Profits from running Australia’s immigration detention centres have been substantially propping up the finances of UK outsourcing company Serco, which is facing increased losses from other contracts it holds.
Shares in Serco collapsed by a third after an announcement released on Tuesday revealed concerns about the profitability of the company.
But the announcement also revealed that the massive contract to run Australia’s onshore immigration detention centres, which is valued at almost $3 billion, was insulating the company from “strategic missteps” it had made in other dealings.
“The financial impact of these missteps has been mitigated to a significant degree in recent years by the rapid growth of the Australian immigration services contract. Between 2009 and 2013, group adjusted operating profit grew by 28 percent; excluding the immigration services contract, group profits were flat,” Serco said.
The release goes on to note that the contract “has begun to decline significantly in value”, which has given a clearer indication of the underlying business trends.
Serco also revealed that Australia’s fleet of Armidale class patrol vessels – used to intercept and more recently turn back asylum seeker vessels – are in dire condition, and are likely to require “intensive care” for the rest of their active lives until 2022.
The company’s contract with the Defence Materiel Organisation for the maintenance of the Armidale patrol vessels has been a substantial “contractual issue”, which has been a factor in its poor outlooks.
The release indicates the damage to the vessels is far worse than has previously been acknowledged, leading to a major revision in cost estimates that could lead to an adjustment of $275 million.
“It is now apparent that there are major design flaws with the class of vessel, and a number of different issues related to design, manufacture, usage and maintenance practice have conspired to require maintenance expenditure far in excess of that envisaged at the time the vessels first began service in 2005,” the Serco statement said. - TM/TheGuardian
