* Fresh blow for G4S in torrid spell
* Audit showed companies charged for tagging dead people
* Case puts government outsourcing policy under scrutiny
By Neil Maidment and Kate Holton
LONDON, July 11 Britain on Thursday placed all
contracts held by outsourcing firms G4S and Serco
under review after an audit showed they charged for
tagging criminals who were either dead, in prison or never
tagged in the first place.
The news, which wiped millions of pounds off the firms'
value, was the latest blow in a torrid spell for G4S which makes
around 10 percent of its 7.5 billion pounds turnover from
British government work.
Its reputation was severely hit last year when it failed to
provide enough security guards for the London Olympics and a
profit warning in May led to the departure of long-serving chief
executive Nick Buckles.
G4S shares have slipped by over a quarter in three months.
The government said Serco had agreed to co-operate with an
audit of all its contracts and it had asked the Serious Fraud
Office to consider carrying out an investigation into G4S which
declined to allow a further review into the tagging deal.
The companies are two of the government's biggest suppliers
and run services from prisons and immigration centres to
The current tagging contract was worth around 50 million
pounds to G4S. UK public sector work, which also includes local
government contracts, accounts for just under half of Serco's
4.9 billion pounds revenue.
Shares in G4S fell 5 percent to give it a market value of 3
billion pounds ($4.5 billion). Serco shares were down 8 percent,
valuing it at 3.1 billion pounds.
"The House will share my astonishment that two of the
government's biggest suppliers would seek to charge in this
way," Justice Secretary Chris Grayling told lawmakers in
"The current estimate is that the sums involved are
significant, and run into the low tens of millions in total, for
both companies, since the contracts commenced in 2005," he said,
adding that he had no information to suggest the two firms had
knowingly engaged in dishonest practices.
The news is unwelcome for the Conservative-led coalition
government which has ramped up the rate of work it outsources to
private firms which say they can do it cheaper.
Wider scrutiny of outsourcing deals is forcing ministers to
try and spread some business to smaller firms.
"Today's announcements strengthen our view that UK
outsourcing is going to remain a tough place to be ahead of the
2015 election," analysts at Westhouse said.
The Ministry of Justice (MoJ) said on Thursday an audit
found some instances of tagging charges for people who had died,
people who were back in prison and had their tags removed, and
for people who had not been tagged at all.
The audit also revealed that some of the issues around
tagging, which monitors whether offenders are adhering to
curfews and are a cheaper alternative to prison, were first
discovered by the MoJ in 2008 but were not addressed.
Grayling said he wanted an independent forensic audit of the
contracts to rule out any foul play, to which Serco had agreed
and G4S declined.
G4S, the world's biggest security firm, said it was running
its own review and would reimburse any money that is owed. "G4S
believes that any evidence of dishonesty should be referred to
the relevant authorities, including if appropriate, the SFO," it
It said it would work with government on the audit of all
Serco CEO Christopher Hyman also said it would repay any
amount that was due. "We will not tolerate poor practice and
behaviour and wherever it is found we will put it right."
Serco said the award of a prisons contract in Yorkshire
would be delayed and added it had withdrawn from bidding for a
new tagging contract due worth up to 150 million pounds a year,
according to analysts.
G4S remained in the running for that contract but the MoJ
was reviewing whether to exclude the firm from competition.