'Cheats' Serco and G4S forced to face a grilling from powerful group of MPs

Outsourcing industry dogged by embarrassing exposure of failings is braced for public scrutiny

Executives from scandal-hit corporate giants Serco and G4S face a public grilling from a powerful group of MPs, who are determined to "lance the boils" of failing government contractors.

A source on the Public Accounts Committee said the two companies, which have seen their shares battered this year, will be questioned on Wednesday about "suspicions that they cheated on contracts".

The Serious Fraud Office (SFO) has launched a criminal investigation into G4S and Serco, following allegations they had billed the Ministry of Justice for monitoring 3,000 non-existent offenders on a lucrative electronic tagging contract. The companies could potentially have made tens of millions of pounds for claiming that they had tagged offenders who were already in custody, had left the country, or had died.

Serco, which runs the Docklands Light Railway in London, schools inspections, and the Atomic Weapons Establishment in Reading, has struggled since the scandal, issuing profit warnings for both 2013 and 2014 last week. Staff have also been referred to the City of London police over irregularities in a prisoner escort contract.

G4S, which is one of the world's biggest employers with 620,000 staff, has found itself under public scrutiny for the past two years after it failed to provide enough security guards for the London 2012 Olympics. Both companies have said that they will co-operate fully with the SFO investigation.

Representatives of both companies together with Paul Pindar, chief executive at emergency services communications provider Capita, and Ursula Morgenstern, the UK and Ireland head of IT giant Atos, will give evidence to MPs. The four companies are the public sector's biggest suppliers and worked on contracts valued at £6.6bn last year, but have all been recently criticised for paying little or no corporation tax in the UK.

An industry source said that he expected committee chairwoman Margaret Hodge to "lance the boils that are the problems of outsourcing". Successive governments have turned to the private sector to run public services as they attempt to reduce spending, but this has led to accusations of privatisation by stealth and that firms involved are massively overpaid.

The showdown, expected to last two hours, is the first in a two-part probe into the outsourcing industry. Next week, top officials from the Cabinet Office, Ministry of Defence and the Ministry of Justice will be questioned over how closely they kept watch over companies entrusted with delivering such sensitive public work.

A committee source said: "These officials are supposed to be looking after these contracts. Are these failures actually their fault?"

The Ministry of Defence is in the middle of a selection process for one of the most contentious outsourcing contracts the country has ever undertaken. Defence Secretary Philip Hammond is considering bringing in a consortium of consultants and public sector contractors, potentially including Serco, to run the £16bn budget agency that buys and looks after communication equipment, grenades and submarines.

Unions fear thousands of job cuts at Defence Equipment & Support, while insiders have told The Independent on Sunday that they are "sickened" by the quasi privatisation. "The great majority of staff care deeply about the moral correctness of what they do and are dismayed at what's happening," said one senior defence official.

Ministry of Defence commercial director Les Mosco is likely to be questioned over whether the deal will truly provide value for money, as it has emerged that there are fears over the financial case for handing DE&S over to big business.

However, Cabinet Office chief operating officer Stephen Kelly and chief procurement officer Bill Crothers are likely to come under the most intense scrutiny, as their department is charged with making government a leaner, more efficient machine. Mr Crothers is leading a Cabinet Office review into Serco and G4S in the wake of the electronic tagging debacle. He insisted last week that outsourcing remained an important part of government policy.

MPs will also take a fresh look at the privatisation of the Royal Mail on Wednesday, when the Business, Innovation and Skills Select Committee takes on bankers who advised on its stock market flotation. There have been criticisms that the Royal Mail was sold off on the cheap, possibly depriving the Exchequer of nearly £650m.

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