Prisons minister Rory Stewart has said Carillion underbid on a Ministry of Justice five-year maintenance contract by £15m a year.
The revelation was made in front of MPs on the justice select committee yesterday.
He said: “Carillion was proposing to try to save the taxpayer £15m a year by underbidding and trying to take on work that cost Carillion £15m more a year to deliver than they were receiving from the taxpayer.”
Carillion signed a £200m deal in November 2014 deal to carry out maintenance for five years at 50 prisons across the South of England.
The National Audit Office report into the government’s handling of the collapse put the resulting cost to the taxpayer on the MoJ deal at around £52m.
However, Mr Stewart said the extra cost reflected the amount Carillion should have been charging in the first place.
He said: “In effect, Carillion underbid and was operating under cost, and as a result we have to spend £15m more to achieve the standards we want.”
He added: “The taxpayer is now paying a more realistic cost than Carillion bid.”
Mr Stewart said the MoJ should have considered Carillion’s offer more carefully.
“We signed up to that, and in retrospect, more weight should have been given to saying ‘Wait a second, what on earth is Carillion proposing here? They’re basically proposing to do this and lose £15m a year’,” he said.
“Is that sustainable or are we going to end up back in a situation where we’re paying for it?”
MoJ chief financial officer Mike Driver said in future the ministry needed to pay more attention to company finances while also being aware of the impact of low-cost tendering.
“As a public service, we need to be sure we don’t tie organisations down to too little margin, because the result of too little margin is they cut cost and therefore cut quality,” he said.
Mr Stewart said: “We need to be more honest internally that something that looks like too good a deal, may be too good a deal.”
Carillion was awarded the FM deal while Chris Grayling was in charge of the MoJ between 2012 and 2015.
Mr Grayling has come in for heavy criticism for the decision to award £1.34bn of HS2 contracts to a consortium involving Carillion in July last year, shortly after the company revealed a £845m write down.
Following Carillion’s collapse in January the MoJ set up its own facilities management business to carry out maintenance on the South of England prisons the contractor had been working on.