G4S contract failure: A disaster in communication
In recent days news surrounding the Olympics has moved to the crisis surrounding G4S, London 2012 Organising Committee (Locog) and the Home Office, as news of security shortages emerge.
Recent headlines on the crisis include the likes of ‘G4S boss admits ‘humiliating shambles’ from the Telegraph, ‘Sorry is the easiest word for G4S - but it isn’t enough’ from the Daily Mail and ‘Olympic failure leaves G4S in tatters, admits CEO’ from CBN news.
Yesterday Chief executive of G4S Nick Buckles said that he regretted ever taking on the Olympic contract. In many cases the headlines accurately describe the position of a company that has failed to deliver on such a public contract, a failure that has been seen by a worldwide audience.
While many developments and opinions have been released, news outlets have often failed to clarify the underlying causes which have led to the crisis.
G4S originally won the contract to provide security staff to Locog at the start of 2011 based on their ability to provide a highly competitive price in comparison to other offers. The contact originally required G4S to provide 2,000 security staff for the Olympics however G4S were called on to increase this number to 10,400 in December of last year.
The changes in the staffing numbers required by Locog in December are key to understanding the failure of G4S to provide sufficient numbers. For even a giant private company such as G4S, going from a target of 2,000 to 10,400 in a space of four months was going to present a significant challenge. Not only did the company have to increase recruitment by around 400 percent but Security Industry Authority applications (SIA) had to be processed for a further 8,400 trainees. This is further compounded as the government is responsible for the accreditation process, “One cannot start work until they have completed that. It’s a bottleneck”, said an analyst taking to the BBC.
The Public Accounts Committee in March, only four months away from the start of the Olympics, detailed that it was very concerned about the request for increased staff by Locog, saying that G4S faced a “significant challenge to recruit, train and coordinate all the security guards in time for the Games”. The chair of the Public Accounts Committee, MP Margaret Hodge, said it was: “staggering that the original estimates were so wrong”.
The result of crisis and the development of the story appear to revolve around failures on both sides, stemming largely in part from the late stage negotiation of further workers that G4S were unable to meet, failures in communication between the supplier and consumer and technical issues.
An analyst who wished to remain anonymous, commented to the BBC that “the government knew that the company would not hire people months off from the Games, that it would ramp it up much closer to the time they were needed,” as this is standard practice for any company. This practice of delayed hiring however will struggle to cope when the contact requirements change in close proximity to the event.
Nevertheless the increase was accepted and payments were increased to G4S, who regally provide staffing numbers in the many thousands for other large programmes. Ian Horseman-Sewell, G4S’s account manager for the Games, said to Reuters at the start of July that G4S could potentially run an event in Australia at the same time as providing staff over the Olympics.
While G4S have stated that they will pay for the resulting increase in military staff to fill gaps in their security provision and that they are likely to lose millions from failing to complete the contract, the public perception of the failure, which has been seen by a global audience and has seen shares fall, will damage the company the most.
Currently G4S is being heavily criticised from within the Government. G4S chief executive Nick Buckles has faced a parliamentary hearing in which the failure was branded by a MP as “a humiliating shambles”. G4S have currently stayed on the defensive, taking criticism without attempt to point blame at Locog or Whitehall. There is a twofold reason for this; one is that G4S is partly culpable for the failure. Two is that G4S has gained many large contracts from the government and hopes to do so in the future. At this stage damage limitation does not include attacking a large client for its role in the failure, who may still be laying proverbial golden egg contracts for G4S in the future.
Teresa May is seeing that while many services can be successfully sourced to contractors, there is a need for direct communication from both supplier and buyer. The risk of a project cannot be outsourced. The failure of the Olympic security contract is one that will be felt heavily by both sides.
For G4S the disaster is not so much the failure to deliver on the contract, but more damage that the debacle has done to its reputation. Caroline De La Soeujeole, an analyst at Seymour Pierce who covers G4S, said she did not think G4S would suffer financially, saying to BBC News:“I don’t think profits at the year-end will be significantly affected by this news” because a relatively small amount of G4S’s revenues are involved in the project.
While the story is still developing, it is clear is that both sides are now regretting the signing of contract. The contract is damaging for both sides, a perfect example of what can happen to contracts which fail to establish communication and effective management from both supplier and buyer.