Serco loses Mt Eden prison contract

See also: Davis slams govt’s determination to persevere with private prisons

The Department of Corrections has announced it will cancel Serco’s 10-year $300 million contract to run Mt Eden Corrections Facility four years early.

The spotlight has been on the private prison operator’s performance as a result of tipoffs by inmates and their families to Labour MP Kelvin Davis about a number of issues at the Mt Eden institution, particularly in relation to the allegedly high incidence of violence there.

Concern about these reports resulted in Corrections taking over running the prison in July and an inquiry being launched.

The resulting report is currently subject to a judicial review, which Serco sought on the basis that it didn’t have sufficient opportunity to comment on and respond to it.

Today Corrections chief executive Ray Smith confirmed he has recommended Serco's contract be cancelled at a break point in March 2017, because it is "not the best way to deliver services for this prison.” He says he’s considering options for the future management of the prison and will discuss these with the government early next year.

In a statement, corrections minister Sam Lotu-liga says he supports the recommendation, which it’s understood cabinet has already approved.

“The decision is one for the chief executive of Corrections to make. However, I fully support the decision he has made. The contract allowed for non-renewal after six years and I have been briefed on the reasons behind this decision.”

Mr Lotu-Iiga, who hands off the corrections portfolio to Judith Collins next week following this week’s cabinet reshuffle, also notes that “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” – which suggests the option of getting another private contractor to run the prison is still a possibility.

Mrs Collins declined to speak to NBR about the move on the basis that she’s not yet corrections minister – although yesterday she was happy address Serco bosses via The Paul Henry Show, telling them to "Front up, come and meet me, we'll go through things – I'll probably go and meet you before you get a chance to come and meet me.

"I'll have a look at their reports, I'll find out what's going on and I'll be fair,” she said, “but I want the best outcomes for New Zealanders.

"There's some stuff that's going well, but what happened at Mt Eden [Prison] was totally unacceptable, and it's not going to be happening again as far as I'm concerned."

Serco still in charge of Wiri prison
Serco continues to operate Wiri prison, south of Auckland.

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

It said 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% so far this year.

(BusinessDesk and NBR staff)

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