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.
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.
The Government has rejected an offer from security firm G4S to repay the £24m it owes for overcharging in credit notes.
Officials turned down the settlement and say they will "pursue all possible avenues" to recoup more taxpayers' money.
A Ministry of Justice spokesman said it was still working with the firms and the independent auditors to work out "what the final sum will be".
"The Secretary of State has been clear: we are determined to secure a refund for the taxpayer.
"We have taken appropriate legal advice and will pursue all possible avenues."
Security firm G4S has apologised for overcharging the Government for its provision of electronic tagging services, calling its actions "unacceptable".
The group's chief executive Ashley Almanza said:
G4S said it will give credit notes worth £24.1 million to the Government after an independent review found the security firm had overcharged for its electronic tagging contracts.
The firm said the review of the contract showed that its justice division had "wrongly considered itself to be contractually entitled" to bill the Government, but stressed there was no evidence of dishonesty or criminal conduct.
Electronic tagging contracts run by G4S and rival firm Serco are currently under a criminal investigation by the Serious Fraud Office.
G4S has admitted it wrongly billed the Government for the provision of electronic monitoring, or tagging, services, and said it will pay back £24.1 million.