The Ministry of Defence is under pressure to rebuff the attempt of one of Britain's biggest companies to take over the £14bn agency that buys the armed forces' missiles and submarines in the wake of the electronic tagging scandal.
Serco, the outsourcing group which runs a host of services for the Government, including immigration and community health centres, is under fire after an audit discovered the taxpayer had been overcharged by £50m for monitoring non-existent electronic tags. They had been assigned to deceased offenders and those who were back in custody.
G4S, the security giant that failed to supply enough guards for the Olympic Games, is also implicated and is being investigated by the Serious Fraud Office. Both companies' lucrative public sector contracts are being reviewed by the Cabinet Office.
It has raised questions about Serco's suitability for one major forthcoming contract, the effective privatisation of the Defence Equipment & Support agency. This reform, designed to help the MoD get better value for money when it buys battle gear and satellites, is unparalleled globally and has been heavily criticised.
An invitation to negotiate was expected to be issued to potential bidders on Friday, but this is said to have been delayed until next week – leading to speculation that the postponement was due to the tagging scandal.
A defence industry source said: "Serco has gone from being one of the key players that everyone wanted on their team to one of the least wanted."
Margaret Hodge, the chair of the Public Accounts Committee, said that the MoD must take a good look at the Ministry of Justice's tagging contract. She said: "Government is terribly silo-ed. The MoD won't be looking at what is happening in the MoJ."
Last week Ms Hodge's committee produced a report accusing Serco of operating a "bullying culture" in running out-of-hours GP services in Cornwall. The company was also fined £280,000 earlier this year for a blast at the Atomic Weapons Establishment. Serco declined to comment.