G4S: point-counterpoint

What interests me is the narrow issue of how much profit G4S could have been reasonably expected to make on its Olympic security contract, assuming things had gone according to plan.

Bob E said:

Well, learning second hand from the reports of the same, rather than through watching it myself, I learn that £57 million of the London 2012 £284 million contract awarded to G4S amounted to the "management fee" or "contract management fee".

That, by my reckoning left £227 million to be directed to the "actual costs of the contract, to whit, delivering those 10,400 bodies". Or £21, 830 per body. I also learned that the G4S advertised rate when recruiting was £8.50 an hour. That means that even if you allow that £10,000 of that £21,830 is spent in recruiting, vetting, training, outfitting and certification to "industry standard" each recruit, and possibly even paying the recruits something whilst being so prepared, that still leaves enough to pay for each recruit to work over 16, 12 hour a day, weeks. And I was reasonably sure that the London 2012/Paralympics would be over in somewhat less than 16 weeks.

The level of "over-funding" in the contract price seemed to be "quite big, indeed very very big". And yet I also learn that G4S also said they expected to make only £10 million profit from the contract. Try as I might, I just can't put all this learning together and make it work, which is to say, add up in a way that makes sense. And I also wonder if the people that awarded it could make sense of it either. Not that I am claiming to be quite as bright and good with sums as they obviously are.

Bob updates: the original budget for the uniforms was £1,500 each, that's now risen to £6,520 each.

John B on the other hand accepted the 4% mark-up a sa given:

Had security staffing been carried out directly by LOCOG, there’s little reason to assume it would have gone appreciably better. G4S is probably the organisation in the UK with the most experience in recruiting security people for events, and this is one hell of an event; if the task were easy, they wouldn’t have stuffed it up so badly. Unlike G4S, LOCOG has a million other tasks to focus on to the same deadline, and no direct experience of recruiting security people.

LOCOG perhaps could have made the cops and the army part of the original plan – but then the taxpayer would be paying the full billing rate, rather than having G4S picking up the tab. Or it could have massively raised wages for everyone (including the people already hired, not just the extra people at the margin – I’m fairly certain this is why LOCOG and G4S didn’t go down that route once problems arose) - but again, the taxpayer would then be paying the full rate for everything.

In other words, the risk of failing to deliver on the contract was successfully transferred from the taxpayer to the private sector, without being significantly elevated. For just 4% margin, G4S was willing to assume the entire financial responsibility for the staffing project. The consequences of the epic failure fell entirely on their shareholders, and not on the taxpayers.

I'm with Bob E on this one, but John B has a habit of noticing things which others, including moi, have overlooked, so it's make up your own mind time.