G4S reputation on the line after Olympic false start

LONDON Fri Jul 13, 2012 2:37pm BST

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LONDON (Reuters) - A botched Olympic security contract that caused a political storm weeks before the London Games has left G4S boss Nick Buckles red-faced and with the unenviable task of repairing the British group's reputation for a second time within a year.

Buckles, whose credibility with shareholders spared him a revolt late last year after a failed multi-billion pound deal to buy Danish cleaning firm ISS, will have to launch another charm offensive.

"I would say we are watching the situation closely and would be concerned if there was long-term reputational damage which affected the ability to win future contracts," a top 20 investor who did not want to be named told Reuters.

G4S, the world's biggest security company, said earlier this week it would likely not deliver the number of security staff required for the 2012 Games as part of a $437 million contract.

The government put an extra 3,500 troops on standby in case of a shortfall in the 10,400 guards G4S is expected to provide, and a spokesman for Prime Minister David Cameron said G4S would face consequences.

"There will be consequences for their failure to meet obligations under the contract ... That will be informed by what happens in practice and the number of staff they provide."

G4S, the world's second-largest private sector employer, and its chief executive, Buckles, had hoped to use the Games to win similar work.

Now, the CEO will have to appear before a parliamentary committee next Tuesday to explain how the crisis was allowed to happen. Keith Vaz, chairman of that committee, has said the government should consider whether to award G4S more work before the Olympic situation was resolved.

Shares in FTSE 100-listed G4S were down 2.4 percent at 276.2 pence by 1330 GMT, their lowest level for almost a month, having fallen 2.5 percent on Thursday.

Seymour Pierce analyst Kevin Lapwood told Reuters the Olympic-sized problem could spell more trouble for Buckles than G4S, which operates in security markets in over 125 countries.

"He (Buckles) is only just emerging from the ISS situation. I think most people said they would give him the benefit of the doubt on that one, and the chairman fell on his sword. If things from here do not get resolved satisfactorily it makes life increasingly tough for Nick."

G4S agreed on October 17 to pay 1.5 billion pounds for ISS and assume 3.7 billion debt. Shareholders were unhappy with a proposed 2 billion pounds rights issue and the move into areas such as catering and cleaning and away from its security services roots. G4S pulled the deal on November 1.

"G4S is already doing an enormous amount of work successfully for the government. So, I think you have to put it into context and say they may lose a contract or two but there are plenty of contracts around," Lapwood said.

Lawmaker Vaz, chairman of the Home Affairs Committee, said in parliament on Thursday: "G4S has let the country down and we have literally had to send in the troops.

"G4S is already the supplier of hundreds of millions of pounds of government contracts, from prisons to the immigration service. Will she (Home Secretary Theresa May) now look at those contracts and make sure there is a pause before any further contracts are given."

That could slow a justice sector where work for outsourcing firms has been more forthcoming than in other austerity-hit public sector areas. G4S has been shortlisted for seven of nine contracts to run British prisons which are set to be awarded later this year. Government contracts are worth 10 percent of G4S's 7.5 billion pound annual turnover.

G4S, which in addition to training Olympic guards will manage 3,300 students and 3,000 volunteers, has said it has around 4,000 staff working at Olympic venues, with over 9,000 more nearing the end of a delayed training process.

The company has been looking to reallocate staff in other parts of the business to make up for the shortfall.

A would-be G4S employee, who has had two weeks' training on x-ray scanning equipment, told Reuters: "I think the mistake they have made is not doing all this stuff a few months earlier.

"They have been hiding behind a 'need to know basis' and saying they do not want to tell people what is happening because it is a security threat. But, in essence, they just do not know". ($1 = 0.6492 pound)

(Additional reporting by Mohammed Abbas, Chris Vellacott and Sophie Kirby; Editing by Dan Lalor)

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