LONDON (Reuters) - Security firm G4S has a fight on its hands to convince Olympic chiefs to hand over the rest of its contract fee that remains unpaid, after the group failed to deliver enough venue guards and forced the military to step in.
So far, G4S has been paid only 90 million pounds ($144 million) of the 235 million pounds contract with the London Organising Committee of the Olympic and Paralympic Games (LOCOG)and the rest will have to be negotiated.
The total Olympic security contract is worth 284 million pounds including work already paid for in 2011 by the Olympic Delivery Authority.
Payments to G4S were stopped on July 13, two days after the world’s largest security firm admitted it would not be able to supply a promised 10,400 guards, said Paul Deighton, head of LOCOG, who was addressing a Home Affairs Committee looking into the debacle on Tuesday.
With G4S having previously estimated the problems would result in a deduction of 50 million pounds from the contract fee, a potential storm is brewing between the group and LOCOG as the two thrash out the remainder of the contract and penalties incurred.
The firm’s Chief Executive Nick Buckles, back in parliament for a second time to face the committee, said G4S, which also runs prisons in Britain, expected to be paid for its work.
“I‘m not going to sit here and say we did a great job, but we delivered a significant proportion of the contract. I expect them to pay us in line with the terms of the contract,” he said.
Buckles, who some analysts expect will lose his job as a result of the failure, gave a more assured performance to committee members than in July when his nervy testimony ended with him admitting the firm’s reputation was in tatters.
David Brockton, analyst at Espirito Santo, said he thought the penalties would end up higher than the firm had envisaged: “The 90 million paid to date would suggest that LOCOG is being cautious and plans to extract as many penalties as they feel are deserved in relation to G4S’s failure”.
LOCOG has been widely praised for a hugely successful Olympics and Paralympics while G4S, which admitted its failure to recruit enough guards just 16 days before the London Games began, has faced questions about its prospects on future deals with the UK government - a key customer which accounts for more than half of its 1.8 billion pounds British revenue.
In Britain, G4S runs a host of services for airports, immigration, the police and prisons, and is the second largest private sector employer in the world, operating in over 125 countries.
The security firm, which is awaiting the findings of its own review of the contract failings, expected later this month, eventually raised 7,800 guards at peak times, leaving the military to make up the shortfall.
Any hopes Buckles may have had of swaying the board’s decision on his future by winning a portion of nine British prisons deal up for grabs were dashed on Tuesday when the Ministry of Justice said it would delay awarding the contracts until after October to allow new Secretary of State Chris Grayling to review the competition process.
G4S’s Olympic woes have come at a difficult time for Britain’s coalition government, whose drive to increase the role of private sector firms in core public services has now come in for criticism.
“We are not going to say it (the Olympic failure) is not going to damage our reputation,” said Buckles, who has been backed to stay by some high profile shareholders. “But I hope that our track record over many decades of outsourcing in the UK particularly will stand us in good stead.”
Buckles said he thought errors were made on the Olympic contract due to misjudging the length of the recruitment and administration processes.
LOCOG’s Deighton and the Director of Britain’s Office for Security and Counter-Terrorism, Charles Farr, both told the Committee they had expressed concern over the data G4S was providing on staff numbers in the build-up to the Games.
Farr said that on July 1, 10 days before its admission of failure, G4S data showed it had 9,000 staff ready to work, with 37,000 people through its interview stage.
The Home Affairs Committee is due to produce its report into the security contract next week.
G4S shares closed down 2 percent at 255.6 pence, underperforming the rest of the FTSE 100 share index and having lost 12 percent since the debacle began,
(This story is refiled to correct figure in second paragraph to 235 million pounds instead of 284 million and to add third paragraph after company clarification)
(Editing by Elaine Hardcastle)
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