Prison 'fight club' furore comes at crucial time for Serco

Prison 'fight club' furore comes as Serco NZ enters renegotiation period

By Paul McBeth

July 22 (BusinessDesk) - Serco New Zealand, the local unit of the UK’s Serco Group, enters the period where it can renegotiate pricing for the 10-year management contract for Auckland's remand prison, Mt Eden, with a blotted copybook from claims of organised fights, drinking, illicit drug use and access to smartphones.

The leaking of online video footage showing a 'fight club' operating in the prison sparked an internal investigation by the Auckland-based company and has prompted Minister of Corrections Sam Lotu-Iiga to launch a departmental inquiry, including the Office of the Ombudsman.

Serco faces financial penalties if it fails to meet certain thresholds or oversees certain events, including a $100,000 deduction per instance of loss of control, covering everything from prisoner riots to disturbances caused by prisoners that have an external impact, including negative media or public perception. One 'unnatural death' recorded in the nine months to March 31 period will cost it $150,000.

The prison operator was tracking well in the nine months through to March 31, meeting 31 out of 37 performance measures, and hitting 13 of 14 key performance indicator targets that grant it access to performance bonuses.

Serco is in the halfway review period for the contract, which it originally valued at $300 million, which began in 2010. Thwhere the Crown and the company will decide on whether to extend beyond the 2016 break date, including a review of the value of the contract. If the parties haven't agreed to any amendments, or each confirmed no change is required, by the fifth anniversary of Serco's handover date, the contract says that both parties will be deemed to have delivered a break notice to each other.

The one KPI where Serco has met the performance standard but never achieved its target is in reducing the rate of serious assaults. In the latest figures, the prison operator reported 0.74 victims of assault per 100 prisoners, up from 0.55 in 2013/14, and higher than its target 0.4 level. With 976 inmates, that implies just over seven victims of serious assault in the current year.

Still, the prison operator has been hitting more targets since its first review when it met only 19 of 37 measures, and seven of 11 KPI targets, and was the only prison with an 'exceptional' grade in the performance table for the 12 months ended March 31.

The video footage was followed by a claim in Parliament by Labour's Te Tai Tokerau electorate MP Kelvin Davis that at least one prisoner was transferred from the Serco facility to a Crown-owned prison, at Ngawha in Northland, where he died. The prisoner was allegedly seriously injured in a so-called "dropping" from a three metre balcony at Mt Eden by other prisoners. Davis called the situation "an absolute debacle" and said "Serco should never, ever have been given the contract to run prisons in New Zealand from the start."

The New Zealand unit of the prison manager lifted annual revenue 9.7 percent to $37.4 million in calendar 2014, but that increase was smaller than its 10 percent increase in direct employment costs to $20.1 million and a 21 percent rise in indirect employment costs to $5 million. It reported an annual loss of $2.6 million, including $1.5 million impairment charge on mobilisation and bid costs.

Serco's New Zealand unit is part of the global group's Asia Pacific segment, which generated revenue of 702 million British pounds in calendar 2014, while posting a trading loss of 201.6 million pounds after writing down the value of contracts in Australia.

The local unit began managing the newly-built Wiri prison in May this year, and is expected to operate the facility for the next 25 years.

In its 2014 briefing to the incoming minister, the Department of Corrections said it's making greater use of the private sector not only to deliver interventions, but also to manage prisons according to strict performance expectations.

"These contracts have a clear focus on results and we expect to see improved performance across the prison system from a cycle of continuous learning and benchmarking to achieve better outcomes," the report said. "A regime of financial incentives and penalties is tied to performance outcomes, not just outputs, to facilitate innovations in service delivery."

Serco, the Department of Corrections and the minister's office didn't respond to questions about the contract.

(BusinessDesk)

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