Security firms G4S and Serco have been accused of overcharging the government tens of millions of pounds for electronic tagging services.
The Olympics fiasco could hurt G4S' role in the public sector in the UK, making them a less tempting choice for government or councils.
Security company G4S has admitted the failure to fulfil its Olympics contract cost it in the region of £50 million.
Prison campaigners have said G4S and Serco should be barred from bidding for government business until a major fraud investigation into their practices has been completed.
Both multinationals are being investigated by the Serious Fraud Office (SFO) and have agreed to repay a total of more than £180 million after it emerged they had overcharged the taxpayer for electronic tagging of criminals.
Two cases that are to be sent to MPs on the Public Accounts Committee include claims that a terminally-ill prisoner was kept waiting in handcuffs for 40 minutes while G4S staff went to a bakery for lunch and allegations that a woman in a Sodexo prison was forced to clean her cell after miscarrying.
Frances Crook, chief executive of the Howard League for Penal Reform, said: "The possibility of systematic fraud of the public purse on a massive scale by profiting companies diminishes justice."
Security firm G4S has been given permission to bid for Government contracts again after it was suspended over overcharging for tagging criminals.
G4S and rival Serco both billed the taxpayer for tagging dead criminals, offenders who had been recalled to prison and others who had fled overseas.
G4S - which was criticised for its handling of security during the London 2012 Olympics - last month agreed a settlement of £108.9 million with the Government over the scandal.
The Cabinet Office has now accepted a plan put forward by the company and it can now bid for future Government contracts.
An "incident" at Oakwood Prison near Wolverhampton has been "resolved successfully" according to a spokesman for G4S, the company that operates the facility.
– g4s spokesman
This incident was resolved successfully at 2.10am.
Police and internal investigations will now take place. It would be inappropriate to comment further until these have been completed.
Oakwood Prison near Wolverhampton has been the scene of rooftop protests by prisoners last year and has been criticised by HM Inspectorate of Prisons.
In October 2013 and again in 2014, prisoners climbed on the roof of the facility, which can hold 1,600 inmates.
A report by HM Inspectorate of Prisons found inexperienced staff, high levels of violence and self-harm, and clear evidence of drug and alcohol use.
Jerry Petherick, managing director for G4S Custodial and Detention Services, said at the time that the company had taken steps to drive improvements.
Oakwood opened in April 2012 and holds a mixture of category C and D prisoners.
A spokesman for Staffordshire Police said the force was aware of the incident at the privately-run jail and was offering support and assistance to G4S.
Security firm, G4S, has confirmed that there is an 'ongoing incident' on a wing at Oakwood Prison.
– G4S Spokesperson
“The situation is contained and we are applying standard procedures to manage the incident.
“It would be inappropriate to comment further at this stage."
No further information was available about what had triggered the problem.
It follows a number of rooftop protests last year.
In July 2013, HMP Oakwood, in Featherstone near Wolverhampton, was one of three prisons in England and Wales to be rated 'of serious concern' by the Ministry of Justice.
There are reports of an 'ongoing incident' at HMP Oakwood in Featherstone. The prison is run by security firm G4S. More to follow.
In the light of today's developments, the Ministry of Justice said both G4S and Serco have decided to withdraw from the competition for rehabilitation services.
This means that neither company will play a role as a lead provider of probation services in England and Wales in this competition.
The Government said it has left open the possibility of either supplier playing a supporting role, working with smaller businesses or voluntary sector providers.
Unlike Serco, G4S has not yet agreed a position on repayment over the overcharging fiasco, although discussions are continuing.
– Justice Secretary Chris Grayling
Management of these services, which are now operated by G4S and Serco, will transition to Capita by the end of the current financial year.
Under these arrangements, Capita will be using the systems and equipment of G4S and Serco, but the two companies will no longer have a direct role in delivering the service on the ground.
Private security giants G4S and Serco are to be stripped of all responsibilities for electronically tagging criminals following an overcharging scandal.
Electronic monitoring contracts will be handed over to rival firm Capita on an interim basis at the end of the financial year, Justice Secretary Chris Grayling said.
Capita is in the running to take on the contracts permanently.