Serco Pays $654,000 as Escaped Prisoners Add to Australian Woes

The escape of two prisoners from a Serco Group Plc (SRP) van at an Australian airport will cost the services provider A$724,000 ($654,000), adding to its difficulties in the country.

Serco agreed to pay about A$429,000 to the State of Western Australia, including a penalty for the escape and costs of recapturing the men, considered potentially violent. The Hook, England-based company will also spend A$295,000 to upgrade its prison transport vans, the Department of Corrective Services said today in a statement.

“We regret the escape and that we failed to identify a fault in the van which allowed this incident to occur,” Mark Irwin, Serco chief executive officer for the Asia-Pacific region, said in a separate statement. “I would like to apologize to the public, and particularly to victims of crime, who have a right to expect that prisoners remain secure.”

Serco’s business in Australia is under pressure as the company, which also manages Australia’s brimming immigration centers, is at risk of losing as much as 8 percent of its revenue if new Prime Minister Tony Abbott fulfills his pledge to stop the flow of asylum seekers arriving by boat.

The DCS investigation found that a structural defect of the van’s inner door helped prisoners Cameron John Graham and Kelden Edward Fraser escape when Serco’s escort officers opened the outer pod door to increase ventilation. “After breaching the inner door there were no further layers of security to impede the prisoners’ escape,” said James McMahon, commissioner of corrective services.

U.K Contracts

The escaped detainees, both in their early 20s and “considered violent,” were on transfer to Perth from Geraldton Prison in Western Australia, according to a Jan. 3 police statement.

Faults in the design or manufacture of one type of prisoner transport van existed when Serco purchased the vehicles in August 2011 but were not identified before the escape, the company said.

Serco, Britain’s largest government outsourcing provider, was barred for a time from consideration for certain U.K. government contracts last year after overcharging for electronic tagging of criminals, including some who had died. It also missed a contract worth as much as 30 million pounds ($49 million) a year to run three U.K. prisons after the Ministry of Justice canceled the tender amid the criminal probe.

Serco’s stock dropped 17 percent Jan. 30 after the company cut its 2014 profit forecast on fewer contract wins. The profit warning eclipsed the announcement that the company’s bids may again be considered on an equal basis with competitors for U.K. government contracts.

The shares rose 0.6 percent to 406.50 pence at 1:07 p.m. in London today, paring the decline to 19 percent this year and giving the company a market value of about 2 billion pounds.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net

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