Troubled Serco left in limbo by delays in defence contracts

Outsourcing giant hit by ministry’s failure to choose preferred bidders on time

Executives at the scandal-struck government contractor Serco are still unclear over whether the company has been forgiven for a series of failures after two Ministry of Defence deals were delayed to 2014.

The MoD had been looking to select preferred bidders to help run the Defence Infrastructure Organisation (DIO) and to look after radar systems at RAF Fylingdales in Yorkshire. The DIO contract is valued at more than £400m and would see the private sector help the MoD to manage its property estate, while Serco is battling it out with fierce rival Babcock International for Fylingdales.

However, the under-strain MoD was unable to get announcements out by the time Parliament broke for recess on Thursday. The delays are frustrating for Serco and its weary investors, who are looking for signs that the company is still one of the Government’s favoured contractors despite a disastrous 2013.

In the summer, Serco was found to have overcharged the taxpayer for electronically tagging criminals. Last week, Serco agreed to pay back £68.5m, which included the Government’s cost of reviewing the issue.

Serco employees were also handed over to police for investigation when it was alleged that they falsified records on a £285m deal to run prison vans.

This month Serco announced that it was terminating a contract to operate out-of-hours GP services in Cornwall, where it was accused of fiddling figures to meet performance targets.

As a result of these problems, the Cabinet Office has run its own cross-departmental inquiry into Serco’s fitness to work for the Government, the result of which is also not expected until next year.

Serco cannot afford to fall out with the Government, as the state accounts for a quarter of the group’s £4.9bn annual revenue. The myriad of services that Serco runs in the UK includes running Ofsted schools inspections in the Midlands and east of England, catering and cleaning at hospitals from Stirlingshire in Scotland to Plymouth on in South-west, and managing the “Boris bike” cycle hire scheme in London.

The scandals led to the resignation of the long-time chief executive Christopher Hyman, while Serco was also relegated from the blue-chip index of Britain’s top 100 listed companies.

An MoD spokesman confirmed that DIO preferred bidders would not be announced until next year. There had been speculation that the announcement would take longer than scheduled because of the size of the deal, which would see a consortium manage some 50,000 properties for service personnel and their families.

Serco has teamed up with the US construction giant Bechtel on the DIO bid. This consortium has long been considered a heavy favourite to land the contract to become what is known as a “strategic business partner”.

Serco has a contract to support the detection of ballistic missile attacks at Fylingdales that was worth £31m nearly a decade ago. The current deal runs out next year.