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September 10, 2012 9:58 pm
But as the Cabinet Office takes a tougher stance on underperforming suppliers, a greater concern for the security company is the Ministry of Justice’s looming decision on which private companies will win contracts to run nine prisons, worth £170m a year. An announcement could come as soon as next week.
Although the government wants to be seen to be tough on G4S, it will find it hard to exclude the world’s biggest security provider.
There are just three private companies already running prisons in the UK – G4S, Serco and Sodexo – although Mitie, the FTSE250 company, is also bidding in partnership with the Prison Service to run some of the nine outsourced prisons.
“I’m not sure the Olympics contract will make much difference as there is a limited number of suppliers,” said one analyst. “And one of the reasons you outsourced things is that it is them sitting in front of the select committee, not you.”
G4S has enmeshed itself with the UK government over the past 20 years, winning milestone outsourcing contracts. In 1992, the company opened the first prison to be run by the private sector, the Wolds, in East Yorkshire. Last year it took over the Victorian inner-city detention centre at Winson Green in Birmingham – the first prison to be transferred from the public sector to a private provider.
The transition was anxiously watched as until now only new-build prisons, with freshly recruited staff and purpose-built designs, had been given to private sector operators. But despite a hiccup when a prison officer lost a set of keys in the first week of the Birmingham contract, requiring all locks to be changed at a cost of £100,000, the transfer has been broadly considered a success.
The total value of the nine prisons contracts is estimated at £170m a year, according to research by Jefferies, the investment bank. But the market is expected to grow to an estimated £1.1bn by 2015, as the government plans to raise the number of prisons run by the private sector from 16 to 45 by 2016 as it seeks cost savings of 20 per cent.
Analysts said there was very little visibility on any decision. “If G4S wins none or one, the market will see that as disappointing; two would be more in line with expectations and three to four would be better than expected,” said Kean Marden, analyst at Jefferies.
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