29th Oct 2014 13:54
LONDON (Alliance News) - The Ministry Of Justice named the preferred bidders for the 21 rehabilitation services contracts on Wednesday, with Interserve PLC the only UK-listed company to win a place on the programme.
Interserve is among the members of the Purple Futures consortium, working alongside social enterprise 3SC and charity groups Addaction, P3 and Shelter. It was named as the preferred bidder for five of the contracts, covering Humberside, Lincolshire & North Yorkshire, West Yorkshire, Cheshire & Greater Manchester, Merseyside and Hampshire & Isle of Wight.
Confirming its place on the bidder list, Interserve said is expects the contract to be worth a total of GBP600 million over seven years.
French outsourcing group Sodexo SA's Sodexo Justice Services division also won a place on six of the contracts, working alongside charity group NACRO.
The contracts, once signed formally, are expected to be put in place by early 2015, the MoJ said.
The MoJ said 20 of the 21 contracts are to be led by new partnerships and joint ventures between private sector companies and British rehabilitation charities. Half of the partnerships also include new 'mutual' organisations created by existing probation services staff in order to take over their own organisations.
"The Purple Futures partnership brings together the best of the private, voluntary and not for profit sectors. Interserve will bring its business expertise, investment capability and public service delivery pedigree. Our four partners, 3SC; Addaction; P3 and Shelter, will bring a wealth of service delivery and community engagement experience. It's an exciting prospect," said Interserve Chief Executive Officer Adrian Ringrose.
Liberum said the contracts were a material positive for Interserve in its view,though it did warn that as the outsourcing probation services is untested in the UK, it expects unions to be difficult, thereby making it more difficult for Interserve to make cost savings.
It said the award was also negative for Capita PLC, Carillion PLC and Staffline Group PLC, all of which unsuccessfully bid. Staffline bid for four contracts, Capita for five, and Carillion bid for 12 as part of the CRR Partnership with Reed in Partnership and the Rehabilitation for Addicted Prisoners Trust.
Liberum noted both G4S PLC and Serco PLC were barred from bidding for the contracts having been found to have overcharged on government contracts in the past.
For both Carillion and Staffline, the broker said the failure to win any contracts was disappointing, though nothing more. But for Capita, the disappointment was more pronounced given it had hoped for a contribution of 3% to its organic growth.
Liberum added that though the award of the contracts refutes doubts about the coalition government's commitment to outsourcing, it does come only six months before the General Election is due to take place. Major new outsourcing projects are unlikely to be awarded until 2016, though it did not rule out a possible extension to the Work Programme, which would boost Interserve, Staffline and Serco.
While it retains a positive view on Interserve, Carillion and Staffline, Liberum said its worries around the impact of a hiatus on outsourcing contracts being awarded is reflected in its cautious view on Capita and Serco, as well as Babcock International PLC and Mitie Group PLC.
Interserve shares were up 3.4% to 614.5 pence on Wednesday, making it one of the best performers on the FTSE 250. Capita was the hardest hit by its failure to win any contracts, falling 5.8% to 1,088 pence to be the worst performer on the FTSE 100.
Carillion shares were flat at 324 pence, while Staffline shares also took a hit, down 3.5% to 860 pence.
By Sam Unsted; [email protected]; @SamUAtAlliance
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