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Publish Date : 06-May-2014

New boss of troubled services firm Serco, Rupert Soames, which shocked the market with a profits warning, is fighting to retain the important contract to run London's Docklands Light Railway.

The Ł125 million-a-year deal to run the DLR is up for tender.

The decision will be announced in summer 2014. Serco has run the service since 1997 and is on Transport for London's shortlist, but expects its problems will lead it to choose a more financially secure operator, such as the Keolis/Amey Rail joint venture or Stagecoach, both shortlisted.

Analyst of investment bank Investec, Andrew Gibb said the contract was 'crucial to Serco and not winning it would not bode well for the company'.

He added, "When you flag up instabilities on the balance sheet it raises clients' eyebrows and they could be nervous about the possible risk."

Serco was temporarily banned from bidding for Government work in 2013 after its electronic-tagging contract was found to have charged for offenders who were dead or in prison. Even if Serco did retain the contract, Gibb said it would be on a decreased margin.

He said it was not just the DLR contract that was at risk, adding, 'There is always the possibility there will be a run on contracts as people look for more security. Its rivals would be encouraged to compete with it for contracts that they might not have considered before.'

Soames – a grandson of Winston Churchill – initiated a nine-month review of the firm, which has contracts as diverse as Northern Rail's franchise and Australia's asylum scheme.

While the Ł160 million fundraising gave Soames headroom, analysts believe he is likely to sell non-core parts of the company.

"'The DLR tender is a competitive process and we have put in a strong bid," said a Serco spokesman.

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