Serco and G4S are facing a real fight for their reputations after being accused by the Ministry of Justice of over-charging on their long-term offender tagging (electronic monitoring) services contracts.
The press has been awash with the news and speculation (see here), so we won’t repeat it again here. But it is a highly significant turn of events that could result in major fallout for either of these two big outsourcers. Serco’s shares are down c8%, and G4S’ are down c6%.
Serco has sought to limit the damage by immediately opening the door to the MoJ to conduct a 'detailed investigation in to the contract…with Serco's full cooperation’. It has also agreed to repay any money potentially owed, which apparently could be in the tens of millions of pounds. It said it had also withdrawn from tendering for the electronic monitoring service renewal.
G4S is taking a far tougher stance. It apparently refused a similar investigation by the MoJ, in favour of 'its own review, assisted by external advisers'. It said, 'if we identify any evidence of overbilling, then we will reimburse the MoJ as we would with any customer'. The MoJ is now threatening G4S with the Serious Fraud Office (SFO).
Of course this isn’t G4S’ first meeting with controversy. Former CE Nick Buckles was famously forced to admit last year that G4S’ handling of Olympics security had been a ‘humiliating shambles’. He exited the company this May, and was replaced by former CFO Ashley Almanza, who now has to manage this latest debacle.
Serco is being more responsible in the face of such serious accusations. But then it does have a lot to lose – UK Government remains Serco’s single biggest customer accounting for 40%+ of total revenues. G4S is less exposed, but UK government is still a key target market (see Lincolnshire Police signs £200m BPO deal with G4S). G4S boasted 13% organic growth from UK Government business last year.
One thing for certain, this latest set of allegations will do nothing to ease the ever increasing tension between major IT/BP suppliers and UK Government (see Government sets OFT cats amongst IT pigeons!).