G4S hurts its future with Olympic contract debacle

G4S hurts its future with Olympic contract debacle

Published Jul. 17, 2012 4:53 p.m. ET

Just months ago, a senior executive from the G4S security firm boasted that the London Olympics would make his British company as synonymous with major events as Switzerland is with watches.

Not anymore. In the last few days, that picture has gone from showcase to fiasco.

In a parliamentary hearing broadcast live in Britain, the chief executive of the G4S acknowledged Tuesday that his company's failure to hire enough Olympic security guards has turned into a nationwide embarrassment. It also has pushed the company from the big stage to a big loss - one that might be felt long after the Summer Olympics that start July 27 and end Aug. 12.

Britain's government will deploy an additional 3,500 servicemen at the games after G4S failed to recruit all of the 10,400 private security guards it had promised that would protect 100 Olympic-related venues. Extra police officers have also been called in to help.


G4S chief executive Nick Buckles made a groveling apology as he was questioned by angry British lawmakers.

''It's a humiliating shambles for the country, isn't it?'' asked Labour lawmaker David Winnick.

''I cannot disagree with you,'' Buckles said.

The Olympics is a huge worldwide stage - so missteps are very evident. Buckles was hard-pressed to explain why his company had failed to inform officials until just weeks ago that its recruitment had failed.

The company, with 657,000 employees and operations in 125 countries, had annual revenue last year of 7.5 billion pounds ($11.7 billion) and a profit of 198 million pounds ($309.7 million) in 2011. It is based in Crawley, in West Sussex.

Buckles received total compensation of 857,920 pounds (over $1.3 million) last year.

G4S now says it expects to lose between 35 million and 50 million pounds ($54 million-$78 million) on the Olympic contract, equal to about 12 percent of its annual profit.

But those losses pale in comparison to the loss of prestige. Buckles acknowledged Tuesday that G4S had been damaged by the Olympic security fiasco, concurring with a lawmaker who suggested the company's reputation was ''in tatters.''

That will make it difficult for G4S to sign new contracts like the 200 million-pound deal ($311 million) it won last December to provide services to police in the English county of Lincolnshire.

In the company's 2011 annual report, which featured the Olympic Stadium on its cover, G4S said its reputation and customer satisfaction were two of the most important elements making its business grow.

Speaking at the RUSI defense think tank in January, Ian Horseman Sewell, director of major events for the company, declared that doing well at the Olympics would make G4S a specialist in major events, potentially giving the company access to billions in security spending.

''I say to my team: `Now's the time to make, in our case, G4S the same to major events what Switzerland is to watches,'' he said. ''We will access a market that we estimate is $10 billion of private security spending every four years just in the top 10 multi-sport events. We really have an opportunity to bring some of that back to the British economy and I think we should take it with both hands. . It's a monumental opportunity.''

The company's security division provides guards, installs and monitors CCTV and alarm systems, handles the electronic monitoring of offenders, runs adult and juvenile prisons and provides prisoner transportation. They also have a `cash solutions' division that transports money in armored cars and monitors and services ATMs.

A large part of their business is government outsourcing. The company's 2011 annual report said about 27 percent of its revenue came from government contracts, the biggest single source, followed by corporate contracts, which are about 26 percent.

The company is no stranger to bad press - and the Olympics are only the half of it.

Three of its guards were cleared for release Tuesday after being arrested in Britain on suspicion of manslaughter in the 2010 death of Angolan deportee Jimmy Mubenga. He died after being restrained and put on a British Airways plane for deportation. A post mortem said the death was unexplained.

From 2008 to 2011, there were 1,490 complaints by detainees it oversaw, and 305 of those were fully or partially substantiated, according to Nicola Savage, a spokeswoman for G4S.

G4S had three substantiated reports of excessive force from 2007-2010, and disciplinary action was taken against the employees involved, she said.

In one of its most bizarre blunders, G4S staff attached an electronic monitoring tag to the false leg of a criminal last year. Christopher Lowcock, 29, was able to remove his leg and tag during his court-ordered curfew for driving and drug offenses. It wasn't immediately clear what Lowcock did when the tag was off.

Savage said two employees were fired in that monitoring case.

''We have 657,000 employees - some of whom are working in extremely challenging environments,'' she said in a statement. ''While the vast majority of our employees operate to extremely high standards, on the rare instances where we find these standards to be wanting, we do take the necessary disciplinary action. The care and welfare of those in our care is our first priority.''


Associated Press Writer Raphael Satter contributed to this story.