G4S investigation deepens as Serco tagging scandal costs £68m
G4S probe deepens as tagging scandal costs Serco £68m
Two more G4S contracts sent to SFO as Serco draws line under tagging debacle costs
Alistair Osborne By Alistair Osborne3:47PM GMT 19 Dec 2013CommentsComments
G4S has come under fresh pressure after the Government referred two more of its outsourcing contracts to the Serious Fraud Office and struck a £68.5m settlement with its rival Serco over the criminal tagging scandal.
While Serco’s deal drew a line under the financial cost of the tagging debacle, G4S admitted it was yet to settle and had also become embroiled in a fresh probe from Britain’s fraud-busting agency.
The security group last month offered to pay back £24.1m it had “wrongly” billed for tagging offenders, some of whom were found to be in prison, overseas or dead – a sum that now looks wholly inadequate in light of the Serco settlement. It was refused by the Government.
The SFO is already investigating the conduct of both Serco and G4S in regard to the tagging contracts, which date back to 2005 and are worth around £100m a year between the two companies. But the agency is now also scrutinising two G4S facility management contracts for UK courts.
One relates to a maintenance and operations contract for Manchester Magistrates Court, while a second involves a similar deal for courts in England and Wales. Neither are thought to be worth more than a few million pounds a year.
The fresh problems emerged after a review by the Cabinet Office, with the support of accountant PwC, of all 28 large Government contracts held by the two companies, together worth £5.9bn.
In a written statement to Parliament, Justice Secretary Chris Grayling said his department’s “audit of G4S contracts has uncovered problems” with both contracts, including “serious issues relating to invoicing, delivery and performance reporting”.
He added that “while at this stage my department does not have evidence to confirm that dishonesty has taken place, we have, following legal advice, referred both matters to the SFO in order to establish whether this is the case”.
G4S said it took the Justice Ministry’s “concerns very seriously”, but added that it had also found “no evidence” of dishonesty for either contract and had “recently strengthened the service management team” for the court work.
Both Serco and G4S have already withdrawn from the bids for the next round of electronic tagging and for private probation services – the latter coming “too soon” for Serco, according to chairman Alastair Lyons.
Including various adviser and one-off charges, the settlement brings the costs of the tagging scandal to Serco to almost £105m – but Mr Lyons admitted there had also been “reputational” damage.
Pointing out that Serco had settled with the aim of “doing what was right rather than applying the letter of the contract”, Mr Lyons said: “The issues we identified should never have happened. There is not just the financial cost. The reputational damage to us is obviously something that is very significant as well.”
He said the company “apologised unreservedly”.
Serco has also paid £2m of past profits and agreed to forgo future profits on its contract for escorting prisoners to court, where it emerged that the company had mis-recorded the numbers of prisoners “delivered ready for court”.
The Cabinet Office review found “no evidence of deliberate acts or omissions by either Serco or G4S leading to errors or irregularities in the charging and billing arrangements” on the 28 contracts that were studied.
However, it did find that “across the majority of contracts”, there were “deficiencies in key controls being applied to the invoice and payment processes”, leading to a “risk” of over-charging.
Mr Grayling also admitted that his own “department had been found wanting in its management of the electronic monitoring contracts”.
Mr Lyons said Serco was now awaiting next month’s verdict by ministers as to whether the group had made sufficient changes under a corporate renewal programme to again be awarded Government contracts.
He added that Serco had also got to an “advanced stage” in drawing up a shortlist of candidates to replace Chris Hyman, the chief executive who quit in October in the wake of the tagging scandal.
Serco shares rose 21.6 to 470.4p. G4S fell 5.4 to 248.3p.
Stephen Rawlinson, an analyst at boutique investment bank Whitman Howard, said: “The initial share price reaction for G4S and Serco is understandable but quite disproportionate in relation to this report. That is especially the case with G4S for whom UK central government contracts are not critical elements of revenue and profit.”