Serco’s first half 2013 results were pretty well overshadowed by news that it is now under police investigation for alleged fraud on its Prisoner Escorting and Custodial Services (PECS) contract with the Ministry of Justice.
The PECS contract, worth £40m annually to Serco over seven years (or £285m in total), involves Serco transporting defendants across London and East Anglia to and from court. Its key performance indicator is ensuring the delivery of a defendant 'designated ready and available for court time’, or ‘DRACT’. But following an audit by the MoJ, these DRACT numbers were found to have been overstated by Serco.
In a statement, CE Chris Hyman said, ‘I am deeply saddened and appalled at the misreporting of data by a small number of employees on the contract. This is a very serious matter for the customer and for us. We will not tolerate any wrongdoing and that is why we have referred this matter to the Police. It is also why I have immediately initiated a programme of change and corporate renewal.’
The MoJ has given Serco three months to restore performance on the PECS contract, with all costs being borne by Serco and its £2m profit made since the 2011 renewal being repaid. Serco will also forgo any future profits on the contract.
This is another blow for Serco with UK Government, after allegedly over-charging (alongside rival G4S) on the MoJ’s electronic monitoring services contracts last month (see Serco and G4S reputations on the line over tagging contracts). This latest finding comes out of the MoJ's resulting audit work. Capita last week stepped in to take on the renewal of the electronic monitoring contract following the withdrawal of Serco and G4S (see Capita bags MoJ’s £400m electronic tagging deal).
The stakes couldn’t really by much higher for Serco after this second accusation of fraud. Serco needs to show that it is doing all it can, and quickly, if it is to restore confidence from its largest customer, and ensure it isn't barred from future UK Government work.
Subscribers to TechMarketView’s Foundation Service will be able to read a more detailed analysis of the implications later, in UKHotViewsExtra.