Financial News

  • 18 December 2013, 19:01

Serco And G4S Braced For Investigation Outcome

The two outsourcing giants at the centre of a scandal over the delivery of Government projects are braced for more bad news on Thursday as they fight to start bidding again for major Whitehall contracts.

Sky News understands that G4S and Serco will be informed in the coming hours about the outcome of a cross-Government probe of their work following the discovery that they had overcharged tens of millions of pounds in fees for monitoring prisoners on their release from jail.

Ministers are said to have decided that while the two companies have embarked on genuine attempts to rebuild their relationship with the Government, they have not yet done so sufficiently to enable them to be considered for significant contracts in the short term.

An announcement about the outcome is expected on Thursday although it could be delayed, say people close to the situation.

Whitehall insiders said on Wednesday that a settlement being thrashed out with the two FTSE-100 companies will include the repayment of well over 50m of fees that the Ministry of Justice (MoJ) had decided had been wrongly paid.

One source added that fees relating to other contracts handled by the two companies may also have to be repaid, although the scale of these was unclear.

The financial impact is understood to be larger for Serco than the City is expecting. Last month, it said it had incurred 27m of costs relating to the electronic monitoring, or tagging, contract, as well as another for providing Prisoner Escort and Custody Services.

Serco, which is without a chief executive following the departure of Chris Hyman, added that the MoJ had "calculated that their interpretation of the difference on billing totalled low tens of millions of pounds since the contract commenced in 2005. Any such potential repayment and any other directly-related incremental costs, would be charged as further exceptional items."

A person close to the situation said Serco's repayment would be less than 100m but higher than shareholders had been led to anticipate.

The MoJ inquiry has been run in tandem with the Cabinet Office. It was unclear whether the former would make a separate announcement on Thursday, although it is understood to have discovered further shocking examples of charging irregularities as part of its review.

Ministers reacted furiously during the autumn when it emerged that G4S and Serco had billed Whitehall for tagging prisoners who had died, were in prison or were living abroad. Earlier this week, Capita was handed the electronic monitoring contract in their place.

The effective barring of G4S and Serco from bidding for new Government work has highlighted the dearth of companies able to provide key public services.

A Serious Fraud Office probe into the two companies is ongoing, although the Government's settlement with them is unlikely to include additional financial penalties beyond the repayment of the overcharged fees, one insider said.

G4S and Serco executives are understood to have been locked in meetings on Wednesday to negotiate the outcome of the Government's review of their work.

Serco is due to update the City on its performance in a pre-close trading statement on Thursday.

Restoring good relations with Whitehall is a priority for Ashley Almanza, G4S's new chief executive, who is attempting to protect about 700m in annual revenues flowing from a client that accounts for roughly 10% of the company's entire global turnover.

He took the helm of a business still reeling from the reputational crisis triggered by its failure to deliver enough security staff at last year's London Olympics.

"Our reviews into G4S and Serco's contracts are rigorous and extensive," Francis Maude, Cabinet Office Minister, said in November. "But when they report, and we are satisfied full health has been restored, we will move on quickly."

G4S, Serco, the Cabinet Office and the MoJ all declined to comment.