ASP Plan Milestones

The following are the milestones (in reverse date order) reached to date in BC Ferries’ search for Alternative Service Providers (ASPs) on its routes.

By law, BC Ferries must provide the Commission with an Alternative Service Providers (ASP) Plan for each performance term. An ASP Plan sets out how the company intends to seek ASPs to provide ferry services on BC Ferries’ 25 regulated routes.

On December 11, 2009, BC Ferries advised the Commissioner that while an assessment of the proposals received in response to the June 12 2009 RFP for service to Ocean Falls and Shearwater concluded that an alternative service provider (ASP) could provide the service on a more cost-effective basis than BC Ferries, the Province was not in a position to provide the authorization required under the Coastal Ferry Services Contract in order for BC Ferries to proceed and, accordingly, BC Ferries cancelled this alternative service delivery initiative. BC Ferries will continue to be the direct provider of service to these ports. Here is BC Ferries’ letter to the Commissioner on this matter.

On June 12, 2009, BC Ferries issued a Request for Proposal (RFP) to identify prospective alternative service providers to provide ferry service to the mid-coast ports of Ocean Falls and Shearwater, with responses due by July 6, 2009. This initiative was supplemental to BC Ferries’ Alternative Service Providers Plan for Performance Term Two.

On January 26, 2009, BC Ferries notified the Commissioner that no respondent who expressed interest in providing ferry service on three of its routes numbered 23, 24 and 25 (see August 14 entry, below) has elected to proceed to the next stage. BC Ferries will continue to be the provider of service on these routes. Here is BC Ferries’ one-page letter on the matter.

On August 14, 2008, BC Ferries issued a Request for Expressions of Interest for Alternative Service Delivery on three of its regulated routes:

Campbell River-Quadra Island and Quadra Island-Cortes Island (routes 23 and 24)

Port McNeill-Sointula-Alert Bay (route 25).

BC Ferries will ask responders to this request to proceed to the next step in the ASP process – the Request for Proposal.

On June 19, 2008 regarding Mill Bay-Brentwood Bay (route 12), BC Ferries told the Commissioner of its decision to continue to operate route itself, and not to pursue a proposal by Western Pacific Marine, because of “superior value for money for reasons largely, but not exclusively, due to the level of service fee being proposed by the proponent.” Here is a two-page letter from BC Ferries to the Commissioner conveying this decision.

On March 27 2008, BC Ferries provided to the Commission its ASP plan for performance term two (2008-2012). In it, BC Ferries reviews events of the first performance term (2003-2008) just ending, stating that:

for northern routes (routes 10, 11 and 40), BC Ferries needs to finalize discussions with the province on potential vessel/service requirements on Port Hardy-Bella Coola (route 40) before restarting the alternative service delivery process, which was suspended after the sinking of the Queen of the North.

for Mill Bay-Brentwood Bay (route 12) BC Ferries expects to decide shortly on whether to contract with an ASP.

for Powell River-Comox (route 17) and Powell River-Texada (route 18), before exploring alternative service delivery, BC Ferries awaits the province’s response on a vessel and service strategy submitted by BC Ferries in September 2005.

for Langdale-Gambier-Keats (route 13) an existing contract has been renegotiated and extended.

BC Ferries goes on to state that in the second performance term, as time and resources permit, it would pursue alternative service delivery on one or both of:

Campbell River-Quadra Island and Quadra Island-Cortes Island (routes 23 and 24)

Port McNeill-Sointula-Alert Bay (route 25).

On July 27 2007 BC Ferries issued a report on its search to date. See the last section of BC Ferries’ Annual Report to the Commission for 2006/7.

On February 5 2007, BC Ferries issued a Request for Qualifications/Request for Proposals for the Mill Bay-Brentwood Bay Route (route 12), with responses due by June 15 2007.

On November 2 2006, BC Ferries responded to the Commission’s direction of August (see below, third bullet) as follows (abridged, emphases added):

...the northern services strategy contemplates three vessels being acquired for the northern service. To date, BC Ferries has purchased (a) vessel (now named the Northern Adventure) and has entered a contract with Flensburger Schiffbau- Gesellschaft mbH & co. KG for the construction of a new northern vessel. These vessels will replace the MV Queen of the North and the MV Queen of Prince Rupert. Discussions are currently underway ... to replace the Queen of Chilliwack.

Consistent with (the Commission’s) directive, BC Ferries has taken steps to ensure that ASPs are given an opportunity to own and/or operate the two newly acquired vessels.

As owner of the (Northern Adventure) we anticipate that we will be in a position to sell or dispose of it as would any owner, subject to the provsions of our Master Trust Indenture (with a consortium of lenders), in order to facilitate the ASP proces as appropriate.

With respect to the newbuild vessel, BC Ferries has taken steps to contract with the shipyard to provide as much flexibility to potential ASP bidders as is possible (BC Ferries goes on to quote sections of its contract which permits it as buyer to assign the construction contract to a third party).

BC Ferries is reviewing its original (ASP) process and timelines ...on the northern routes. Discussions are presently underway with the Province in respect of requirements for route 40.....as such we propose to defer submission of our update on the northern ASP process...

In August 2006, in conjunction with its ruling that a newly built vessel for northern service is reasonably required, the Commission gave direction to BC Ferries as follows:

as shipyard negotiations resume on a new northern vessel, establishing details of vessel design, construction and delivery, BC Ferries should keep the alternative service provider (ASP) proponent who continues to express interest in delivering service in the north fully and regularly informed;

BC Ferries should detail its proposed approach to alternative service delivery procurement and then seek the Commission’s endorsement of key features and timelines; and

BC Ferries should provide, for the Commission’s review, by November 15 2006, proposals for ensuring that alternative service provider(s) are given an opportunity to own and/or operate the newly acquired vessels in the north.

In July 2006, in his message in the Commission’s Annual Report, the commissioner observed that the Coastal Ferry Act’s alternative service delivery clauses have yet to achieve their intended effect. He noted several challenges, lying partly in contradictions and practical implementation problems seemingly inherent in the regulatory model. Among them:

a discrepancy between the relatively long contract term (e.g. 10 years) required to attract an ASP investor-operator and the shorter 4-year performance term adjustments that occur in fare caps, service fees and service levels, which are beyond BC Ferries’ control;

how to deal with the risk that BC Ferries faces in the event of failure by the ASP to deliver the required quantity and quality of service, bearing in mind that BC Ferries must backstop the ASP: BC Ferries remains the regulated entity and retains responsibility for ensuring that core service, as contracted with the province, is actually provided; and

cost penalties for using ASPs due to a net increase in GST and income tax applicable under a subcontracting arrangement.

So far, the commissioner noted, remarkably few ASPs have shown sustained interest in providing service. Some may be deterred by challenges they see in the business model. To minimize its risks, BC Ferries has set the qualifying hurdles for ASPs understandably high.

The commissioner noted that BC Ferries has stated legitimate concerns about the risks and complexities entailed in engaging alternative service providers. He stated that the Commission has difficulty discerning whether and, if so, how much these concerns are amplified by an understandable reluctance to relinquish a significant portion of its in-house core operation.

In March 2006, the Commission agreed, with conditions, that BC Ferries could amend its approach to procuring alternative service providers as stated in this short Commission Memorandum to BC Ferries. The Commission concurred that, given what had been learned in previous months, the role of fairness auditor, as previously defined in the ASP Plan Supplement of August 2005, became redundant and the Chinese wall unnecessary.

The Commission stressed that external reviews will form an essential part of the process as sketched in the ASP Plan Update, so that the Commission can satisfy itself that selection criteria and evaluation are unbiased and not slanted towards BC Ferries. It also observed that BC Ferries may have closed the door too tightly on unsolicited proposals to operate its ferry routes.

In February 2006 BC Ferries wrote an Alternative Service Providers Plan Update, which:

reports on the status at December 2005 of the search for ASPs on three clusters of routes, and gives a timetable for future activities.

amends the procurement approach. BC Ferries will not submit a sealed bid of its own, as previously envisaged, to be evaluated along with competing bids. Instead, it will procure ASPs through more conventional subcontracting. The update explains the reasons for the change.

In August 2005 BC Ferries issued a 36 page Supplement to its Alternative Service Providers Plan of April 2004. This detailed the arrangements with alternative service providers, including what they would provide on each of the three clusters of routes planned to be tendered for operation in the first performance term, the timing of steps in the process and the constraints (contractual, legal and financial) to be observed. The supplement also outline the procurement process steps, including the use of a Chinese wall within BC Ferries and a Fairness Auditor.

In June 2005 in Vancouver, the Commission hosted a one-day seminar with presentations from BC Ferries, marine labour unions, and other ferry operators. Its purpose was to examine the opportunities and challenges for those operators. Here in a PDF file for download are the Proceedings of the Seminar. This file includes information on what components of service (e.g. ships, crewing, marketing, etc), on which BC Ferries routes, and when, are to be opened for bidding by ferry operators.

In May 2005 BC Ferries advertized for professionals interested in serving as Fairness Auditors. You will find the terms of reference of this role in BC Ferries Request for Qualifications issued to potential fairness auditors.

In November 2004 BC Ferries stated that any other ferry operator seeking to have a subcontract to serve a BC Ferries route would have to meet or exceed the following criteria:

proven safety record

customer service commitment

long-term financial viability

past experience

cost effectiveness

BC Ferries made it clear that it would defend its territory by bidding itself on all routes as an operator, competing against other companies interested in providing service. Yet BC Ferries would be the evaluator of all bids including its own, which creates an inherent conflict. BC Ferries therefore introduced the concepts of a Fairness Auditor and a Chinese Wall separating the bidding and evaluation functions within BC Ferries, to help ensure fair competition among ferry operators.

In March 2004 BC Ferries made a submission called its Section 69 Plan for performance term one (2003-2008) identifying three clusters of routes as candidates for alternative service providers over the next four years. These include northern services and Powell River-Comox-Texada which will require new vessels, and Mill Bay-Brentwood Bay. The Commission asked BC Ferries to elaborate, which it did through a supplement dated July 2005 (see above).


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