For the last 2 1/2 years the BMF has endeavoured to engage in a constructive dialogue with BW on behalf of its members, most of whom are small businesses, with the aim of seeking assurances that BW is participating in the marinas and moorings market fairly and on an equal footing with private operators.

The dialogue was prompted by the concerns of BMF members when, in 2000, BW as navigational authority and waterways network operator, started acquiring marinas and competing directly against private operators. The Waterways Minister at the time drew attention to the need to deal with issues of fair competition.

BW recently wrote to stakeholders on 9 November with an update on those discussions, which listed a series of processes and procedures, which it said were either in place or in the course of being implemented to ensure fair trading in moorings and marinas. BMF responded with a brief statement on 11 November but said that it will issue a fuller response to BW's document. This fuller response is set out below.

Summary of BMF's views on the negotiations BMF would like to be able to reassure its members that BW is competing fairly in the marinas and moorings market. We are unable to do so.

As a public corporation, competition law requires that BW must have in place all of the detailed processes and procedures to ensure that they are competing fairly.

BW has taken some steps to achieve this. However, many of the steps that have been taken are either deficient or unsatisfactory and as a whole they do not deal with the problem. BW has still not yet been willing or able to lay out in detail how it ensures in practice that it is competing fairly five years on from when it first started actively competing in the market.

BW has lost the confidence of many private sector operators, some of whom are afraid that their future dealings with BW will be prejudiced if they make a complaint. However, complaint or not BW still has to have effective procedures in place to prevent unfair competition.

Given the failure of BW to respond adequately to restore confidence, a truly independent body needs to be involved. But every time BMF has recommended that a truly independent third party is involved to resolve the dispute, BW has refused to accept this.

In particular, BMF proposed without prejudice non-binding mediation with an independent mediator. BW rejected it.

BMF proposed that OXERA be jointly commissioned by both BMF and BW under jointly agreed terms of reference and work to a legal framework set out by an independent legal adviser. BW rejected this and has appointed OXERA on its own.

BMF proposes: A without prejudice mediation between BW, BMF and DEFRA to resolve the differences between BW and BMF amicably.

BW's acceptance that its Code of Practice be drawn up by an independent third party with advice from DEFRA, the OFT and the Waterways Ombudsman and that this Code of Practice be binding on BW.

BMF considers this proposal has an excellent prospect of resolving this issue and enabling BW and BMF to work together to achieve their common goal of growing the inland waterways and its businesses.

Response to British Waterways' statement of 9 November 1. BWML established as a separate entity (1 January 2004):

a.BW created BWML on its own terms and did not take account of the real concerns of the private sector. As evidence for this, BWML started trading on 1 January 2004, three months before BW published the results of the consultation about the rules under which it should operate (the BW Marinas Protocol - see below).

b. BW has failed to achieve true corporate separation of BWML from BW as James Froomberg (BW's Commercial Director and the BWML Chairman) and Ian White (a senior BW employee and a Director of BWML) occupy positions in both entities. As a consequence of the two points above and others, private sector operators do not have confidence that BWML is truly separate from BW. BW has not attempted to explain how potential and actual conflict of interest is dealt with.

2. BW Marinas Protocol (September 2003):

a.BMF worked with BW to develop this Protocol. At the time that BW considered the Protocol to be finalised in August 2003, BMF wrote to BW identifying a number of areas where it was deficient. We consider that BW failed to take properly into account the objections BMF made to the draft Protocol. BMF has therefore always considered this Protocol to be fundamentally flawed. Our response to the consultation was based on advice from a leading competition QC.

b. The Protocol is a vague and general statement of principle, which is no substitute for specific and concrete measures being in place that will actually affect BW's behaviour on the ground.

c. The Protocol only applies to a select group of marinas. It does not apply to BW's other marinas or moorings operations.

d. The Protocol starts from a presumption, possibly incorrect, that marinas already acquired by BW were acquired on a fair and transparent basis as against commercial opportunities for private operators to compete for them on an open and fair basis.

e. The Report BW published in April 2004 on the results of its 'consultation' on the Protocol failed to reflect the serious concerns that had been raised about the Protocol. BWML's operations are meant to be governed by the Protocol, but the company had already been trading since January 2004.

3. Oxera review of BW's moorings and pricing mechanisms (2004) a.This report found that BW was potentially 'dominant' in certain geographical moorings markets.

Subsequently, BW appears to be disputing its dominance.

b. BW's moorings are not included under the Marinas Protocol and are not within BWML, which means that major concerns remain over lack of separation, conflict of interest and inappropriate use of information.

4. PriceWaterhouseCooper Audit (March 2005) a.PWC defines the purpose of the Report as 'to undertake a review of controls and procedures that BW has put in place to comply with the Marina Protocol and make recommendations on where it needs to enhance its controls or procedures to comply.' Thus PWC is only assessing BW's compliance with the Marina Protocol.

Compliance with the Protocol is of limited value as the Protocol itself is considered to be fundamentally flawed as stated above. The Protocol does deal to an extent with the issue of cross-subsidy, but it fails to address properly the issue of potential conflict of interest.

Compliance with the Protocol does not therefore provide reassurance of compliance with competition law.

b.PWC was entirely reliant on information provided to them by BW and they were reporting on an approach and methodology agreed with BW. The Engagement Letter to the Report has not been made publicly available.

c. BMF was permitted to provide some information to PWC, but not to meet the consultants doing the work.

5. Fair Trading Group (Formed in 2004) a.BMF initially welcomed the creation of this Group in the latter half of 2004. The lack of one totally independent expert on the Group is seen as a shortcoming in the accountability and governance of a public corporation.

b. BMF's dealings with the newly established Fair Trading Group has highlighted the danger that this Group could become a defence mechanism for BW rather than a pro-active method of ensuring compliance that gains industry confidence.

6. Internal Audit BW's statement says that this process exists, but BMF does not know the nature of the 'roving brief' or the terms of reference and we would need to be provided with considerably more information in order to have any confidence that it is a useful mechanism to monitor compliance. It is unlikely, however, that internal audit of BW by BW will be enough to restore the long term confidence of private sector operators.

7. BW Invitation to OFT to consider adequacy of BW's procedures (2005) a.BW wrote to the OFT in 2005 following an initial positive meeting that BMF had with the OFT. BW's letter was considered to be too vague for the OFT to assist.

b. BMF held an exploratory meeting with the OFT in February 2005. OFT Officials took the concerns expressed on behalf of the waterside businesses seriously, and, together with other advice, encouraged us in the first instance to endeavour to resolve them directly with BW.

c. The OFT has stated to BMF that it would be pleased to help the parties if negotiations break down.

They have broken down and so BMF would like to again invite BW to approach the OFT jointly for a full discussion of the measures BW need to put in place to ensure fair trading in every respect. BMF hopes that BW will agree to this joint approach.

8. BW Legal Advice a.BW suggests that there is fundamental difference of opinion in respect of understanding of the law that cannot be reconciled. BMF has proposed that an independent legal adviser sets out an agreed legal framework, which could act as the basis for the OXERA study (see below). BW rejected this proposal. BMF has also proposed that independent mediation could be used to resolve this dispute. Again, BW has refused. These offers remain open and BMF hopes that BW will accept them.

b. BMF's legal advice from a leading competition QC (which was passed to BW in July 2004) clearly states that BW is potentially in breach of competition law. The legal advice obtained by BW in September 2005 differs, but both parties agree that BW should compete fairly in the marketplace. The key issue is what effective procedures BW needs to put in place to ensure that it is trading fairly.

9. New Marinas Unit (2005) a.At this stage, it is difficult to ascertain the exact scope and function of this new Unit.

b. If it entails effective and properly monitored Chinese walls between BW and its marinas and moorings operations then it is what BMF has been pressing for for some time.

10. Marinas Opportunities Guide (2005) a.BMF shares BW's desire to attract new investment to the waterways that will create new mooring facilities. The industry and BMF wants to work with BW in this area.

b. The BMF has endeavoured to help BW in the production of this Guide and has urged them to harness the knowledge and experience of private operators within the industry who are successful marina developers and operators. The BMF has facilitated this through its group association, The Yacht Harbour Association (TYHA). It is very important that any publication like this produced by BW (the public corporation) does not promote BWML to the detriment of private sector operators.

c. The BMF has concerns that BW has been focussed on completing the Guide in time for launch at the London Boat Show rather than concentrating on getting the content right.

d.The BMF has made it clear to BW that industry support for the Guide will be heavily dependent on BW transparently demonstrating fair competition in the marketplace.

11. Ombudsman Scheme a.The Ombudsman will not decide points of law.

b. The Ombudsman is reactive rather than pro-active, so can only respond to fair trading violations of which a complainant becomes aware.

c. Some BMF members to date have not had positive experiences of dealing with BW's Internal Complaints Procedure, which has undermined con-fidence in the scheme. BMF does recognise that work is being done to gain greater confidence in the scheme.

12. OXERA's expert review of BW's practices and procedures (2005) a.BW produced the draft Consultants brief in mid 2005 without any discussion with BMF. As stated above, BMF proposed that BMF and BW jointly commission OXERA under a legal framework that had been agreed by an independent legal adviser. BW has refused and has commissioned OXERA on its own.

b. BMF made it clear to BW that, because it is not OXERA's function to make findings of fact, OXERA must be provided with a detailed and comprehensive statement of all the fair trading measures that BW has in place and a transparent statement of exactly what mechanisms have been implemented.

c. BMF has also made it clear to BW that because OXERA are economists and not lawyers, the OXERA review must be conducted within the context of detailed instructions as to the principles of law that are to be applied. It was for this reason that BMF proposed that a jointly instructed legal adviser should be used.

d. BW has refused to conduct the OXERA review on anything other than their own terms. BMF has not refused to talk to OXERA.

13. Code of Practice a.This idea, first mentioned by BW in September 2005, appears to envisage a summary of all other relevant policies, practices and procedures to be issued to staff.

b. In order to be of value such a document would need to include programs of education and training to ensure staff are familiar with procedures, opportunities for personnel to obtain advice on fair trading when their activities give rise to such an issue, defined chains of responsibility within each department of BW to ensure activities are conducted in a compliant manner, mechanisms of monitoring compliance and mechanisms to discipline non-compliance.

c. Those private sector companies with whom BW are competing must ask why has such a Code of Practice not been in place since 2000 when BW started to trade in direct competition with private operators in this market.

d. BMF proposes that the Code of Practice be drawn up not by BW on its own but by an independent third party chosen with the advice of DEFRA and the OFT in whom all parties can have confidence. The Code of Practice should be binding on BW. BMF hopes that BW will accept this proposal.

Response to BW Statement of 21 November 2005 BW's statement of 21 November 2005 misses the fundamental point.

BW has lost the confidence and trust of many private sector operators.

BW appears to accept that some are concerned that if they raise complaints with BW that this may prejudice their future dealings they have with BW.

Mediation and independent advice on a new Code of Conduct for BW that should be independently enforced must now take the place of BW's self regulation, which after five years has failed to provide a clear and transparent detailed explanation of procedures.

That is the way to resolve this dispute and ensure that BMF and BW can both focus on building and investing in the inland waterways for the future.

BMF proposes: A without prejudice mediation between BW, BMF and DEFRA to resolve the differences between BW and BMF amicably; together with BW's acceptance that its Code of Practice be drawn up by an independent third party with advice from DEFRA, the OFT and the Waterways Ombudsman and that this Code of Practice be binding on BW.

BMF considers this proposal has an excellent prospect of resolving this issue and enabling BW and BMF to work together to achieve their common goal of growing the inland waterways and its businesses.

Yours sincerely, John Clarke, Chief Executive, BMF