The justice secretary is to allow two security companies to bid for Ministry of Justice contracts despite both facing alleged fraud investigations overexisting deals.
Chris Grayling has not ruled Serco and G4S out of the running for new MoJ contracts, which include the £800m privatisation of most probation services.
But he has for the first time assured his Labour counterpart, Sadiq Khan, that no new contracts will be awarded to either company until a series of official “forensic audits” has given them a clean bill of health.
The official publication of invitations to bid for the privatisation of the bulk of the probation service is due soon. Both companies are leading contenders for the payment-by-results contracts under which 235,000 offenders are to be supervised each year. City analysts see few other large-scale players able or willing to bid for the work if Serco and G4S are excluded.
Grayling told Khan last week: “I am strongly of the view that we should not award new contracts for the two companies until we have established the facts about both their performance and their corporate behaviour. That is why I have requested an audit of every contract that MoJ holds with G4S and Serco.
“It is important to note that MoJ will not award new contracts to the companies unless this audit work is completed to our satisfaction. However, I do not intend to prejudge the outcome of this process at this stage by excluding the two companies from participating in the current competitions.” Grayling said a decision would be taken only once the audits had been completed.
Khan, who wrote to Grayling demanding that the two companies be banned from any new contracts until they are given a clean bill of health, said: “I’m pleased that the government has finally come round to Labour’s view on the G4S and Serco scandals.
“It would be an outrage if a single penny of [MoJ] contracts was awarded to either company before both have been given a clean bill of health. The British public would be rightly seething and confidence in our justice system would be dangerously undermined.”
The shadow justice secretary added that until the two companies were cleared they should be barred from even bidding for contracts: “It’s beyond the pale that Chris Grayling won’t rule out G4S and Serco. Under his plans, serious and violent offenders will be supervised in our communities by private companies, and the public want confidence this won’t put their safety at risk.”
Grayling has asked the Serious Fraud Office to investigate G4s and subjected Serco to a forensic audit after it emerged they had been billing the MoJ for tracking the movements of offenders who had gone abroad, been returned to jail, or even died.
The multimillion-pound tagging fiasco, which emerged in July, also triggered a Cabinet Office review of all the government contracts worth more than £10m held by G4S and Serco. It is understood that this investigation is looking at no fewer than 29 separate contracts to ensure “they are well managed and in good order”.
The City of London police have also been asked to investigate allegations of fraudulent behaviour by Serco staff in a separate £285m prisoner escort contract in London and East Anglia.
The companies’ contracts span everything from managing the nuclear weapons establishment at Aldermaston and prisons and immigration centres, to running the Docklands Light Railway and out-of-hours GP services in Cornwall.
Both Serco and G4s have been ordered to go through a “process of corporate renewal” which Grayling has said involves both companies demonstrating that they have addressed “internal cultural issues” that allowed the overcharging to happen and have “purged” the staff involved.
City analysts who were briefed by the government’s chief procurement officer last week say there is now a more conciliatory tone in government discussions with Serco. They do not expect the relationship with Serco to be severed, although the company may have to drop out of bidding for some contracts in the near future such as the one for decommissioning Magnox nuclear reactors.
But the uncertainty will remain for several months as the outcome of Grayling’s “forensic audits” and reviews is not expected before late November or December. Ministers want the new contracts in place by October next year – well before the 2015 general election. Serco said last week that it had appointed Lord Gold to oversee its internal renewal programme.
The chief procurement officer is also understood to have downplayed talk by David Cameron last week of a confidential “blacklist of banned suppliers”, saying the Cabinet Office exercise was more likely to involve requiring an “enhanced burden of proof regarding capability from suppliers with problematic histories”.