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UK lawmakers tell G4S to waive US$92 million fee for Olympic failure

September 21, 2012

LONDON: G4S’s bill for its embarrassing London Olympic staffing failure could rise after British lawmakers demanded the embattled security firm waive its management fee and compensate Games staff neglected in its chaotic recruitment drive.

The world’s biggest security firm has been under fire since admitting just two weeks before the Games began that it could not provide a promised 10,400 venue guards, embarrassing the government – a key customer – and forcing British troops to cancel holidays and fill the shortfall.

G4S has already estimated a 50 million pound (US$81 million) loss on the Olympic contract relating to the cost of deploying additional police and military personnel and the likely penalties the London Organising Committee of the Olympic and Paralympic Games will impose, but that may prove conservative.

In a report published on Friday, Britain’s Home Affairs Committee, which twice hauled in G4S chief Nick Buckles to explain the Olympic debacle, said responsibility for the failure was with G4S and that its most senior personnel should be held accountable for making misleading staffing assurances to security officials so close to the start of the Games.

“Far from being able to stage two Games on two continents at the same time, as they recklessly boasted, G4S could not even stage one,” said Keith Vaz, Chairman of the influential Home Affairs Committee, referring to an interview managing director of G4S Global Events, Ian Horseman Sewell, gave to Reuters in July.

“G4S should waive its 57 million pound management fee and also compensate its staff and prospective staff who it treated in a cavalier fashion.”

LOCOG has so far parted with only 90 million pounds of the 237 million pound contract and earlier this month insisted the remainder would have to be negotiated.

In a statement on Friday G4S accepted responsibility for its failure to deliver in full on the security contract, but reaffirmed its right to the management fee, which relates to set-up costs for the operation.

Vaz advised LOCOG to negotiate “robustly” with G4S in the public interest on the remainder of the contract.

The total security contract for the Olympics is worth 284 million pounds, including work already paid for in 2011 by the Olympic Delivery Authority.

G4S said discussions on the final financial settlement with LOCOG were underway.

The staffing blunder has already hit G4S hard, hurting its share price, bringing Buckles’ job into question and jeopardizing its future chances of winning core government work – the chief concern for the board and shareholders.

With an internal report on the debacle due out this month, their views on whether the company can still win UK prison and police contracts with Buckles – a 27-year company veteran – at the helm are likely to weigh on a decision about his fate.

Recruitment shambles

The Committee said it had received submissions from applicants that wanted to work for G4S at the Olympics with many explaining that they had been dropped without explanation despite passing an interview and vetting stage. Others were accredited and trained but had no work when the Games started.

“One applicant from Northern Ireland says that he reported for work in Glasgow as requested but was sent home because G4S had run out of uniforms,” the report read, adding that the day after the Olympic closing ceremony was the first date on which the number of staff supplied by G4S met LOCOG’s demand.

G4S, which eventually supplied 7,800 guards for the Games, said it had already started compensating some of the staff affected.

“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 company said in a statement.

G4S, the world’s second-largest private sector employer, running operations from border control to guarding ships from pirates and cash transportation in 125 countries, makes over half of its 1.8 billion pounds of British revenue from the government.

As private sector involvement in police and criminal justice services – key markets for G4S – grows, the Committee recommended the government should establish a register of high-risk providers, with “a track-record of failure in the delivery of public services”.

The debacle is the second major setback for the firm inside a year after it caved in to investor pressure to scrap a 5.2 billion pound acquisition of Danish cleaning firm ISS at a cost of around 55 million pounds last November.

The group, which in August posted a 5.8 percent rise in first-half revenues to 3.9 billion pounds, is expected to make a full-year pretax profit of 424.89 million pounds according to a consensus of 17 analysts polled by Reuters.

Shares in the FTSE 100 firm fell heavily after the staffing shortfall was first announced but have recovered to around 5 percent down on before the news, valuing the business at around 3.7 billion pounds.

– Reuters


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