Serco loses contract to run Mt Eden remand prison

Wednesday 9th December 2015

The Corrections Department is cancelling the 10 year, $300 million contract for management of the Mt Eden Correctional Facility held by multi-national services provider Serco following a string of scandals earlier this year involving prisoners fighting, contraband and a death in the prison.

Corrections took over management of the remand facility from Serco in July.

Outgoing Corrections Minister Sam Lotu-Iiga said in a statement that he supported the decision. Corrections had an option to cancel the 10 year contract after six years.

However, his statement suggests there is no guarantee the prison won't be offered for management by a private contractor rather than the Corrections Dept.

"Ministers will receive advice from Corrections on options for the future management of MECF early next year," said Lotu-Iiga, who will have relinquished a portfolio where he was seen to have floundered to Judith Collins, who is returning to Cabinet in a reshuffle announced this week. Collins held the portfolio when Serco was awarded the initial contract to run the prison.

Serco continues to operate the Spring Hill prison, south of Auckland.

Hampshire based Serco runs outsourced public services around the world in numerous sectors, employing 122,000 people in 30 countries, including Australia's mainland and Christmas Island immigration detention centres to house asylum-seekers and illegal migrants arriving by boat and air.

It reported 1.5 billion British pounds in writedowns on the value of its contracts last November and was forced to go to shareholders for an emergency 550 million pound recapitalisation through a rights issue. It announced profit downgrades at the same time.

It announced at the time the company would narrow the focus of its outsourced contracting to defence, transport, health, justice and immigration services for the UK, Middle East, Australia and New Zealand.

The New Zealand unit reported an annual loss of $2.6 million, including $1.5 million impairment charge on mobilisation and bid costs, in calendar 2014.

Shares in the company tumbled on Monday after it warned that revenue and trading profit would fall in 2016. They last traded at 103.3 British pence, having shed 16 percent so far this year.

“This decision not to renew the contract will allow the department to consider changes to the management contract that will ensure it is run safely and effectively,” Mr Lotu-Iiga says.

“I have been informed that the Corrections chief executive has received the Chief Inspector’s report into MECF. I am unable to comment further on this as it is the subject of legal action by Serco.”

BusinessDesk.co.nz

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