SERCO NorthLink is set to be awarded the next Northern Isles ferry contract in the next couple of months after legal issues surrounding the deal were resolved.
Rival bidder CalMac Ferries, which is owned by the Scottish Government, has withdrawn its legal action.
Government agency Transport Scotland has now also completed its engagement with the European Commission in relation to issues over state aid following legal action from private Orkney-based operator Pentland Ferries.
The £345 million contract was previously due to come into effect at the end of October and there had been growing frustration over its delay.
The government said that “in order to complete the award process and allow a mobilisation period, the current contract has been extended by a period of up to six months to ensure continuity of services for Orkney and Shetland”.
It anticipates that the contract will be awarded to preferred bidder Serco by the end of March, with it due to come into effect from the end of June.
Islands minister Paul Wheelhouse said: “I’m very pleased these issues have been resolved so that we can now start to focus on the award of the new contract and the benefits it will bring to the communities that are served by these lifeline ferry services.
“These include customer focused enhancements, such as extra premium cabins, terminal lounge refurbishment at Hatston and extended opening hours for customer services.
“We want to support key sectors of the Northern Isles’ economies, such as tourism, fishing, food and drink, aquaculture and farming.
“With these sectors in mind, the new contract will also include the flexibility to allow timetabled freight and ferry services to be amended to better reflect changes in future demand.
“All these improvements, coupled with the three year fares freeze and cabin discounts that came into effect on the first of January, underline the Scottish Government’s commitment to providing high quality ferry links to and from the Northern Isles.”
Shetland MSP Beatrice Wishart said: “It will be a relief that uncertainty over the delivery of ferry services to Shetland has come to an end. Islanders and island businesses have been faced delay after delay to the awarding of the contract for this lifeline service.
“The Scottish Government has faffed around about fair ferry funding for the Northern Isles for years. There are now no more excuses.
“We need a clear understanding of when RET and cheaper fares will be delivered for the Northern Isles. It is high time that passengers and businesses are treated justly.”
The contract, which delivers services between Shetland, Orkney and Aberdeen, is currently held by Serco NorthLink.