Just after it had updated the market yesterday (see Serco contract costs escalate), Serco revealed it had reached a ‘full and final settlement’ with the Ministry of Justice for 'issues arising' on its electronic monitoring (offender tagging) contract (see here and work back).
Serco is taking a £68.5m charge to cover billing arrangements on the EM contract since 2005, together with a repayment of some past profit earned, as well as interest and the UK Government's costs for audits and reviews. This now takes Serco’s total charges relating to recent contract reviews to £104.5m, which will be booked in FY13.
Serco is hoping that this will draw a line through what has been a terrible period following the EM scandal. It does at least appear that there is some light at the end of the tunnel. The Cabinet Office appears to be pleased with the progress of Serco’s corporate renewal programme, which it said ‘is well advanced’. It now expects a final opinion from the MoJ in January 2014.
This progress means that Serco is now holding on to its Prisoner Escort and Custody Services (PECS) contract, where concerns of overcharging have also arisen (see here). It also just signed its first central government contract since the scandal broke back in August, a deal with HMP Thameside to extend capacity, supporting the MoJ in its programme to modernise the UK prison estate.
Serco’s shares rebounded 5% on this, although they are still down over 12% year to date. As we pointed out in our Predictions 2014: Business Process Services comment, UK government suppliers are going to be in for a tough time next year. Serco (and G4S, which has yet to conclude its settlement with the MoJ) are front runners for taking the pain.