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.
The Serious Fraud Office (SFO) has opened an investigation into the Government's contract with G4S for the provision of electronic monitoring, or tagging, services, the security firm has confirmed.
The security firm criticised for its handling of the London Olympics will bid to be involved in the Commonwealth Games in Glasgow next year. G4S will apply for one of the two aspects of event provision to be contracted out by Glasgow 2014- safety stewarding and security guarding.
Last year 3,500 military personnel were drafted in by the Government to assist with the security at London 2012 venues two weeks before the opening ceremony after G4S admitted it might not be able to provide enough guards.
Statt at a South African prison run by the British security company G4S have been accused of "shocking" abuses against inmates.
Prisoners claimed they were subjected to electric shock treatment, while video footage from the high security jail appeared to show inmates being given forced injections.
G4S has said it had no knowledge of abuse by any of its employees at Mangaung prison, which came under the spotlight in a year-long investigation by the Wits Justice Project.
The South African government recently took over running the jail, saying G4S had "lost control" of the facility.
The mother of one of Danny Fitzsimon's victims has said she believes G4S is to blame for deciding to hire, and for arming, her son's killer.
Both Fitzsimons and her son Paul McGuigan were working for the private security firm ArmourGroup, which is owned by G4S, at the time of the incident.
Corinne Boyd-Russell says that Fitzsimons should not have been hired given his history of post-traumatic stress syndrome and the fact that he was charged with a crime in the UK.
Private security firm G4S has pulled out of bidding for new contracts for tagging criminals following an overcharging scandal.
G4S had initially refused to withdraw from the process despite revelations that the firm, along with its rival Serco, had been overcharging the Government by millions of pounds for the electronic tagging of criminals.
Justice Secretary Chris Grayling said he was pleased that the company had decided to withdraw from the bidding process but revealed the company would still face a review into its deals with the Government:
"I am glad they have decided to withdraw now. We can now get on with awarding that contract, which will improve the monitoring of offenders and deliver savings for the taxpayer. Our concerns regarding the billing for the electronic monitoring contract still need to be addressed."
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".
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.