• Corrections chief recommends contract should not be extended
• Serco shares already slumped on British stock exchange
• Dumping comes as Sam Lotu-Iiga steps down as Corrections Minister
• READ MORE: Judith Collins: Serco must 'front up'
Serco's troubles at Mt Eden Corrections Facility will not spell the end of privatised prisons, the Government says, and the company will continue to manage another large prison in South Auckland.
The Corrections Department confirmed today that Serco's contract at Mt Eden would not be renewed. It would hand over control of the jail at a "breakpoint" in its contract in March 2017.
At a press conference this afternoon, Corrections Minister Sam Lotu-Iiga said he "fully supported" the decision.
"This decision is about the safety and security of Mt Eden prison," he told reporters.
It came after Serco was investigated over reports of inmates taking part in "fight clubs", which prompted Corrections to take over control of the day-to-day management of the jail in July.
Mr Lotu-Iiga said the contract decision did not pre-judge the findings of this investigation, which are being challenged in court by Serco.
Serco's 25-year contract to run Wiri Prison in South Auckland would not be affected by Corrections' decision.
Mr Lotu-Iiga said there were no concerns about Serco's management at this facility.
"They're two different prisons running two different models," he said.
He added: "We remain committed to the private provision of prison services in New Zealand."
The Government would begin getting advice on a possible replacement for Serco early next year.
Corrections chief executive Ray Smith said at the press conference that there was no guarantee that it would remain a private prison.
He said returning it into public control was "an option".
Mr Smith said the problems at Mt Eden were related to its remand status, rather than its private operator.
He agreed with Serco's observation that the remand prison had changed during its six years in charge, which had made it more difficult to manage.
Over that period, New Zealand's prison population had risen to its highest-ever level, partly influenced by tougher bail laws.
"The prison muster is at an all-time high, remand numbers have peaked across the last couple of years," Mr Smith said.
Serco executives were informed of the decision last night, and staff at the Mt Eden prison are being told this afternoon.
The British stock exchange, where Serco is listed, has also been notified. It shares had already slumped earlier this week because of news of other lost contracts.
The decision follows an investigation into organised fights, drinking, and drug use at the jail, and allegations about the death of an inmate under Serco's watch.
The investigation by Corrections' chief inspector has been completed, but its release has been held up because of a High Court challenge by Serco.
The report is understood to be highly critical of the company's management at Mt Eden Correctional Facility (MECF). It would not be released until the court battle was completed, which was likely to be next year.
But Corrections has already decided that the company cannot continue to run the prison.
The $300 million deal Serco signed with the Crown in 2010 included an option to review or end the contract after six years, and this option had been recommended by Mr Smith.
Mr Smith said Serco's contract would end at a breakpoint in March 2017.
He said he had been considering for some time whether the existing contract was "the best way to deliver services for this prison".
"I have decided that it is not and so I have invoked a break point of March 2017 contained in the current contract that allows non-renewal after six years."
Mr Smith confirmed he had received a copy of the chief inspector's report last week but could not comment on it until Serco's legal challenge was settled.
The dumping of Serco comes as Sam Lotu-Iiga steps down as Corrections Minister, partly as a result of his handling of the Serco issue.
Incoming minister Judith Collins played no part in the decision to end the company's contract.
The Government would be briefed on possible options for the future management of MECF next year, he said.
"This decision not to renew the contract will allow the department to consider changes to the management contract that will ensure it is run safely and effectively."
Ms Collins, who will take over the Corrections portfolio on Monday, said she could not comment on the issue until she was sworn in.
She said earlier this week that Serco needed to "front up" over the fiasco at the Mt Eden jail and she would be expecting better results under her leadership.
Serco Asia Pacific chief executive Mark Irwin said his company agreed with the decision to end the contract in 2017.
He said Serco had been in ongoing discussions with Corrections about the way the prison had changed since the contract was signed.
"Its population, movements and security profile are all markedly different from those set out in the documents provided to tenderers six years ago, and in the contract itself.
"It clearly makes sense to reconsider the delivery model for the operations of MECF."
Mr Irwin said New Zealand's busiest remand prison was "a significant challenge for any operator", and it would support Corrections during the transition period.
"We remain committed to our work with the Department of Corrections and to being of service in New Zealand," he said.
In July, video footage emerged of inmates at Mt Eden taking part in "fight clubs" and using illicit drugs in their cells. Allegations were also made in Parliament about the mistreatment of inmates.
As reports of violence at the jail continued to surface, Corrections "stepped in" and took over its day-to-day operations.
The final straw for Corrections was when a prisoner who had transferred from Mt Eden to another prison in July arrived with injuries and made "serious allegations" about his treatment at the Serco-run jail.
That case had echoes of Nick Evans, who was transferred from Mt Eden to Ngawha Prison with injuries earlier this year and later died at Whangarei Hospital.
Labour MP Kelvin Davis alleged that Evans' injuries were consistent with a fall from a large height, and said he had been thrown off a balcony by inmates.
Evans' case is being investigated in three separate inquiries.
The Corrections Department launched a separate inquiry in August.
The inquiry had two parts, the first of which focused on allegations of fight clubs and access to contraband including drugs, mobile phones, and a radio.
The second part of the inquiry was focused on violence and access to mobile phones across the broader prison population.
Serco is challenging the first part of the inquiry, on the grounds that it did not have a chance to respond to its findings.
It is now facing more than $1 million in lost bonuses for failing to reach performance targets over the last financial year.
The company will continue to manage Wiri Prison in South Auckland, where it has signed a 25-year contract with the Crown.