May 18, 2013 / 1:16 AM / 7 years ago

Government launches investigation into two Serco, G4S contracts

LONDON (Reuters) - The government said on Friday it had hired a team of auditors to investigate whether it was overcharged on two contracts with outsourcing firms Serco and G4S.

A Serco flag flies alongside a Union flag outside Doncaster Prison in northern England December 13, 2011. REUTERS/Darren Staples

The Ministry of Justice said auditors from professional services firm PWC would examine two contracts signed in 2005 which together cost the department 107 million pounds in 2012/13 for electronic tagging and monitoring of offenders released from prison.

“I take this issue very seriously and my priority is to ensure that taxpayers’ money is spent appropriately and delivers value for money,” Justice Minister Chris Grayling said, adding the auditors would report their findings within six weeks.

An MOJ spokeswoman said the issue concerned the number of people tagged and the duration of the monitoring period.

Both G4S and Serco had their original contracts extended and are currently bidding on the new electronic tagging deals with the MOJ expected later this year.

The companies said that they were cooperating with the Ministry. G4S added that it had cut the cost of the service by 13 percent since it first won the contract in 2005.

Contracts for electronic tags - which monitor whether offenders are adhering to curfews and are a cheaper alternative to keeping someone in prison - are part of a government drive to save money by tendering services to private companies to run.

The MOJ is one of the most active in this process, asking private firms to bid to run prisoner escort, private prisons and more recently probation services.

Analysts at Cantor Fitzgerald calculate that the total value of MOJ new services contracts jumped tenfold from 8 million in 2008 to 79 million in 2012, based on data from 8 months of each year.

G4S Chief Executive Nick Buckles said in a call with analysts earlier this month that he had learned there would be “a couple” of new private prisons built under the controversial Private Finance Initiative, which funds public infrastructure with private capital, coming out next year.

Buckles also said that G4S, which made a 70 million pound loss on its security contract at the London 2012 Olympics after failing to provide enough guards, was getting a lower profit margin on the extension of its current tagging deal.

He added that lower prisoner numbers in its private prisons were dragging down group margins.

Additional reporting by Neil Maidment; Editing by Sophie Walker

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