Fears over contracts as Serco loses out on £450m prisons deal But analysts said Serco still risked losing contracts even if it should soon be allowed to bid again for new government work. Hector Forsythe, an analyst at Oriel Securities, said some "early acid tests" loomed. They include negotiations to extend Serco's contract to run the Northern Rail train franchise, due to expire next April, and the rebid of the RAF Flyingdales service contract in the North East, where the company is competing against Babcock. Mr Grayling said he had decided to axe the outsourcing competition for the three South Yorkshire prisons and leave their management in the hands of HM Prison Service. "The impact of the delay and the uncertainty this has created mean that for operational reasons we cannot postpone the outcome of the competition process any further," he said. Serco said it understood that "the urgent need for change at these prisons means that the typical six-month period of mobilisation and transition to the private sector would not be in the best operational interest of the prisons." Ed Casey, Serco's acting chief executive, said: "From meetings with the UK Government it is clear that the operational needs of the prisons will be best served by the necessary changes being implemented without further delay." We are also continuing to make good progress across the various audits, reviews and our proposed corporate renewal programme within the timing previously communicated by Government. Robin Speakman, an analyst at Shore Capital, said the loss of the prisons deal highlighted how both Serco and G4S still remained "in an uncertain position" that "will not change rapidly." That was despite talk that the Government was beginning to soften its stance in acknowledgement that it needed a vibrant outsourcing sector. He said the cancellation of the Yorkshire prisons contract demonstrated that "outsourcing is not the only solution to an issue, ultimately ministers can decide on politically acceptable alternate actions." He added: "We also still worry about politicians' willingness to commit to Serco, fearing personal reputational damage - should a contract go wrong in the future, or worse, new historical issues emerge - particularly ahead of a UK general election." The loss of the hoped-for prisons contract comes just a day after the tagging debacle claimed its second major Serco scalp, with the departure of its UK chief Jeremy Stafford. It followed last month's exit of chief executive Chris Hyman. On Wednesday, chairman Alastair Lyons had told MPs on the Public Accounts Committee that Serco's conduct on the tagging contract had been "ethically wrong." The company has already faced fierce criticism this year for manipulating performance figures on its GP out-of-hours service in Cornwall. Mr Lyons said: "We do an awful lot of things besides the particular issues that have arisen this year which sadden me, which shock me and which I'm deeply sorry about, but they happened and I need to make sure that they don't happen again." Serco shares rose 1.3 to 439.9p.