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."
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.
Minister for the Cabinet Office Francis Maude said it was "good news for taxpayers" that Serco has agreed to repay £68.5 million for overcharging on criminal tagging contracts.
A Cabinet Office review in the overcharging of criminal tagging contracts has found no further evidence of wrongdoing or malpractice.
However the review, published today, did highlight areas of focus for different departments.
Serco has agreed to pay the Government £68.5 million after it emerged the private security firm and rival G4S overcharged for tagging offenders, some of whom were found to be dead, back in prison or overseas.
The Serious Fraud Office (SFO) previously opened a criminal investigation and a Government-wide review of all contracts held by Serco and G4S, worth £5.9 billion in total, was launched.
Serco has agreed to pay £68.5 million to the Government to reimburse money owed on the criminal tagging contract and for other costs incurred such as the investigation.
In addition, G4S has been referred to the SFO again after the Ministry of Justice uncovered further problems with two contracts for facilities management in the courts.
Private security firm Serco has agreed to repay the Government £68.5 million, excluding VAT, for overcharging on criminal tagging contracts, Justice Secretary Chris Grayling said.
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.
Ministers have decided to keep three South Yorkshire prisons under public-sector management amid an investigation into private firm Serco which was the preferred bidder to run them, the Ministry of Justice said today.
Security firms G4S and Serco have apologised for overcharging the Government by millions of pounds on contracts for tagging criminals.
The Serious Fraud Office (SFO) has opened a criminal investigation after it emerged G4S and Serco overcharged the Government for tagging offenders, some of whom were found to be dead, back in prison or overseas.
G4S chief executive Ashley Almanza admitted the company failed to "tell the difference between right and wrong" when dealing with its electronic monitoring contracts and apologised to the taxpayer.
The chairman of Serco told MPs that it was "ethically wrong" that his company also overcharged the Ministry of Justice.
Yesterday, the Government rejected a £24 million offer from G4S to settle the row with officials vowing to "pursue all possible avenues" to recoup more taxpayers' cash.