Committee calls on G4S to sacrifice management fee to salvage reputation


G4S says the management fee is not a reward for failure

[Updated 17.45 21/9/12] G4S has rejected calls by a Parliamentary committee to forfeit its fee for the management of the Olympics security contract which it accepts it failed to deliver in full.

The House of Commons Home Affairs Committee has issued its report on the failure of G4S to deliver the contract for 10,000 security officers at the Olympic games. The report calls for the company to waive the £57 million management fee “in its entirety”.

The report urges G4S to “look to the bigger picture” and its relationship with the UK government which is its biggest client with contracts worth £759 million per year.

However, G4S said that the management fee is not a profit. “It relates substantially to real costs which have been incurred such as wages, property and IT expenditure. The final financial settlement is currently under discussion with LOCOG.”

Meanwhile, the British Security Industry Association (BSIA) has responded angrily to the Home Affairs Committee report. BSIA chief executive James Kelly said the report denigrates the work of the private security industry in securing the Olympic games.

James Kelly

BSIA chief executive James Kelly: report was “grossly unfair” to G4S and wider security industry

“It is grossly unfair that the capability of the UK’s private security industry should be called into question based on the outcome of a single, highly unique and complex project,” he said.

He added: “Securing the Olympic and Paralympic Games was a unique contract with many significant challenges, and was awarded to G4S as an excellent company with an longstanding track record in delivering large-scale events and government contracts to a consistently high standard.

“To completely dismiss the huge contribution made by the security industry to delivering a safe and secure Games is unfair, and the negative publicity around the delivery of this single contract is highly damaging for the UK’s private security industry as a whole. This is an industry that employs around 356,000 people and contributes approximately £6.94 billion to the UK’s economy each year, which equates to 0.55% of the UK’s GDP.”

Failure to communicate

The company was also heavily criticised by the Committee for its poor communications with candidates and staff. The committee said that “the company should make ex gratia payments by way of apology to those applicants who successfully completed the training and accreditation process but were not scheduled for work because of G4S’s management failings”.

G4S accepted the recommendation: “G4S recognises that some candidates will not have received the level of service that they should expect during the recruitment of security officers for the Olympic and Paralympic Games. G4S has already agreed a process, in conjunction with the GMB Union, for compensating those candidates who completed training and accreditation or made a significant journey through the recruitment process, but were unable to work at the games. The process for handling these enquiries has already begun.”

Committee chair Keith Vaz MP: “Few would have expected a company the size of G4S to fail in delivering such as high-profile contract. But it did fail.”

Keith Vaz MP, the chair of the committee, commented: “The data the company provided to the Olympic Security Board was at best unreliable, at worst downright misleading. 24 hours before they admitted their failure, Nick Buckles met with the Home Secretary and did not bother to inform her that they were unable to deliver on their contract, even though he knew about the shortfall a week before.

“Because of the swift actions of the MOD, Home Office and LOCOG, London enjoyed a safe and secure games. The taxpayer must not pay for G4S’s mistakes. G4S should waive its £57million management fee and also compensate its staff and prospective staff who it treated in a cavalier fashion. Their decision not to bid for Rio 2016 is the right one.”

The Committee also recommended a change in the way the government handles future events: “That, for future major events, armed forces personnel should be considered as possible security providers from the outset, rather than just a backup, with appropriate recognition and reward for the personnel concerned.”

The report ends with some scathing observations:

“Few would have expected a company the size of G4S to fail in delivering such as high-profile contract. But it did fail. By contrast, LOCOG was able to recruit and deploy 70,000 volunteers, nearly seven times the number of people that G4S was asked to provide, working to the same timescale and under similar constraints. In letting major contracts, a company’s past performance is clearly an important factor, but government departments, police forces and other public bodies must not place too much weight on a company’s size and reputation alone.”

And perhaps more worryingly for G4S, “As private sector providers play an increasingly important role in the delivery of police and criminal justice services, it is vital that those commissioning services look at the track-records of prospective providers. We recommend that the Government establish a register of high-risk providers, who have a track-record of failure in the delivery of public services. This would provide a single source of information for those conducting procurement exercises about companies which are failing or have failed in the delivery of public contracts.”

However, the BSIA’s chief executive disagreed: “The case for private sector involvement in public service delivery is clear, whether measured on cost, efficiency or any other metric. The BSIA and its members remain committed to helping the Government deliver public service reforms to achieve safer, more productive outcomes.”

1 Comment

  1. securitynewsdesk on September 21, 2012 at 12:21 pm

    It’s pretty clear from the statements from G4S in response to the Home Affairs Committee report that it isn’t going to give up its management fee without a fight. Already down £50 million which it has paid in compensation to the armed services, police and staff, not to mention remedial work to salvage what it could from the contract, the company says the fee is not a profit or reward for failure but part of the costs of doing business.

    It remains to be seen how LOCOG views that argument, but if the Committee report is anything to go by, it won’t look favourably on it, and would be justified in viewing it as an attempt by G4S to limit the damage from the contract.

    However, Keith Vaz MP, the committee chairman has already raised the stakes, saying that G4S risks further damage to its reputation if it fails to do (in his view) the right thing and give up the fee voluntarily. The committee and Vaz have also raised the spectre of a central register of “bad” companies which G4S, given its admitted failure over the Olympic contract, could find itself on. And this would risk the 3/4 of a billion pounds that the company earns every year from government contracts.

    The board of G4S, weighing the best interests of the shareholders which it is duty bound to do, will now have to consider carefully how to balance reputational damage which is difficult to value in money terms against the prospect of losing £57 million or more in real, hard cash.

    If G4S and Locog both dig in their heels, I foresee the prospect of legal action – but how much further damage would that do to G4S’s reputation?

    And as was mentioned by Keith Vaz in one committee hearing, will the CEO Nick Buckles depart the company or, as is usually the case in these situations, will it be a case of “deputy heads will roll”? Either way, expect some shakeups in the senior management.

    Finally, although G4S has its roots in the UK, this country is becoming a smaller and smaller share of its business as it makes acquisitions overseas. (Despite saying it would not bid for the Rio 2016 Olympic security contract, it recently announced a couple of major acquisitions in Brazil, so what does that mean?) Perhaps in light of that, the company will decide it can ignore reputational damage in this country and concentrate on overseas markets.

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