Business Secretary Vince Cable said "certainly something bad happened here" after the Serious Fraud Office was urged to investigate G4S following its refusal to co-operate with the Government over the tagging contract scandal.
Mr Cable told BBC Radio 4's Today programme, "The Government has been looking very carefully at how it gets value for money and has judged that there is some overcharging taking place and we are trying to get down to competitive costs".
He said his Business Department was reviewing the contracts it has with private companies - including G4S and Serco - to deliver public services.
Asked whether the scandal casts doubt over the notion of contracting out state activities to private providers, Mr Cable said, "There are lots of success stories that you don't hear about, but where there is bad practice and lack of care then obviously we've got to tighten up".
Security firms G4S and Serco have been accused of overcharging the government tens of millions of pounds for electronic tagging services.Read the full story ›
What we currently know of the electronic tagging scandal is based on a government-commissioned audit by PricewaterhouseCoopers. It concluded that:
- Ministry of Justice was billed for tagging of people who were in prison, had left the country and who had never been tagged in the first place. In a few cases, the subject had died.
- Charging continued for many months, and even years, after it should have
- Alleged overcharging dates back to at least 2005, and possible 1999
- Incorrect bills run into the low tens of millions
Justice Secretary Chris Grayling has said he has found "no information to confirm that dishonesty has taken place on the part of either supplier," but added that he wants an investigation to look into this.
Justice Secretary Chris Grayling has said he plans to fight "for every penny" that the Ministry of Justice was allegedly overcharged for electronic tagging services.
Earlier he said that a government-commissioned audit suggested that the incorrect bills ran into the "low tens of millions" and that he would take "all necessary steps" to get a refund for taxpayers.
Shares in the two companies accused of overcharging the Ministry of Justice for its electronic tagging contracts had fallen at the end of trading today.
Shares in Serco fell about 8% while those in G4S were almost 6% lower.
Labour's shadow justice secretary Sadiq Khan has suggested that the coalition should bar G4S and Serco from bidding for future government contracts, including a tender to run the probation service.
He also called for both the police and Serious Fraud Office to investigate all of the contracts that both companies currently hold with government departments.
A statement from G4S said it believes that any evidence or indication of dishonesty should be referred to the relevant authorities including, if appropriate, the SFO.
G4S is committed to having close and open relationships with our customers and we strive to work in partnership for the mutual benefit of our organisations.We place the highest premium on customer service and integrity and therefore take very seriously the concerns expressed by the Ministry of Justice. We are determined to deal with these issues in a prompt and appropriate manner.
Today's revelations are truly shocking.
Given the scale of the allegations, the Government must immediately call in the police and the Serious Fraud Office to investigate both companies as fraud has potentially taken place.
There can be no cosy relationships with either company if we are to truly get to the bottom of these very serious allegations. If it was anyone else the police would be asked to investigate potential criminality. Why isn't this happening now?
A spokesperson for G4S said the firm had not been provided with the results of the initial audit of the government electronic monitoring contracts with the government, despite requesting the report.
They said an internal investigation, with external help, found no dishonesty in the tagging contracts.
Security firm Secro has confirmed it will repay any amount agreed to be owed to the Government.
Serco Group chief executive Christopher Hyman said: "Serco is a business led by our values and built on the strength of our reputation for integrity.
"These values lie at the heart of the many thousands of our people who are endeavouring to deliver the highest standard of service to our customers around the world. We are deeply concerned if we fall short of the standards expected of all of us.
"We are therefore taking this extremely seriously and will continue to work closely with our customer to resolve their concerns in this matter.
"We will not tolerate poor practice and behaviour and wherever it is found we will put it right."