Serco Group plc ('Serco' or 'the Group'), the international service company, confirms that the UK Home Office has exercised an option to extend Serco’s COMPASS contracts for asylum seeker support services until 30 September 2019. The contracts originally started in December 2012 and were awarded for five years with an option for the Home Office to extend them for up to a further two years.
Under the COMPASS contracts, Serco is responsible for the provision of accommodation, transport and related support services for asylum seekers in the North West of England and Scotland & Northern Ireland, being two of the six the COMPASS regions. Serco is currently caring for over 15,000 asylum seekers across these two regions.
At the time of our 2014 Contract & Balance Sheet Review, Serco took an Onerous Contract Provision (OCP) against the COMPASS contracts of £112m within its results for that year, reflecting the estimate at that time of future operating losses on the contracts. This charge included the expectation that the contracts would be extended, and this assumption has now proved correct. In 2015 and the first half of 2016, utilisation of the OCP was broadly in line with our original expectations.
As part of our normal year-end accounting procedures, we will in the next few weeks be carrying out a re- estimation of future losses based on the latest information, including: updated forecasts of the number of asylum seekers through to the end of the contract; accommodation costs; benefits from improved operational efficiency and the terms of the contract extension. Based on our initial estimates, it is likely that this will result in a reduction in the OCP on the COMPASS contracts, although they will continue to be heavily loss-making.
The reduction in OCP is likely to be offset in part by the liabilities we have assumed as a result of the recent acquisition of our sub-contractor responsible for delivering COMPASS services in Scotland & Northern Ireland, Orchard & Shipman (Glasgow) Ltd. The final value of estimated future losses and assumed liabilities will be calculated and audited over the coming weeks as part of the year-end process, but at this early stage, we estimate that the net reduction in future liabilities will be around £20m. The final out-turn will, as always, be highly sensitive to differences between the actual number of asylum seekers in our care and our estimates, together with the cost and availability of suitable accommodation through to the end of the contract.Read more
As we have previously said, we consider and manage the provisions and charges made in 2014 as a portfolio of liabilities, and the actual amounts incurred on individual contracts will increase or decrease as the hundreds of judgements and estimates we made in 2014 are tested against unfolding events. The possible release of OCPs on one particular contract should not therefore be considered as indicative of the overall judgement we will reach across the whole portfolio of liabilities at year-end.
Commenting on the contract extension Julia Rogers, Managing Director of Serco’s Immigration Business, said: “Managing the COMPASS contract is challenging, particularly as the number of asylum seekers in our care has doubled since the contract started in 2012. However, we are absolutely committed to providing decent, safe and secure accommodation for all the people in our care and meeting our obligations under this contract.”
This announcement contains inside information.