparency of the sub-criteria and sub-weightings: and • that the process was unfair if the tender requirements were relaxed for one of the bidders. 4.19.2 On the first issue we have set out above our opinion that there was a discrepancy in the criteria but that in the event, this would not have a made a significant difference to the scoring or to the outcome of the competition. Nonetheless this was a basic mistake which should not have arisen. 4.19.3 On the second issue we have set out above the complexity of the position as regards subcriteria and sub-weightings particularly as the Rathlin Island ferry contract is a Part B service to which not all parts of the Regulations are applicable. 4.19.4 The third issue is considered at para: 4.10.3 - 4.10.5. The question of whether or not to challenge is one for the unsuccessful bidder, but as stated at paragraph 4.10.5 above we have found no evidence which indicates that a specific supplier was favoured. Allegation - DRD officials may have exerted undue influence in facilitating the new operator during the course of the tendering process. 4.20.1 This allegation was raised specifically by Mr. Jim Allister (MEP) in a letter to the Comptroller and Auditor General dated 8 July 2008. It is also a general and underlying concern held by those CalMac staff and representatives interviewed during the course of this review. In addition NIAO has recently provided a copy of a "whistleblower" letter dated 20 May 2008 which reiterates most of the allegations considered earlier in this section but also claims that certain officials wanted a particular contractor to win the

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competition. While it could be argued that the sum of the detailed analysis of each of the individual allegations is sufficient to address this matter, we consider there is also merit in weighing this allegation in the round. 4.20.2 The allegation is of course fuelled by the fact that the CalMac bid was the only compliant bid in the first competition and also by deficiencies in the process, for example, mistakes in the second phase evaluation process and the absence of a detailed record of some key meetings, including clarification meetings. In addition there are perceptions that not all bidders had access to the same information and that the changed requirements in the second phase and a lenient assessment when reviewing compliance may have favoured the new operator. · 4.20.3 While it is clear that mistakes were made in the administration of the procurement process and that deficiencies in the degree of transparency have on occasion conspired against convincing answers being provided to bidders, we have found no evidence of impropriety or of DRD officials deliberately stage managing the process to favour one particular bidder. Indeed, apart from the vessel inspections (and Mr. O'Driscoll was not present at one of these) and the meeting at Ballycastle harbour, there is little evidence of contact between DRD/CPD and the successful bidder and certainly none of earlier contact. However, from our interviews with those overseeing the process it is evident that if there was a leaning it was solely towards delivering the twin objectives of the procurement - improved service and better value for money. This had seemed unlikely at the outset, or arguably in the light of the first tender results, but with the prospect of additional funds to support an enhanced service from 2009-10 on and the possibility of DRD being in a position to buy or lease a suitable vessel, the situation was transformed. Given the outcome of the first tender and the extent of the changed scenario, CPD had insisted on a second phase competition. 4.20.4 Members of the Evaluation Panel have explained to us that throughout the exercise they were clear on the importance of CalMac as a potential operator and of having a strong CalMac bid, going so far as to express surprise and concern that the pre-qualification submission from CalMac was the weakest of the three received. Nonetheless, CalMac

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was quite rightly included in the tender list. The Department also told us that one of it's initial considerations when contemplating the purchase or lease of the MV Canna (when the prospect of additional finance emerged) was that it may provide a means of allowing CalMac - the only compliant bidder in the first competition - to construct an acceptable and affordable proposal. CalMac therefore remained very much in the Department's thinking at that time. 4.20.5 Another possible consequence of the buy or lease option was of course that it may pave the way for new bidders in the second phase competition - bidders who may previously not have expressed an interest because of the non-availabi1ity of a suitable vessel for the route. Again we would suggest that broadening the field was not an obvious way of favouring the eventual successful bidder. Even at this time a number of members of the Evaluation Panel said that on a personal basis they fully expected the second CalMac bid would have improved to the state that it would win the competition. They are clear that the fact it did not was down to stated service and cost. 4.20.6 The reality appears to be that, in the end, CalMac was constrained by what it could offer in terms of an enhanced service on the route. This had been clear to the Department, not only through the tender process, but also in discussions at earlier quarterly contract review meetings with CalMac, and also to the islanders who informed us that they saw little prospect of CalMac ever producing a new or even much improved vessel. Indeed at a meeting with the review team CalMac representatives explained that the only way they could see a new vessel on the route in the foreseeable future would be if the Department purchased one. 4.20.7 This analysis, taken alongside our earlier assessment of the various components of the evaluation process and the fact that the "external" members of the Evaluation Panel are adamant that they made full contributions to the conduct and evaluation of the exercise, ie that the outcome was not in the hands of the lead DRD officials, leads us to conclude that the lead DRD officials did not act improperly in relation to the successful bidder or unduly influence the outcome.

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5.2 POST TENDER ARRANGEMENTS The Handover Period 5.2.1 The contract was awarded to Mr. O'Driscoll on 18 April 2008 and following this, the Department took steps to facilitate the handover of the ferry operation from CalMac to Mr. O'Driscoll. However, it is evident that the process did not run smoothly. 5.2.2 PPTD advised that at the outset, 1 June 2008 was set as a target date for the commencement of the new contract. However this was not achievable and a revised start date of l July 2008 was agreed with CalMac and Mr. O'Driscoll. 5.2.3 Following the CalMac debrief on 2 May 2008, an Implementation Planning meeting was held between PPTD and CalMac staff where issues pertaining to the handover were discussed. We were provided with an agenda for the meeting however PPTD were unable to provide a detailed record of discussions and agreed actions and therefore we have little documentary evidence of what was formally agreed between the parties at the meeting. We were advised by PPTD staff present that CalMac Representative 1 agreed that CalMac would "do what it could" to help on documentation and facilitate Mr. O'Driscoll during the handover process. 5.2.4 In discussions with CalMac they advised that in order to assist Mr. O'Driscoll during the handover, they had made repeated requests for a copy of his Implementation / Mobilization plan. CalMac provided evidence of a communication from RIFL Employee I dated 20 May 2008 which stated that there were "a number of blanks" that had to be completed before a “sensible" implementation plan would be available. In CalMac’s view. the successful tenderer did not submit a proper implementation / mobilization plan and that failure to provide such a plan made it progressively difficult for CalMac to complete demobilization of its operations. CalMac advised that TUPE obligations could not be taken forward as Mr. O'Driscoll had not provided details of his pension provisions and this resulted in a number of reminders and representations by CalMac to the Department.

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5.2.5 In discussions with Mr. O'Driscoll he advised that while CalMac officials undertook to facilitate a smooth handover this did not transpire. However, he felt that as the core service was based on the same vessel and same crew this should not have presented major difficulties. The important issue for him was meeting the documentation requirements for MCA. He advised that this was subject to delay as he understood that CalMac staff were assisting with this documentation only to be advised three weeks later that this was not the case. He also advised that CMAL, the owners of the MV Canna held the process up as they insisted on a bank guarantee as a condition of the lease. This requirement was not detailed within the tender and as a consequence he had to arrange a £75k bank bond. He advised that this cost was on his balance sheet however he was not receiving any additional subsidy for it. 5.2.6 Whilst initially PPTD’s approach to the handover was sound in facilitating the process, we consider that the failure to formally establish the roles and responsibilities of the various parties at the outset and to ensure that appropriate monitoring mechanisms were established to measure progress, contributed to the difficulties encountered. We also consider it to be fundamental that a documented record of discussions and decisions taken at key meetings should have been maintained. 5.2.7 PPTD advised that they saw much of the detailed responsibility falling to the outgoing and incoming operators. The Branch did not have a full complement of staff at this time and was under considerable pressure due to priorities that had to be taken forward on the Airports side and from the volume of e-mails and FOI requests that were now being received in relation to the award of the contract and the investigation that had commenced. All of these factors impacted on the level of oversight by the branch during the handover period. Contract Compliance Issues 5.2.8 In the period following the award of the contract and indeed up to the time of writing this report a number of allegations have been made and concerns raised regarding the certification of vessels used in the Rathlin Ferry service and also the contractor’s

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compliance with the terms and conditions of the contract. The allegations and our findings are detailed below: Allegation: One of the new vessels to be used by Mr. O'Driscoll has failed a crucial safety test 5.3.1 The statutory framework for regulating the safety standards for ferries in UK waters is administered by MCA. We met with MCA to discuss the allegations and concerns raised. 5.3.2 The International Safety Management (ISM) code requires all operators to meet international standards for the safe management and operation of ships and for pollution prevention. This requires operations risk assessment and safety plans approved by MCA. In addition, all vessels on the Rathlin Ferry route require an International Safety Management Certificate, issued by MCA. MCA also completes annual inspections of all vessels. 5.3.3 The ISM code is enforced in two ways, firstly by ensuring that the operator has in place a Document of Compliance for the Company and Premises. These documents are periodically audited and initially the operator is given an interim document of compliance for six months until the completion of the audits which are carried out within the six month interim period. Secondly, all vessels are required to have Passenger Certificate and Domestic Safety Management Certificates in place however, due to the nature of the Rathlin Ferry service (Ro-Ro ferry service) the higher International Safety Management Certificate has been issued. Again these are awarded on a six-month interim basis pending verification. 5.3.4 There are three main categorizations of non-compliance relevant to MCA. These are Observation, Minor Non-Conformity and Major Non-Conformity. We were advised that any operation that incurs a Major Non-Conformity is immediately shut down until the issue is rectified. 5.3.5 We have established that Mr. O'Driscoll currently operates two vessels on the Rathlin Island ferry service route. The first vessel is the MV Canna which has been used on the

53

route for a number of years by the previous operator CalMac. MCA has confirmed that this vessel has been certified (issued with an International Safety Management Certificate) by them. Concerns have been raised surrounding the second vessel initially proposed for the route, the MV True Light. Mr. O'Driscoll advised that issues arose as to the certification of this vessel by the equivalent maritime body in the Republic of Ireland. The vessel had been certified for several years but the stability booklet had not been properly completed. When this became known to him he did not proceed with the purchase of the vessel. MCA advised us that any issues regarding the vessels certification were a matter for the maritime body in the Republic of Ireland. Mr. O'Driscoll acquired another vessel, the MV Ossian of Staffa, which had already been surveyed and certified by the 01 July 2008 deadline and this vessel operated until it was replaced by the MV St Sorney which also received MCA certification. A further relief vessel MV Causeway Explorer has also been certified by a certifying authority recognised by MCA. We reviewed the certification documentation relating to all vessels used on the Rathlin Island ferry service and confirmed that MCA are content that all documentation is in order. 5.3.6 We have provided details of the certification in Table 5. Table 5: Vessels Used on Rathlin Island ferry service Name of Vessel

Type of Vessel

Date of Certificate

MV Canna

Ro-Ro

01 July 2008

MV Ossian of Staffa

Passenger only

27 March 2008

MV St Sorney

Passenger only

28 July 2008

MV Causeway Explorer

Relief for Passenger only vessel

13 October 2006

5.3.7 We have concluded that the allegation that the winning contractor’s vessel has not been approved by MCA has not been substantiated. Allegation: The MV Canna operated for a period from 31st August 2008 until 12th September 2008 without a valid passenger certificate. 5.4.1 MCA advised that the MV Canna’s Passenger Certificate, under its new management, was issued on 01 July 2008 to expire on 31 August 2010. At the time of issue the vessel

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entered her annual survey process within normal range dates. The vessel’s out of water annual inspection was due on 18 Sep 2008. For operational purposes it was requested that this date be extended to 29 Sep 2008. MCA advised that this is not an unusual request and reflects the availability of suitable slips / dry-docks. The request was agreed under the terms of MCA Instructions to Surveyors MSIS 23 Chapters 2.9.4.4 and 2.9.4.5. The extended period (up to a maximum of 4 weeks) is covered by the new certificate issued on 12 Sep 2008. At no time was the Canna out of survey nor was her certificate out of date. We were advised that a new five year certificate will be issued following her next successful bottom inspection. 5.4.2 We have concluded that the allegation that the MV Canna operated for a period from 31 August 2008 until 12 September 2008 without a valid passenger certificate has not been substantiated. Allegation: Mr. O'Driscoll's company has yet to have an approved safety management plan in place. 5.5.1 We have also investigated concerns raised about whether Rathlin Island Ferry Ltd had adequate safety management plans and related health and safety documentation in place. 5.5.2 We have been advised by MCA that on the date of handover, 1 July 2008 there was a safety management system in place which was acceptable and worthy of interim certification. On this basis the Rathlin Island Ferry Ltd was provided with an Interim Document of Compliance which certifies that the Safety Management System of the Company has been recognized as meeting the objectives of paragraph 1.2.3 of the International Management Code for the Safe Operation of Ships and for Pollution Prevention (ISM Code) 2 for a Passenger Ship. We were also advised by MCA that in relation to the new Rathlin Island ferry service operator (Mr. O'Driscoll), any issues brought to his attention have been addressed within agreed timescales and MCA are content that Rathlin Island Ferry Ltd is operating within the established codes of compliance. We also contacted the Health and Safety Executive NI (HSENI) who advised us that with regard to the Rathlin Island ferry service there is general compliance with required safety standards.

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5.5.3 On the basis of feedback from MCA and HSENI we have concluded that adequate safety management plans and related health and safety documentation are in place and that Rathlin Island Ferry Ltd is operating within the established codes of compliance. We also noted that MCA arranged a meeting of key stakeholders at Ballycastle harbour on 24 July 2008 where all the various issues relating to the operation of the service were discussed and proposed actions agreed. MCA is satisfied that the safety operations on vessels on the Rathlin service are up to standard and indeed informed us that they have allocated disproportionate staff time to demonstrate that this is the case. Allegations Rathlin Island Ferry Ltd is not registered with the Fair Employment Commission (now known as the Equality Commission). 5.6.1 Concerns have also been raised surrounding the registration of Rathlin Island Ferry Ltd with the Equality Commission. All private sector employers with more than ten full-time employees (working more than sixteen hours per week) are required to register with the Equality Commission and under the contract the operator is required to comply with all applicable fair employment, equality of treatment and anti-discrimination legislation. At the time of issue of this report PPTD advised that this issue had been raised with the operator who has confirmed that discussions had taken place with the Equality Commission and as his operation did not fall within the criteria for registration, the company had not registered with the Equality Commission. Allegation: Staff have not been adequately trained or subject to POCVA checks. 5.7.1 We have also investigated complaints surrounding the training of staff and whether all relevant staff have been subject to POCVA checks. MCA advised that as the crew transferred under TUPE arrangements it was essentially the same crew used by the previous operator. MCA confirmed that they are content that the crew of the Rathlin Island ferry service is adequately trained and that the training of staff will again be reviewed in a follow-up audit which they have scheduled for December 2008. PPTD advised that the issue of POCVA checks was raised with the contractor at the quarterly review meeting on 15 October 2008 and the operator advised that he had contacted Access NI to complete the POCVA checks.

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5.7.2 On the basis of discussions with MCA we have concluded that the crew of the Rathlin Island ferry service is adequately trained. We have also concluded that POCVA checks have not as yet been completed and that the Department is monitoring the situation to ensure that this contract condition is met. Allegation: The winning contractor did not have employers and public liability Insurance in place from the date of handover and that there are no insurance certificates on display anywhere within Ballycastle terminal. 5.8.1 In discussions with Mr. O'Driscoll he advised that necessary insurances were in place from l July 2008 however due to an oversight on his part, certain of the documentation was not displayed in the terminal building until 10 July 2008. Mr. O'Driscoll advised that they were displayed on the vessels. 5.8.2 We have reviewed the Certificate of Employer’s Liability Insurance and can confirm that the date of commencement for the insurance was 1 July 2008. Similarly, we have reviewed the insurance certificates for all vessels used on the Rathlin Island ferry service and confirmed that all vessels have had appropriate insurance in place for the periods in which they have been operating on the Rathlin Island ferry service. 5.8.3 We have concluded that the winning contractor did have employers and public liability Insurance in place from the date of handover. However, as a result of an oversight by the operator, certain of the documentation was not displayed in the terminal building until later that month. Allegations No written risk assessment prior to takeover on 1 July 2008 and that a new risk assessment had not been carried out regarding the passenger only vessel MV Ossian of Staffa. 5.9.1 MCA have advised that boarding practices and procedures for the MV Ossian of Staffa were examined during the inspection of the vessels in late June 2008 prior to the handover of the service to Mr. O'Driscoll and the Interim Document of Compliance audit of the Company’s Safety Management System identified a general requirement for risk assessments which MCA was giving the operator time to complete. We noted that

57

Mr O'Driscoll engaged a consultant to draft his Health and Safety Manual and also complete Risk Assessments. MCA informed us that they were content with the completeness and quality of the Risk assessments received from Mr. O'Driscoll in respect of the Rathlin Island ferry service. 5.9.2 On the basis of discussions with MCA we have concluded that adequate risk assessments are in place and that Rathlin Island Ferry Ltd is operating within the established codes of compliance. Allegation: A Performance Bond is not in Place 5.10.1 We noted that clause 29.1 of the Terms and Conditions of Contract advises that "the contractor shall deliver to the department the Performance Bond on the execution of this Contract (or such later date as may be permitted by the Department)" Clause 29.3 states "the Contractor shall not be entitled to receive any Payment under this Contract until such time as the Performance Bond is furnished to the Department ". At the time of our investigation we were advised that the performance bond was not as yet in place. 5.10.2 We were advised that as the cost of insurance for the bond is built into the tender price by the operator, the cost of servicing this bond is effectively being carried by the Department within the subsidy payments. It was therefore considered that it was not practical to include the bond in the contract. However, it was discovered that the clause referring to the bond had not been removed from the tender documentation. PPTD advised that in the 2003 competition CalMac advised that they were unable to obtain insurance to cover the bond and now Mr. O'Driscoll was having the same difficulties as CalMac had previously. 5.10.3 PPTD advised that CPD were currently in discussions with Mr. O'Driscoll in relation to his difficulties securing the bond. Mr. O'Driscoll confirmed to the investigation team that he was having difficulties obtaining the bond and that his subsidy claim was being reduced to take into account the fact that he is not paying for a bond. PPTD advised that the subsidy claims were subject to ongoing monitoring to ensure that a reduction was applied at the appropriate level and there had been no loss.

58

5.10.4 We have concluded that the department has not complied with its own conditions of contract in making payments to the contractor prior to the appropriate bond being put in place. This is regrettable given that it would appear that the inclusion of the clause was an oversight on the Department’s behalf. We consider that had appropriate checks been completed at pre tender/pre commencement stage of the contract, this oversight may not have occurred.

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6.0 CONTRACT MONITORING Monitoring of Rathlin Ferry Service 6.1..1 We noted that within a number of days of the contract commencement on 1 July 2008, allegations and complaints were made in respect of Mr. O'Driscoll’s compliance with the terms and conditions of contract agreed with the Department for the operation of the service. We found that the Department has been proactive in investigating the allegations and complaints received, especially those in relation to health and safety, and ensuring that the operator is complying fully with the terms and conditions of contract. 6.1.2 Central in the evaluation, and therefore the contract award, has been the expectation of a new vessel. It has been drawn to our attention during the course of the review that Mr. O'Driscoll was successful in a tender competition in the Republic of Ireland when he proposed to introduce a similar catamaran (albeit as a back up vessel to be available in event of breakdown) to that proposed in the Rathlin Ferry Service operation and that this vessel has not been delivered on time. The new operator has assured the review team that an interim arrangement is available in the Republic of Ireland situation and that the procurement of the catamaran for the Rathlin service is well under way and he is confident of having the vessel on route on l July 2009. We understand that the Department has agreed a provision with the contractor which allows for a penalty in terms of reduced subsidy in the event of delays in the delivery of the proposed catamaran. Notwithstanding the availability of this option to protect the public purse, it is important that the Department makes the monitoring of progress on delivery a priority in its monitoring regime. In the eyes of many, certainly the Islanders, delivery of the new vessel on or near time may be the acid test of the procurement process. 6.1.3 We were advised that monitoring of the new operator’s compliance with the terms and conditions of grant will be over and above that exercised in the previous CalMac contract. A Monitoring Action Plan for the Rathlin Island ferry service has been developed (see Appendix 7) which includes weekly, monthly, quarterly and annual monitoring checks and these will be carried out by PPT D staff on the service provided. In addition, formal quarterly meetings will be held with the operator to discuss performance.

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6.1.4 We noted that monitoring of the contract is ongoing with a physical spot check of ticketing having been completed by PPTD staff in September 2008 and a further physical check on the operation carried out in November 2008. We were also advised that the first quarterly review meeting with the operator took place on 15 October 2008. 6.1.5 As part of the monitoring arrangements the Department consults with key stakeholders to establish if they have any issues with the operation of the service. Recent feedback from the RDCA advised by way of a letter received in the Department on 03 October 2008 that "overall the RDCA is very satisfied with the quality of service that has been offered by Rathlin Island Ferry Ltd since its recent undertaking of the operation". The letter also stated that "There were some initial problems securing bookings by telephone but these were ironed out fairly quickly. There have also been some issues regarding the mechanical reliability of the passenger only vessel, the St. Sorney, and we hope that the operator will do everything to ensure that the vessel is fully and properly maintained at all times". The letter went on to state "The extra scheduled sailings have been a great success and are greatly appreciated by both islanders and by visitors to the island. The extra employment that has resulted is also helping to maintain the island as a unique and viable community". 6.1.6 We are of the opinion that the Department has established adequate arrangements for the effective monitoring of the operator’s compliance with the terms and conditions of contract.

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7.0 MANAGEMENT AND PERSONNEL ISSUES 7.1.1 A number of allegations/complaints have been made about the conduct of staff, particularly DRD staff, in the context of this procurement exercise. Certain of these have been considered in previous sections, when they form an integral part of other aspects of the procurement process. However, a number relate to the conduct of the officers when dealing with a range of stakeholders and resolution of these issues will directly inform DRD’s decision on whether or not formal disciplinary action should follow. These are considered in this section. 7.1.2 Unfortunately an obvious difficulty arises almost immediately, in that often the complainants were not present at the events referred to or are relating one view of a twoway conversation where firm corroboration is elusive. Clearly, and for their own reasons, CalMac has chosen not to formally pursue those matters in which they have a locus. We have however taken evidence from CalMac representatives and in other situations have sought to view the allegations in the timeframes and context of the exercise, to allow us to form a conclusion. Allegation - That the tender process was a ‘done deal’ prior to Christmas 2007 and the outcome was politically motivated. 7.2.1 An email from a "whistleblower" received by the Northern Ireland Audit Office on 7 May 2008 includes the following references: "During this discussion [the CalMac debrief on 2 May 2008] .... DRD representatives Official 1 and Official 2 eventually admitted that it had been a ‘done deal ’ prior to Christmas 2007 and the decision was politically motivated. " The review team was subsequently advised that a "whistleblower", who had previously used the pseudonym ‘Sonia Monahan’, was in fact Complainant 1. (see Annex 4). 7.2.2 Having spoken to Complainant 1, and Complainant 2’s line manager, CalMac Representative 2 (who attended the debrief meeting and has since explained that given Complainant 2’s contribution to the CalMac bid he (CalMac Representative 2) had considered it right to provide feedback to Complainant 2 on associated developments)

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and to others present at the meeting, we can find absolutely no evidence to substantiate this allegation. Certainly the two DRD officials and CPD officials present at the meeting deny any such references were made. Nor can CalMac Representative 2 recall such references. 7.2.3 At the debrief explanations may have been provided by DRD officials of the bidding process for additional resources, that the Northern Ireland Executive had supported the case to finance an enhanced ferry service and that this was why enhanced service had been reflected more directly in the second tender competition. As noted earlier, CalMac staff may have decided that, given CalMac’s ownership position, there was a "political" consideration to be weighed before pursuing a formal complaint about the outcome of the tender: this may have been shared with Complainant 2. 7.2.4 Whatever the case, we can only conclude that the allegation came as a misunderstanding or misrepresentation of what was said at the debrief. Further, when we weighed the comments of other members of the Evaluation Panel about their expectation that the second CalMac bid would be very strong and DRD’s explanation that its interest in leasing or purchasing the MV Canna was initially conceived as a means of allowing the only compliant bidder at that time (CalMac) to produce an affordable bid, it is even more difficult to give credence to the ‘done deal’ before Christmas 2007 claim. Allegation - Personal information relating to Complainant 2 was passed on to third parties by Official 1. 7.3.1 There are essentially two issues here. First, that on 18 April 2008 (after the contract award) Official l (DRD) rang Complainant 2 outside normal work hours and in discussion said that he had given Complainant 2’s mobile number to Mr. O'Driscoll. Second, that on 7 July Complainant 2 (who was now employed by Mr. O'Driscoll having moved under TUPE arrangements) sent an e-mail from home to Official 1, amongst other things raising concerns about the new operation, and Official l copied this e-mail to Mr. O'Driscoll (Complainant 2’s new employer) without recourse to Complainant 2. This e-mail and those that followed are included at Annex 8. Complainant 2 is concerned that this disclosed personal information (his e-mail address) to a third party

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and, given the nature of the content, potentially compromised his position with his new employer. Complainant 2 lodged a formal complaint with Central Management Branch, DRD on 9 July 2008 and Complainant 1 made a wide-ranging formal complaint, which included this matter, to Mr. Paul Priestly, Permanent Secretary, DRD, on l2 July 2008. 7.3.2 In interviews with Official 1, Official l advised that he cannot recall the precise details of the call to Complainant 2 or what telephone number he may have provided to Mr O'Driscoll. Insofar as he knew he was simply passing-on the contact number held by the Department for business purposes. Official 1 is adamant that his sole concern was to place Mr. O'Driscoll in contact with Complainant 2 at the earliest possible time. He held Complainant 2 in the highest regard and saw Complainant 2 as potentially the most important player in a smooth handover process. It was for this reason that he arranged for Mr. O'Driscoll to meet Complainant 2 shortly thereafter (on 22 April 2008). 7.3.3 While we can understand what Official 1 was seeking to achieve, and accept that there was no desire by Official l to release Complainant 2’s mobile phone number, it may have been more appropriate for Official 1 to have discussed the matter with Complainant 2 in the first instance. 7.3.4 The passing-on of the e-mail correspondence is a more complex and far-reaching matter. Extensive concerns had already been raised about the procurement by ‘Sonia Monahan’ (subsequently confirmed to the investigation team as being Complainant 1) and an internal audit investigation was underway. Complainant 2 was part of a TUPE-based transfer to a new employer with all the attendant stress that such processes carry. He had been working for Mr. O'Driscoll for less than one week. He had written from home, specifically to Official l (“... concerns that I think you should be aware of ..."). Official 1 confirmed in an interview with us that he had forwarded the e-mail to Mr O'Driscoll. 7.3.5 Official 1 advised us that he took the view that if Complainant 2 was writing to him about problems, including health and safety concerns, it was imperative that they be

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addressed as quickly as possible. It seemed clear that Complainant 2 was having difficulty contacting Mr. O'Driscoll and Official 1 thought Complainant 2 was seeking his intervention. The e-mail hadn’t explicitly referred to concerns about confidentiality and may have expressed concerns shared by other employees. Official l said that it did not occur to him that the e-mail may effectively be a complaint against Complainant 2’s new employer. Official 1 is clear that these were primarily company matters and that Complainant 2 could and arguably should have had these matters resolved with Mr. O’ Driscoll. 7.3.6 While we can lend some weight to Official l’s explanation, we consider it surprising that Official l did not consider that the substance of the e-mail could present a problem for Complainant 2 with his new employer. Given that public servants are urged to use caution when dealing with e-mail material, the context in which the e-mail had been sent and an ongoing Internal Audit investigation into the procurement, we find that a considered view would have required Official 1 to speak to Complainant 2 before reverting to Mr. O'Driscoll. Even if this could not have taken place immediately and time was of the essence, Official 1 could have raised the substance of the concerns with Mr. O'Driscoll without attributing them to Complainant 2 (See also Paras 7.6.l-7.6.6). We consider failure to do so to have been an error of judgment on Official l’s part. 7.3.7 As the allegations received raised concerns about Complainant 2’s position with regard to legislation including the Data Protection Act 1998, the Telephone Communications (Lawful Business Practice) Interception of Communications Regulations 2000 and the Human Rights Act 1998, the review team sought legal advice. The advice received is that the complaints do not constitute a breach of Complainant 2’s rights under the various legislation quoted. Allegation - Official 1 had pressurized Complainant 2 to copy CalMac documentation to facilitate the handover to Mr. O'Driscoll. 7.4.1 Complainant 2 alleges that at his introductory meeting with Mr. O'Driscoll on 22 April 2008 and in subsequent contacts Official 1 pressed Complainant 2 to copy or use CalMac sources as the basis for Mr. O'Driscoll’s necessary documentation and that in

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Complainant 2’s opinion this was tantamount to harassment. Complainant 2 further alleges that in a meeting on 7 May 2008 Mr. O'Driscoll asked him to write a Safety Management Plan for the new operation, but that he declined on grounds that at that time he was a CalMac employee and did not have the time. Complainant 2 says Mr. O'Driscoll returned to the subject a few weeks later and seemed angry when Complainant 2 reiterated his position and suggested a marine consultant be employed. Complainant 2 reported these matters to CalMac and claims that CalMac requested Official l to make all further requests through Headquarters. Mr. O'Driscoll claims that the only reason for his annoyance was that Complainant 2 had initially agreed to consider preparation of the plan and by not informing him sooner that he could not accept the commission, he cost Mr. O'Driscoll three weeks in lost time. 7.4.2 Official l is adamant that in mentioning documentation at the 22 April 2008 meeting he was only interested in documents such as operational and safety procedures on the Canna and that CalMac senior management had subsequently undertaken to do their best to help in these areas at the meetings on 2 May 2008. Official 2 confirmed that the reference to documentation at the meeting on 22 April 2008 was very low key. Official 1 further states that he did not persist in pursuing this matter with Complainant 2, as he saw this as a matter to be resolved by Mr. O'Driscoll and the CalMac management team in the context of the mobilization plan. Official 1 advised that apart from the implementation meeting involving Mr. O'Driscoll and CalMac on 02 May 2008, there was no communication between himself and Complainant 2 between 22 April 2008 and 7 July 2008. 7..3 CalMac Representative 2 recalls Complainant 2 approaching him on this matter and saying he did feel pressurized by Official l. He informed us that in his view Official 1 was a strong personality and could come across as being quite assertive: for example, when querying CalMac decisions about not sailing in bad weather. CalMac Representative 2 explained that he decided to ask Official l to take a step back in a lowkey way and sent an e-mail which suggested:-

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"I would confirm that in the meantime, as discussed with CalMac Representative 1, given the local sensitivities, all communication and discussion should be directed via CalMac Representative 1 or myself and not via Ballycastle/Canna. " DRD officials did not equate this signal with there having been undue pressure applied to Complainant 2 and have stated that CalMac did not raise the issue more explicitly at any other time. 7.4.4 This would appear to confirm some empathy in CalMac towards Complainant 2’s position, or at least a general concern, but CalMac Representative 2’s e-mail was dated 24 April 2008 and the formal notification of the award decision had only issued by letter on Friday 18 April 2008. Also, the introductory meeting with Mr. O'Driscoll (and also involving Official l and Official 2) which appears to have been the alleged trigger point for these documentation requests took place on 22 April 2008, only two days earlier. These dates would seem to suggest a very small timeframe during which pressure about copying or assisting with documentation could have been applied on Complainant 2 and therefore tends to argue against it. Of further note is that Complainant 1’s letter of 12 July 2008 to Mr. Priestly states that the CalMac intervention meant that "... Official 1 was prevented from contacting Complainant 2 directly during May and June 2008". This again appears to rule out a period over which pressure could have been built up. 7.4.5 The strict reality is, of course, that after the 24 April 2008 Complainant 2 should not have been the recipient of further requests (although Mr. O'Driscoll has told the review team that he tended to contact Complainant 2 rather than Gourock, simply because of accessibility). Exactly what CalMac was prepared to do to facilitate the handover, including assistance with documentation, should have been agreed between the lead parties. Yet when DRD hosted a meeting involving CalMac and Mr. O'Driscoll on the afternoon of 2 May 2008 and prepared a detailed agenda of the issues to be considered, a formal record of the outcome was not produced and agreed. In the area of assistance with documentation the only outcome appears to be that CalMac would do its best to help. This is the line that had emerged from the debrief meeting earlier that day, but CalMac had also made it clear to DRD that they would not share any documentation which they considered had an intellectual property value and subsequently made sure

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Complainant 2 was clear on this point. CalMac also told us that they had, on a number of occasions, sought details of Mr. O'Driscoll’s mobilization plan to allow them to facilitate the handover but had never had a reply. In the end they had brought this I concern to Official 1’s attention. 7.4.6 Clearly there was a lack of clarity as to which documentation might reasonably be provided. Although the Department did have a checklist of issues for resolution, it was under considerable pressure in other areas at this time and, perhaps not unreasonably, would have expected the new operator to play the primary role in resolving these matters and ensuring a smooth transition. Whether or not, as a small operator, Mr. O'Driscoll . would have had the necessary experience and support mechanisms is another matter. 7.4.7 In his e-mail response to Complainant 2’s e-mail of 7 July 2008 Official 1 said:"Despite an undertaking by CalMac Representative I present that CalMac would "see what it could do to help RIF [Mr. O'Driscoll] has reported that CalMac management on the ground provided no such cooperation and consequently additional time was needed to develop the necessary manuals “from scratch". Whilst MCA approved the RIF operation by the handover date, I am disappointed at the approach taken by CalMac management, which, in my opinion, was not in the best interests of safety of the service. " 7.4.8 This would appear to say that RIFL (Mr. O'Driscoll) considered that the lack of progress on documentation was due to CalMac management at local level and perhaps that Official l would agree with this assessment. Official l said in interview that he did not see the "on the ground " reference as meaning only staff in Ballycastle, but we would not share this interpretation. Complainant 2 certainly feels the term referred to him and that he was therefore left to carry the blame. Given a lack of clear agreement between the lead parties, that Complainant 2 was a CalMac employee in the May/June period and had been given clear direction by his line management about not copying documents, reference to CalMac management on the ground was at least imprecise and possibly unfair to Complainant 2.

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7.4.9 At our meeting Complainant 2 said that he considered his treatment by Official l over the preparation of documentation to be tantamount to harassment. Official l denies this and the very limited time period around the end of April would reason against persistent approaches. In the public sector we would consider that harassment would normally relate to aspects of a person’s social identity and, given the previous good relationship between Complainant 2 and the lead DRD staff, and the respect and esteem in which he was held, we can see little evidence of it here. Bullying is another category of behaviour we- considered but here again a working public sector definition of “persistent offensive, abusive, intimidating, malicious or insulting behaviour, which makes the recipient feel upset, threatened, humiliated or vulnerable, which undermines his/her self confidence and which may cause him/her to suffer stress " is difficult to sustain in this case. While occasional abruptness or rudeness, even if it did occur, would be unacceptable, it falls well short of the term ‘bullying’. We are also mindful that the contact between Official I and Complainant 2 was on the basis of client/contractor, not manager/employee. 7.4.10 However, that Complainant 2 would have been under considerable pressure during the handover period was not in doubt. Quite apart from his concerns about the procurement methodology, the TUPE process and the possibility of an imposed change to a new employer was of itself hugely trying. He also feels unjustifiably blamed over allegations about non-cooperation. However, we cannot conclude that there is evidence that Official 1's contact with Complainant 2 over this matter was unreasonable, nor that it can be described as harassment or anything similar. Allegation - Official 1 informed CalMac that Complainant 2 or his family were the source of questions about the tendering process and that disciplinary action should be considered. 7.5.1 These two related allegations were made by Complainant 2 in his 9 July 2008 complaint to Central Management Branch (DRD) and again by Complainant 1 in her letter of 12 July 2008 to Mr Priestly. 7.5.2 There would appear to be two separate events which may have led to these allegations. First. according to CalMac, Official l rang CalMac Representative 1 after the CalMac

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debrief to express concern that certain of the information shared at the debrief had found its way into the public domain and that if this had happened at the CalMac end disciplinary action should be considered. CalMac Representative 1 explained that the schedule detailing the comparison of financial bids (the evaluation sheet) which contained the information referred to, had not been made available to CalMac staff at the debrief and there could, therefore, be no question of a leak of this information from the CalMac side. Official 1 denies making direct reference to disciplinary action but confirms that he accepted CalMac Representative 1’s explanation. 7.5.3 Second, CalMac Representative 2 reported that at the final Quarterly Review meeting between CalMac and DRD in July 2008 Official l had referred to further information requests from Complainant 1. CalMac Representative 2 confirmed that he had subsequently mentioned this exchange to Complainant 1. CalMac Representative 2 felt that notwithstanding the general confidentiality considerations governing these meetings he had a duty to Complainant 1 and Complainant 2 to let them know this had occurred. Official l informed us that he was well aware of the sensitivity of such information and would not treat it lightly. The point had arisen in the context of a wider discussion of information requests in which CalMac had an interest, primarily because of a concern they had that commercial in confidence material might become public. Official 1 considered it valid to make them aware of related issues which DRD was dealing with, but the comment about Complainant 1 had slipped out inadvertently. This explanation squares with the way in which CalMac Representative 2 reported it to us. 7.5.4 While we acknowledge that Complainant 1 and Complainant 2 would be understandably concerned about reports of such discussions coming back to them, we do not consider that Official l acted maliciously. In the first case he was concerned that a leak may have occurred on the CalMac side but he did not pursue the matter when he heard CalMac Representative 1’s explanation. The second appears to have been an unfortunate slip in a confidential meeting: Official l is aware this should not have happened.

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Allegation - Official 1 is abusing his position and undermining Complainant 2’s position within Rathlin Island Ferries Ltd. 7.6.1 Again these allegations are made in Complainant 2’s complaint of 9 July 2008 and in Complainant 1’s letter of 12 July 2008 to Mr. Priestly. Whatever concerns Complainant l and Complainant 2 may have had, their relationship with DRD was clearly exacerbated by Official 1’s decision to copy Complainant 2’s e-mail of 7 July to Mr. O'Driscoll (see paras 7.3.5-7.3.8) and, insofar as Complainant 2 is concerned, Official 1’s reply to him on the same day at least appeared to suggest that in RIFL’s view the problems over cooperation with CalMac centred on Complainant 2 (7.4.7-7.4.8). Complainant 1 and Complainant 2 also have a concern that Official 1 may have shared his views on the sources of the "whistleblowers" with Mr. O'Driscoll. Complainant 2 was greatly concerned by the tone of the final paragraph in Official 1’s e-mail which read: " ...... I would be grateful for some clarification of your role now within the management structure of the Company". In hindsight, perhaps this may have been best left unsaid. 7.6.2 Complainant 2 certainly sees the sum of the comments as further isolating his position in the new operation. 7.6.3 That there appears to have been a cooling-off in Complainant 2’s relationship with DRD officials over the Spring 2008 period is self-evident. Prior to then each of the two lead DRD officials had spoken very highly of Complainant 2’s professionalism and qualifications, with only occasional disagreements, and the relationship was generally good. Indeed Official l and Official 2 commended Complainant 2 very highly to Mr. O’ Driscoll, when the latter won the contract. However, the handover period was clearly a stressful time for all concerned and one or two events appear to have destabilized the relationships, resulting in the tabling of a formal complaint in July 2008. 7.6.4 As we have already observed, the events around the series of e-mails commencing 7 July 2008 were crucial and Complainant 2 feels very upset about the way in which events unfolded. Official 2 informed us that up until April 2008 he had been in Ballycastle every month, perhaps more than once, but that because of other work pressures he had not been there since then. This tailing off in personal contact may also have had an

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adverse effect, lessening the opportunity to talk over issues and concerns, and resolve issues before they gained significance. 7.6.5 While Mr. O'Driscoll is clear that he regarded Complainant 2’s e-mail of 7 July 2008 as a complaint against RIFL, he is adamant that neither Official 1 nor Official 2 went further in either complaining about Complainant 2 or questioning his commitment to RIFL. On the contrary, he feels they were generally complimentary about Complainant 2. Mr. O'Driscoll told us that his assessment of Complainant 2’s worth to RIFL came solely as a consequence of working alongside him since 1 July 2008 and having regard for the state of the business and market conditions. 7.6.6 While we understand that Complainant 2 may feel that DRD officials turned against him in the light of events and specifically in the email of 07 July 2008, we consider that the email was more a misjudgement than a direct attempt to malign Complainant 2. Allegation: A DRD official had asked the Scottish Executive, who own CalMac, not to challenge the outcome of the tender. 7.7.1 It has been alleged that DRD staff may have brought pressure to bear on Scottish officials to forestall any possible challenge to the award decision. 7.7.2 We interviewed DRD staff who had contact with the Scottish Executive surrounding the proposed leasing of the MV Canna and subsequent award of the competition to Mr. O'Driscoll. Both officials categorically denied that they have ever asked the Scottish Executive not to challenge the outcome of the competition. CPD informed us that none of their officials had any contact with the Scottish Executive in regard to the competition. We also contacted officials within the Scottish Executive who confirmed that at no time had a DRD official asked them not to challenge the outcome of the Rathlin Ferry tender competition. We have found absolutely no evidence of any intervention whatsoever, apart from DRD officials notifying the Scottish Executive of the outcome of the competition.

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7.7.3 It is possible that as CalMac are owned by the Scottish Executive they may have considered it inappropriate to challenge a decision made by another public sector administration. Allegations The Department applied pressure on MCA to award the necessary certification to the winning contractor 7.8.1 We interviewed Official l and Official 2 in relation to the allegations and they categorically denied that they had contacted MCA in regard to this matter and applied pressure to award certification. We also contacted the Area Manager of MCA who oversaw the proposed certification of the vessels proposed for use on the Rathlin Island ferry service. He advised that there had been no contact between himself or his staff and DRD officials to discuss the survey and certification of vessels in relation to the service and therefore that no pressure had been exerted directly, or indirectly, on himself or his staff by DRD officials. He also advised that there have been no negotiations involving anyone from his office and DRD officials on behalf of Mr. O'Driscoll. 7.8.2 The Area Manager of MCA also confirmed that neither he nor his staff had heard a DRD official suggest that the tender or certification of vessels for the Rathlin Island ferry service was a "political issue". 7.8.3 We have concluded that there is no evidence to support the allegation that the Department applied pressure on MCA to award the necessary certification to Mr. O'Driscoll.

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8.0 OVERALL CONCLUSION AND RECOMMENDATIONS 8.1 Overall Conclusion 8.1.1 A number of allegations have been made about the appropriateness of the procurement process and it has been alleged that key elements failed to comply with the Public Contracts Regulations. We are of the view that these allegations are based on a misunderstanding of the Regulations. The complainants have failed to recognise that most of the Regulations do not apply to ferry services of this nature which are classified as a Part B service. Contracting Authorities have considerable discretion on the process used for Part B services within the overarching requirement for the process to be fair, transparent and non-discriminatory. in this case CPD adopted elements of standard Part A procurement procedures but not all of them. This was entirely legitimate but it may have resulted in some confusion, with complainants thinking that this was a conventional Part A procedure. 8.1.2 Whilst we consider that the overall procurement procedure was appropriate a number of mistakes arose in relation to process and administration, the key one being that the wrong assessment criteria was set out in the second tender documents. This only came to light at the CalMac feedback meeting when it was found that there were discrepancies between the assessment criteria in the tender documents and those used by the Evaluation Panel for the assessment of tenders. Clearly this should not have occurred: even basic quality assurance of the tender documents should have prevented it. However having assessed the consequences of the error we do not believe that it materially affected the outcome of the competition. We consider that once the problem had been highlighted CPD could have done more to reassure CalMac that the issue had been investigated and to advise them of the outcome. 8.1.3 Complaints have been received about a lack of transparency of sub-criteria used by the Evaluation Panel in the scoring of the tenders. This is a complex area of procurement law with a number of important legal judgments having been made since this competition was undertaken. The position is further complicated because the Rathlin Ferry procurement relates to a Part B service which is not covered by the Regulations which apply to the

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setting of criteria and weightings. Complainants have referred to court cases which relate to Part A services which are subject to all of the requirements of the Regulations. We are of the view that if this had been a Part A services procurement then the procedure would have been exposed to a high risk of a successful challenge. The position is less clear for a Part B service and we camiot predict the outcome had a challenge been made on these grounds. We are of the view however, that CPD should on future procurements of this nature. ensure that the same level of transparency is applied to Part B services as it is to Part A services. 8.1.4 The bid made by Mr. O'Driscoll includes proposals for minor works to the harbours at Ballycastle and at Rathlin to improve access for the elderly and disabled. Complaints have been made that his bid should have been declared non-compliant because the tender documents suggested that tenderers should have ensured that any proposed vessels were compatible with the existing berthing facilities. The requirements within the tender documents were not as clear as they could have been but in our view they did not rule out modest expenditure and did specifically invite proposals for improving disabled access. The definition of significant expenditure is open to interpretation but the £150k estimated cost (latest estimate (£100k) is a small percentage of the overall contract value. All bidders had the same opportunity to clarify the position with DRD and no formal requests for clarification were received as part of the tender process. Mr. O'Driscoll has confirmed that the proposed works relate only to the need to improve disabled access and are not essential for the berthing of his proposed vessels. Having discussed this with others involved in the assessment (see para: 4.11.6) we are inclined to accept this view. We are therefore of the view that Mr. O'Driscoll’s proposals did meet the tender requirements and that in any event this level of expenditure would not have materially affected the outcome of the competition, if factored into the overall evaluation. 8.1.5 It has been alleged that the abandonment of the first procurement in 2007 was because the Department wanted Mr. O'Driscoll to win the contract. Two of the bids were considered to be non-compliant, including Mr. O'Driscoll’s, because at that time he could not guarantee that a suitable vessel would be available. The CalMac bid did meet the minimum technical requirements but the cost exceeded the available budget and offered

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little by way of enhancement to the existing level of service. By this stage DRD had received confirmation that extra funds may be available for improving the service. In our view it was appropriate therefore, for the competition to be abandoned on the basis that the bids received were either non-compliant or unaffordable. If the CalMac bid had offered meaningful service improvements then DRD may have proceeded with it or sought to negotiate a better price, but this was not the case. 8.1.6 There have also been allegations that Mr. O'Driscoll’s bid was non-compliant in other respects. We have examined the bids and there is no doubt that Mr. O'Driscoll’s bid was less comprehensive and less detailed than that submitted by CalMac. This may reflect the different sizes of the two companies and the resources that each had available for submitting tenders of this nature. While there was a lack of detail in certain areas, we are of the view that Mr. O'Driscoll’s tender was sufficient to achieve overall compliance with the requirements. Also the tender documents stated that bids may be rejected if they were non-compliant and this gave DRD / CPD discretion in deciding whether to reject a bid. We are of the view that it was reasonable for the Evaluation Panel to conclude that the detailed weaknesses in the bid did not justify the rejection of Mr. O'Driscoll’s tender. 8.1.7 The overall complaints about the procurement process appear to be based around sensing that Mr. O'Driscoll was favoured from the outset and that anything would be done to ensure that he won. We have found no evidence of this. We are of the view that the main desire was to achieve the best value bid which would deliver the desired level of improvements to the ferry services to benefit the local community and to support tourism. Whilst CalMac had provided a very competent and professional lifeline service over a considerable period of time they had been unable to significantly enhance services and this was also reflected in their tender proposals. The enhancements included in their bid were modest and did not offer a dedicated alternative vessel. 8.1.8 We consider that the decision making and quality of administration was, at least in part, adversely affected by the timescales and scheduling associated with the second phase competition.

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8.1.9 Our overall view is that notwithstanding established procurement procedures and an existing SLA there is no doubt that mistakes were made in the procurement process. These will need to be addressed and we set out our recommendations in this respect below. However, these problems in both CPD and DRD did not in our view materially disadvantage the non-successful bidders or fundamentally undermine the competition. We consider that the tender assessment did fairly reflect the considerable difference between the level of improvements offered in the two bids and that the procurement process did identify the most economically advantageous proposal. 8.1.10 While the incoming service has been well received it is evident that the handover period did not run smoothly. The relations between the incoming and outgoing operator could have been improved as could the Department’s oversight of the handover process. This certainly would have allowed a more effective handover period and better implementation planning. The Department has accepted that there were some delays in establishing the monitoring regime, although this is now substantially in place. An outstanding issue for the Department to address is the Performance Bond. The Department was under the impression that this requirement was excluded from the contract however, as the bond remains a condition of the contract, this issue remains to be resolved. 8.1.11 We consulted with MCA and HSENI in relation to health and safety concerns and allegations that vessels did not have appropriate passenger certification. On the basis of feedback from MCA and HSENI we have concluded that adequate safety management systems and related health and safety documentation is in place and that Rathlin Island Ferry Ltd is operating within the established codes of compliance. We were advised by MC A that they have allocated disproportionate staff time to demonstrate that this is the case. 8.1.12 In the area of personnel and management our greatest concern has been with the conduct and management of the exercise. We have found no evidence of impropriety in either DRD or CPD, nor that officials had any improper contact with the Scottish Executive, MCA or any other party with an interest in the outcome of the procurement. That said, the management and oversight deficiencies (arising largely from breakdowns in

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communication and understanding of roles between DRD and CPD, and also from limited staff resources and extenuating circumstances in PPTD) have damaged the effectiveness and transparency of the procurement and fuelled perceptions of bias or wrong-doing. 8.1.13 Certain of these deficiencies are identified above in relation to the tender and evaluation processes, but even basic aspects of good practice such as a documented record of some clarification, debrief and implementation planning meetings have been overlooked and on occasions planning correspondence (mainly e-mails) between DRD and CPD have not been saved to the electronic filing system. This has left DRD and CPD in an exposed position when seeking to explain themselves to interested parties and exposed the two Departments to justified criticism. 8.1.14 Insofar as criticisms of Official 1 by Complainant 2 is concerned, we find that there is no evidence to support either harassment or bullying. While there was some contact around the end April period (after the award of the contract became known around 18-21 April 2008) we have found nothing to suggest that it was unreasonable in the context of a client/contractor relationship and the evidence provided to the team by Complainant 1 and Complainant 2 says that the CalMac intervention prevented contact between the two parties in May and June 2008. 8.1.15 We consider the most significant single issue we established in this area to be Official 1’s decision to forward Complainant 2’s e-mail of 7 July 2008 to Mr. O'Driscoll (Complainant 2’s new employer) without recourse to Complainant 2. Official 1 says his only intent was to have the issues identified in the email addressed as quickly as possible. That may be the case but the e-mail could have been read as a complaint against the new employer (certainly Mr. O'Driscoll viewed it as a complaint) and that Official l did not exercise more caution or sensitivity was in our view an error of judgment on his part which should not have happened. Certainly this act and Official 1’s subsequent reply the same day appears to have been a turning point in Complainant 2’s relationship with the Department.

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8.1.16 Complainant 2 contends that this event helped sour his relationship with Mr. O'Driscoll and that the reference in Official 1’s reply that RIFL (Mr. O'Driscoll) blamed "management on the ground" for the poor cooperation with CalMac as being evidence of this Complainant 2 also considers that subsequently Official l may have spoken against him in conversations with Mr. O'Driscoll. Both Official 1 and Mr. O'Driscoll deny that this was so. 8.1.17 In our view it is not unreasonable to conclude that the "management on the ground" reference meant management in Ballycastle, i.e. Complainant 2, and that this did not reflect the very difficult position Complainant 2 found himself in the May/June 2008 period. We do not however concede that this was a defining act in the relationship between Complainant 2 and Mr. O'Driscoll. Mr. O'Driscoll is adamant that his view of Complainant 2’s capability and potential was based solely on working alongside him in the July - September 2008 period and that neither Official 1 nor Official 2 had played a role in this. On the contrary, Mr. O'Driscoll confirmed that both of the lead DRD officials had commended Complainant 2 to Mr. O'Driscoll in high terms. 8.1.18 Our terms of reference require us to advise on the need for specified formal disciplinary charges in relation to Official l or Official 2. In seeking to weigh the actions of Official l and Official 2 during this procurement it would be wrong to overlook either that this was a complex and demanding challenge for a small Branch with limited procurement experience (made more difficult and stressful by the allegations which arose during the procurement process) or that the Rathlin Islanders have nothing but praise for the outcome. That said, the public interest demands high standards of administration from public servants and in our view certain aspects of the administration and management of this process fall short of the required standard. Notwithstanding that mistakes were made, we have found no evidence of impropriety or misconduct on Official 1’s part and we therefore consider that it would be inappropriate for the Department to pursue formal disciplinary action against Official l. Rather we consider that the Department should weigh Official 1’s actions and wider management responsibilities in this procurement in the context of his 2008-09 annual performance assessment in terms of his overall box marking. The deficiencies in the procurement process have impacted adversely on the standing of the Department and

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the Department will no doubt wish to make its concern about these matters known to the individuals involved. A smaller number of allegations relate directly to Official 2 and here again we have found no evidence of impropriety. We would view any questions against him as relating solely to the effectiveness of his role as project manager and therefore to aspects of performance as opposed to formal disciplinary action. Again we consider that Official 2’s actions should be weighed in the context of his 2008-09 performance assessment. There certainly appears to have been an over-reliance on CPD and, as a result, the Department’s position has been compromised. This has been reflected in the recommendations below. 8.1.19 We have found nothing to suggest that action is necessary in relation to other DRD officials.

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8.2 Recommendations 8.2.1 In the course of our investigation we have identified a number of deficiencies which in the main relate to a dislocation in the apportionment of responsibilities between CPD and DRD. Notwithstanding the fact that a SLA was established between CPD and the Department and that CPD have established procedures to ensure fairness, equality and transparency in the procurement process, on the basis of our findings, it is evident that further action is required to improve and monitor compliance with the procedures so that Departments are not exposed to criticism and loss. We have therefore made a number of recommendations which are detailed below. Recommendation 8.2.2 SLAs between CPD and Departments should be reviewed to ensure that there is absolute clarity regarding the roles and responsibilities and accountability of the respective parties. Recommendation 8.2.3 Notwithstanding its existing procedures and that a Tender Initiation Document was used in this case, CPD should review current procedures to ensure that schedules for key stages of the process detail all documentation requirements and ensure that the process is operating effectively. The schedule should be signed and dated at each of the key stages and be subject to supervisory review to confirm that the process is carried out in accordance with procedures and is complete, accurate and reliable. For example there should be no question of debate as to when evaluation criteria/sub criteria are agreed. 8.2.4 Given that there have been a number of recent legal cases where judgments have established case law relating to the use of sub-criteria, sub-weightings and scoring methodologies, CPD should consult with DSO to ensure that procedures are appropriate. Recommendation 8.2.5 There must be absolute clarity on the category of service i.e. Part A/B, and the impact this has on processes. Failure to do so may lead to confusion amongst bidders.

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Recommendation 8.2.6 CPD should ensure, perhaps through the Tender Initiation Document referred to at Para: 8.2.3 above, that for all meetings e. g. tender evaluation meetings, clarification meetings, debriefs etc. an adequate note of the meeting is formally recorded and retained on file. Recommendation . 8.2.7 Given the recent transition to non paper based scoring and electronic record storage within CPD, we recommend that the system is formally reviewed to ensure that it is operating effectively and provides a complete and transparent means of supporting public procurement decisions. Recommendation 8.2.8 Notwithstanding that CPD has an established complaints procedure, we recommend that CPD should develop a formal process to govern situations where a material error arises in the management of the procurement. Formal documentation in relation to decisionmaking must be retained for management/audit trail purposes. Recommendation 8.2.9 CPD and Departments should ensure that all Evaluation Panel members, both internal and external to the department, are aware of the roles and responsibilities of an Evaluation Panel member and have received appropriate training. Recommendation 8.2.10 Conflict of interest declarations should be completed for every procurement competition. In this case conflict of interest declarations were completed by Panel members in the first procurement competition but they were not reviewed in the second. Recommendation 8.2.11 DRD should reiterate established procedures to staff, to ensure that significant e-mail communications are saved to the electronic filing system (TRIM) on a timely basis and that a complete management/audit trail is maintained to support key decisions taken.

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Such failures in this procurement were potentially serious and the problems experienced in DRD may hold lessons for other Northern Ireland Departments. Recommendation 8.2.12 The Department should ensure that prior to the commencement of service contracts necessary checks are completed to confirm that the new operator/contractor has met all prerequisite conditions of contract. Recommendation 8.2.13 The Department should review the performance bond requirement in this contract, to ensure that it is necessary and cost effective. Recommendation 8.2.14 The Department should ensure that all staff are aware of the requirements in relation to the handling of personal or sensitive internet and e-mail data and in particular ensure that these guidelines adequately cover the passing on of personal data.

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ANNEX l RATHLIN FERRY TENDER PROCESS - CHRONOLGY The table below provides a chronology of the main events in the Rathlin Ferry Tender process. Date

Comment

May 2007 Advertisement placed on CPD website inviting Expressions of Interest (EOI) from companies 18/06/07

Closing date for EOI

29/08/07

Tenders invited by CPD on behalf of DRD

11/10/07

Closing date for return of tenders

22/10/07

Tender bids opened for the first competition

05/11/07

Marine Consultant inspected the vessel used by CalMac, the MV Canna.

06/11/07

Consultant inspected the MV Bruernish proposed for use by Mr. O'Driscoll.

08/11/07

Marine Consultant inspected a vessel similar to one proposed for use by Mr. O'Driscoll.

09/11/07

Evaluation Panel met. Record states that purpose of meeting was "not to evaluate but to determine points of clarification".

27/11/07

Submission to Minister requesting abandonment of first tender competition

27/11/07

Minister’s agreement to the abandonment of the first tender competition.

28/11/07

Rathlin Ferry competition abandoned by the Evaluation Panel. Abandoned on the grounds of affordability and compliance.

28/11/07

Panel review of evaluation criteria and weightings for the second competition

29/11/07

Abandonment letters issued by CPD to all parties who tendered for the competition.

12/12/07

Initiation document signed by PPTD and CPD for new Rathlin Island ferry service competition (Ref: S1584306).

13/12/07

Terms of Reference forwarded from PPTD to CPD containing incorrect Scoring Matrix.

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04/01/08

Amended OR forwarded from PPTD to CPD.

04/01/08

PPTD (Official 2) approves Tender Documentation by e-mail to CPD. .

04/01/08

Letters issued by PPTD to interested parties stating that the new tender will be placed on CPD's website over the next few days.

07/01/08

Tender Documents published on Procurement Directorate’s website and advertised. Deadline of 28 February 2008 set for return of tenders.

09/02/08

Tender documentation delivered to PPTD

10/03/08

Meeting with Mr. O'Driscoll at Killybegs boatyard to review plans for vessel proposed by Mr. O'Driscoll in his tender.

11/03/08

Evaluation of Bids by Evaluation Panel. Scores agreed subject to clarification on some points.

13/03/08

Clarification meeting with Mr. O'Driscoll, Harbour master, Marine Consultant, PPTD, CPD and the Clerk and Chief Executive of Moyle District Council held at Moyle DC to discuss proposed harbour works.

20/03/08

Clarification meeting with Mr. O'Driscoll at Ballycastle Harbour. Same attendees as previous meeting and in addition, a CPD Civil Engineer attended.

09/04/08

Report received on Harbour Works from CPD Civil Engineer.

15/04/08

Evaluation Report produced by CPD and forwarded to PPTD

16/04/08

Report forwarded by email to members of Evaluation Panel by PPTD confirming successful completion of clarification.

18/04/08

Approval of Evaluation Panel forwarded to CPD by PPTD.

18/04/08

Award and regret letters issued by CPD.

21/04/08

Press Release issued outlining award of new contract

22/04/08

Mr. O'Driscoll meets CalMac staff at Ballycastle terminal

24/04/08

CalMac request de-brief from CPD.

25/04/08

Debriefing letter issued to CalMac by email from CPD

28/04/08

Island Ferries request de-brief from CPD.

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02/05/08

CalMac Debrief. Attended by PPTD and CPD staff. Notes taken of meeting. Tender Scoring issue raised by CalMac.

02/05/08

Handover meeting attended by CalMac, PPTD and CPD staff.

09/05/08

Debriefing letter issued to Island Ferries by email from CPD

01/07/08

Rathlin Island Ferry Ltd commence service

07/07/08

Exchange of e-mails between Complainant 2 and Official 1

09/07/08 24/07/08

Meeting held at Ballycastle to review of Health and Safety arrangements surrounding the Rathlin Island ferry service

15/10/08

PPTD quarterly review meeting with Rathlin Island Ferry Ltd

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ANNEX 2 Three Strand Investigation: Terms of Reference The Permanent Secretary of DRD set out the following Terms of Reference in order to deal comprehensively with the full range of allegations and complaints that the Northern Ireland Audit Office (NIAO) and Department had received about the Rathlin Ferry Contract. It was agreed with NIAO that the investigation would have three inter-related strands: Internal Audit Investigation The ongoing Internal Audit investigation into many of the original allegations and complaints (terms of reference detailed below) will feed into the other two strands of the investigation. "In the light of the Northern Ireland Audit Office’s letter of 7 May 2008, to examine the concerns and issues raised by ’Sonia Monahan’ regarding the procurement procedures for the recently awarded contract for the Rathlin ferry service and to report. The examination should take into consideration earlier criticisms raised by ‘Sonia Monahan’ directly with the Department. The examination will involve seeking information from the Central Procurement Directorate which advised the Department during the course of the two relevant tender processes. " Procurement Process Investigation The terms of reference for this part of the investigation are as follows: "In light of the allegations and complaints received by NIAO and the Department for Regional Development, to investigate all aspects of the procurement process for the Rathlin Island Ferry contract and provide assurance that: a all tenderers received equal treatment and there was no discrimination; b there was transparency about the decision-making process; and c there was no manifest error in the award of the contract. "

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Investigation of Complaints against DRD Staff The terms of reference for this part of the investigation are as follows: "To carry out a preliminary investigation in accordance with the procedures, approach and timescale referred to in an attached letter and in order to: a enquire into the complaints against Official 1 and Official 2 concerning their role in the procurement process for the Rathlin island Ferry Contract and associated issues as set out in the attached letter and enclosed matrix; b establish the nature, background and facts to these events; c identify and enquire into any additional conduct matters that may emerge as part of the investigation in relation to Official 1 and Official 2 or any other identifiable civil servant involved in the process; and d provide a report on your investigation and advise on the need to put specified formal disciplinary charges to Official 1 or Official 2 or any other civil servant involved in the matter. This will be incorporated into a composite report to reflect the totality of the findings from the 3 strands of the overall investigation into matters relating to the Rathlin island ferry contract.

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ANNEX 3 Summary of Key Allegations • Procurement Procedures were not complied with. • An Evaluation Panel Member had a potential conflict of interest • The Department was attempting to purchase the MV Breurnish for one of the Bidders. • The CalMac tender should have been accepted as it was the only compliant bid. • Funding was being made available for the purchase of a vessel for the benefit of one of the operators • DRD failed to notify the existing provider (CalMac) of its intention to retender • Changes were made to the tender documents to accommodate one specific bidder. • The tender submitted by Mr. O’Drisc0ll was not compliant. • DRD was involved in illegal post-tender negotiations • The Criteria used to evaluate the second tender competition differed from that published. • DRD officials may have exerted undue influence in facilitating the new operator during the course of the tendering process. • One of the new vessels to be used by Mr. O'Driscoll has failed a crucial safety test • The MV Canna operated for a period from 31st August 2008 until 12th September 2008 without a valid passenger certificate . • Mr. O'Driscoll’s company has yet to have an approved safety management plan in place. • Rathlin Island Ferry Ltd is not registered with the Fair Employment Commission (now known as the Equality Commission). • Staff have not been adequately trained or subject to POCVA checks • The winning contractor did not have employers and public liability Insurance in place from the date of handover and there are no insurance certificates on display anywhere within Ballycastle terminal. • No written risk assessment prior to takeover on lst July 2008 and that a new risk assessment had not been carried out regarding the passenger only vessel MV Ossian of Staffa. • A Performance Bond is not in Place • The tender process was a ‘done deal’ prior to Christmas 2007 and the outcome was politically motivated

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• Personal information relating to Complainant 2 was passed on to third parties by Official 1 • Official 1 had pressurized Complainant 2 to copy CalMac documentation to facilitate the handover to Mr. O'Driscoll. • Official 1 informed CalMac that Complainant 2 or his family were the source of questions about the tendering process and that disciplinary action should be considered. • Official 1 is abusing his position and undermining Complainant 2’s position within Rathlin island Ferries. • A DRD official had asked the Scottish Executive, who own CalMac, not to challenge the outcome of the tender. • The Department applied pressure on MCA to award the necessary certification to the winning contractor

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ANNEX 4 Parties who have made allegations/complaints/raised concerns REDACTED

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REDACTED

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ANNEX 5 Enhanced Service - Tender Requirements 1.6.1 Caledonian Maritime Assets Limited (CMAL) is making the Ro-Ro (‘roll-on roll-off’) vessel. "Canna" which is currently serving the route (“The current vessel") available to Operators on a lease basis through an agreement with the Department. Companies tendering for the operation of the service may elect to use this vessel, or may elect to provide alternative vessel solutions, or a solution which includes the use of the current vessel. supplemented by other vessels in a way designed to best serve the route. 2.3.3 Tenderers are encouraged to develop the service provided over and above the minimum service requirements which add value to the service. 2.3.4 Tenderers will particularly wish to note that in considering ways to generate extra revenue. there are restrictions in place in relation to the number of vehicles which can travel to Rathlin (see Annex 6). However, it would be possible for tenderers to enhance the passenger element of the service. If using passenger/vehicle ferries this might mean running this in passenger-only mode, for certain services. 2.8.2 Any additional vessels that tenderers propose using, other than the current vessel, will have to be suitable for berthing at the existing harbour facilities at Ballycastle and Rathlin Island. Moyle District Council proposes to extend the current facilities at Ballycastle in the event of a new ferry service being put in place between Ballycastle and Campelltown. Tenderers should satisfy themselves of the details of any planned changes and that any planned change to the current harbour, planned by Moyle D.C. at the time of the tender, will not adversely affect their ability to provide services between Ballycastle and Rathlin Island. 2.10.3 The Department does not specify the number of vessels to be used, or that the same vessel has to be used throughout the period of the contract, other than the current vessel, if used. Provided that any vessel to be used meets the service requirements of the contract, then

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the Operator has flexibility in deciding on the vessel to be used. The Department does, however, specify that a vessel should be based in Rathlin overnight to facilitate its use in an emergency. 3.2.14 Tenderers must however provide full details of any additional or alternative vessels proposed. Tenders must make it perfectly clear which of the alternatives are being proposed. 5.10.1 Pull details of any vessels proposed for use in the route, other than the current vessel, should be provided.

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ANNEX 6 Compliance of Mr. O'Driscoll’s tender with the tender requirements Tender Requirement

O'Driscoll Tender

Form A: Form of Tender.

Form submitted

Comments

Form B: Certificate relating to Form submitted bonafide tender Form C: VAT registration

Form submitted

Form D: Fair employment and Form submitted treatment Form E: Freedom of information statement

Form submitted

Form F: Conflict of Interest statement

Form submitted

Form G: Indemnity Performance Bond

See comments.

The Part 1 ITT stated at para 16 that Tenderers must price for the bond but formal agreement on a bond would only be required if a bid was successful.

Statement of compliance with Provided in section 3.3 on safety legislation etc.. ‘ H&S policy [Part 2 para 2.6.6] Disabled access -details to be provided on constraints and alternative options. [Part 2 para 3.5.13]

Provided in section 2 under financial projections.

Financial Plan Financial projections were [Part 2 para 5.2.2 & section 4] provided in the required format Schedule of service [Part 2 para 5.3.1]

Provided at para 5.3.1 and also section 3.5.

Operational Management Plan Provided at para 5.4.1. [Part 2 section 5.4] Details of the management structure, key staff and other crew and shore staff were set out. Other operational aspects were

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The proposal was to begin the service with the existing timetables

set out in the technical proposal. Quality Plan [Part 2 para 5.4.3 & Annex 9]

Section 5.4.3 of the tender provided the headings of the quality plan requirements. These were supported by further detail set out in the content of. the technical proposal.

The tender documents required outline details to be provided rather than a fully developed quality plan. It would have been unreasonable to require a full plan at tender stage

Key Minimum standards [Part 2 para 5.5.1 & Annex 7]

Provided at section 5.5 and further information in section 3.2 and 3.4.

The tender proposal noted the content of section 7 of the ITT which set out the required performance regime.

Environmental protection policy [Part 2 para 5.6.1 & Annex 9]

Provided at section 5.6

Implementation Plan [Part 2 para 5.8.2 & Annex 2]

Provided at section 5.8 and further details provided in sections 3.2 to 3.5. .

Proposed vessels [Part 2 para 5.10.1 & Annex 9]

Provided at section 5.10 together with further detail in the technical proposal.

Current business activity [Annex 9]

Provided in the technical proposal in section 1.

Safety record [Annex 9]

Provided in the technical proposal in section 1.

Marketing Plan [Annex 9]

Provided in section 3.6.

Insurance [Annex 9]

See comments; third party insurance was not required at tender stage but needed to be in place before services . commenced. Insurance was not in place at tender stage for the proposed vessels but details of insurance were supplied of the company’s vessels being used on other

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Insurance was not required to be place at the time of tender but the Client required details on the arrangements that would be put in place for third party liability and for any vessels they proposed for their own operation

services to show what the arrangements would be. Risk assessment [Annex 9]

There was no specific section on risk assessment in the tender but various risks were identified in the tender together with proposals for risk management. The tender identified at para 3.3.2 that the existing H&S manual for the MV Canna would be reviewed and updated where necessary.

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Tenderers were asked to provide details of the risk assessment carried out for the operation of the proposed vessels.

ANNEX 7 Contract Monitoring Checklist Monitoring Action Plan for the Rathlin Island Ferry Service Contract between RIFL and DRD 2008-2014 Information Required

Received DRD on time Comments (Yes/No) Weekly Monitoring

Cancellations, delays or relief events - these should be provided on the appropriate forms with all necessary documentation attached. (If no cancellation/delay or relief event occurs over the week an email from the operator saying a nil return) Monthly Monitoring Summary of cancellations, delays or relief events Weekly ticket reconciliation provided, this should include a breakdown and evidence of discounted fare entitlement as well as Accounts in use. Full list of Smart Pass/Half Fare Smart Pass journeys Full list of Residents & Residents Vehicle journeys Monthly balance sheet - one month in arrears Monthly summary of Passenger Figures on both the 'ro-ro' and Passenger Only vessels. Monthly summary of Vehicles and Commercial vehicles carried Progress reports iro the new build catamaran Health & Safety Incidents Report - this will cover any health and safety incidents which have occurred and how these were dealt with.

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Quarterly Spot Audit Checks (see attached audit check list) Residents Pass Verification - 10% check on weekly records provided by RIFL Send this to MDC to receive verification of genuine Pass details. Smart Pass/Half Fare Smart Pass Verifications - 10% check on weekly records provided by RIFL. Send this to AD for verification of genuine card details. A sample of weekly ticket returns showing date & time of sailings and passenger numbers User Charter Return to be raised and discussed at the Quarterly review meeting (this includes reports on On-board/on-shore facilities, Cleanliness, Staff conduct and complaints received and action taken to address these. Annual Staff Training Report Compliance Confirmation - this will be raised, discussed and signed off at the Quarterly Review meeting. Annual Financial Summary showing all end year figures Annual safety reports including detailed information about any reportable accidents, including any major injuries and serious injuries, and any hazardous events Company Annual Report A copy of the company's audited accounts; a copy of the audited accounts for the subsidised services; and audit certificates for both. Review of Fares Annual environmental report including detailed information about any reportable pollution incidents. All pollution incident reports to MCA should also be copied to the Department.

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Additional Monitoring Vessel Documentation (in date and ensuring that all minimum levels of carrying capacity can be met in the events of relief vessels in use over 3 days) The following list of documentation must be provided were applicable for each vessel used on the route: -Where & when the vessel was built -The Port of Registry -The previous names -The service speed & consumption -The carrying capacity -Copy of the current passenger certificate -Copy of the current load line certificate (if applicable) -Any Flag / Port State inspection records -General arrangement drawing -Copies of all necessary insurance for the vessel -Copy of the agreement for use of the vessel if not owned by the Operator MCA Survey and inspection Reports Insurance Documentation - copies of all renewed insurances and policies

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Remainder of Report REDACTED

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