Firms pay price for Games and tagging rows

SUPPORT services groups G4S and Serco will reveal the impact of high-profile rows with the Government when they publish first-half results.

The fallout from G4S’s 2012 Olympics staffing failure was compounded when a new scandal emerged earlier this year around overcharging for electronically tagging offenders.

Auditors found both G4S and Serco overcharged the Government by “tens of millions of pounds” by billing for tagging offenders who were back in prison, had their tags removed, had left the country, had never been tagged in the first place or had died.

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The audit revealed that overcharging began at least as far back as the start of the current electronic monitoring contracts in 2005 – but could have dated as far back as the previous contracts let in 1999.

Both Serco and G4S then withdrew from the competition for a new tagging contract, which has since been handed to four firms including their major rival Capita.

G4S, which reports tomorrow, is no stranger to controversy after its London 2012 Olympics contract fiasco. It was left nursing losses of £88m after it failed to provide all of its 10,400 contracted employees last year, prompting extra military personnel to be called in.

In the wake of the scandals, Justice Secretary Chris Grayling said the firms need “corporate renewal” – prompting fears the companies could be shut out of new government contracts.

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Serco faces a forensic audit while G4S has been referred to the Serious Fraud Office.

Investec Securities analyst Gideon Adler said Serco, which reports on Thursday, faces the triple threat of squeezed revenues, profit margin headwinds and cash pressures.

He said: “The Government’s on-going investigation casts doubt over Serco’s UK public sector revenues (about 50 per cent of group), while the loss of the tagging contract is a material margin headwind, and free cash flow generation remains anaemic. We do not expect Serco to win any headline public sector contracts from the UK government while the investigation plays out.”

Despite these pressures, Serco has told the City to expect strong revenue growth for the first six months, as previous contract wins filter through. Investec expects Serco to report underlying full-year profits of £283.2m.

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