Serco wins first UK government contract since ban lifted
Serco has won its first contract with the British government since a ban on it bidding for public sector work was lifted 10 days ago.
The outsourcing group saw off rival Babcock to secure a £15m deal with the Ministry of Defence over six years with an option to double the length of the contract.
The work – a retender of an existing Serco contract – involves maintenance and support services at the Royal Air Force missile detection and early warning base at Fylingdales in North Yorkshire – one of the most sensitive military sites in the UK.
Mike Murphy, analyst at Numis, said the deal demonstrated “the government’s willingness to look forward and be commercial, rather than political, in its contract awards”.
Serco is still under investigation by the Serious Fraud Office for allegedly overcharging on electronic monitoring contracts, while staff have been referred to the police for manipulating figures on transferring prisoners to courts in the southeast.
Last week it was also revealed that the group had a multimillion-pound contract to manage community punishments in London cut short amid claims the scheme has been “a disaster”.
Serco was due to run the £37m community payback project for four years until 2016 but concerns were raised when a BBC inquiry alleged that offenders were not properly supervised.
Serco has denied the allegations and the Ministry of Justice said ministers wanted to overhaul all probation services nationally “to ensure a consistent approach”.
An investigation into healthcare services run by Serco in Suffolk also last week called on the company to improve, although it found “no evidence of harm to patients”.
Despite Serco’s troubles, the Cabinet Office decided two weeks ago that it was sufficiently cleansed of recent scandals to be allowed to return to bidding for public sector contracts.
The company is still searching for a new chief executive after Chris Hyman resigned in October in the wake of the scandals.
Government contracts in the pipeline include a £400m, 10-year deal to run the defence estate, which is expected to be awarded imminently.
Serco is competing against Capita for the deal, which involves helping the Defence Infrastructure Organisation manage 2,500 staff and 230,000 acres of land covering conservation sites, offices, barracks, homes and military bases.
Serco’s troubles have raised doubts over the company’s financial position. Last month the group issued a profit warning after admitting the continuing fallout from the scandals meant profits for 2014 would be 10-20 per cent lower than the £277m investors had been expecting.
David Greenall, an analyst at RBC Capital Markets, warned at the time that with debt likely to be about £700m this year and earnings falling, the company’s balance sheet was becoming a source of concern.
Duncan Mackison, managing director for defence at Serco, said: “RAF Fylingdales plays a critical role in defending the nation . . . We are delighted that both the MoD and RAF continue to have confidence in our ability to deliver a high quality service.”