G4S And Ministers Close To £100m Tagging Deal

The security contractor G4S (LSE: GFS.L - news) is in advanced talks about a deal that will involve it coughing up tens of millions of pounds for overcharging related to the electronic tagging of offenders.

Sky News has learnt that G4S hopes to announce the details of a settlement with ministers as soon as Wednesday, when the company will announce its financial results for 2013.

Insiders cautioned on Tuesday that an agreement had yet to be finalised.

They said that the terms under discussions would involve G4S incurring charges of approximately £100m, which will cover repayments to the Government and costs associated with various investigations into the issue.

In return, G4S is pressing Whitehall officials to agree to reopening the door for the company to resume bidding for Government contracts.

That may be contentious given the nature of the errors committed under the tagging contract. In some cases, prisoners had died or been returned to prison while the Ministry of Justice continued to be charged for the company's services.

Ashley Almanza, G4S's new chief executive, is understood to have met with Cabinet Office officials on Monday night to thrash out the settlement, although three people close to the talks said there remained "a lot of moving parts", including the size and timing of the agreement.

Further talks will be held later on Tuesday, they said.

Serco, another public sector outsourcing giant, paid £68.5m in December as a settlement for its role in the overcharging for electronic monitoring services. In addition, it incurred millions of pounds in additional costs associated with the inquiries.

Mr Almanza is said by colleagues to be determined to "clear the decks" in order to pave the way for a rebuilding of G4S's relationship with its most important client.

"He doesn't want to roll over, but it's vital for him to get this out of the way," said one.

The UK Government, for which G4S runs a number of hospitals, prisons and welfare-to-work schemes, accounts for 9% of the company's annual sales, or roughly £700m.

G4S said in November that it had conducted its own inquiry into the overcharging allegations, which are also being probed by the Serious Fraud Office.

"Linklaters has conducted an extensive search and review of emails and numerous interviews with relevant employees and has not identified any evidence of dishonesty or criminal conduct by any employee of G4S in relation to the billing arrangements under the EM contracts," the company said.

"The review has confirmed that, in certain circumstances, G4S wrongly considered itself to be contractually entitled to bill for monitoring services when equipment had not been fitted or after it had been removed."

The company said it had issued credit notes totalling just over £24m to the Cabinet Office, as well as incurring £2m of legal costs.

The scale of the eventual settlement will be higher than Serco's, reflecting the fact that G4S handled approximately 60% of the electronic monitoring work, a source close to the negotiations said.

Capita (LSE: CPI.L - news) was subsequently handed the electronic monitoring contract in the place of G4S and Serco, which recently announced the appointment of Sir Winston Churchill's grandson, Rupert Soames, as its new chief executive.

Mr Almanza took the helm of G4S while it was still reeling from the reputational crisis triggered by its failure to deliver sufficient security staff at the 2012 London Olympics.

He is understood to be confident that his overhaul of the company has delivered a sufficient sense of "corporate renewal" to allow G4S to compete for lucrative Government work.

Last week, Ian Tyler, former chief executive of Balfour Beatty (Other OTC: BAFYY - news) , was appointed as crown representative responsible for overseeing G4S's relationship with Whitehall customers.

G4S, which is expected to report annual profits of about £340m on Wednesday, and the Cabinet Office declined to comment.

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