A US private prisons operator will receive $157m a year to run Australia’s offshore processing regime in Nauru – currently holding just over 100 people – after the government quietly expanded its contract by more than $350m to three-quarters-of-a-billion dollars.
The two-year extension without prior public notification, or scrutiny of the contract, has raised allegations of “gross mismanagement” and a process “run out of control” from parliamentarians and government integrity experts.
MTC Australia is a subsidiary of US-based Management and Training Corporation, which runs hundreds of for-profit prisons in the US and UK. A previous Guardian investigation reported historical allegations in civil suits of “gross negligence” and “egregious” security failures relating to two US facilities, and a US$5.2m (A$8m) settlement in 2019 over a Mississippi state government bribery scandal.
In September 2022, MTC Australia won a contract through limited tender to provide “reception, garrison and welfare services” for asylum seekers held on Nauru, for $47m over two months.
The initial two-month contract was extended for another two months, increasing to $69m in December 2022. In January 2023, the government announced MTC would continue in the contract for another three years for $422m.
On 1 October, the latest amendment to MTC’s contract will commence, lifting the contract’s value by $365m to $787m – more than 16 times its original value – and extending it out to 2027.
At the end of July, 105 adult male asylum seekers were held on the island: 15 within the RPC1 processing centre, and 90 in Nauruan community accommodation.
At the current rate, MTC’s contract on Nauru is worth $157m a year: to hold 105 people on the island, at nearly $1.5m per person per year. If the contract does not increase further in cost before its expiry, Australian taxpayers will have paid $430,512 a day to process asylum seekers offshore.
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The series of amendments also offers no details about the reasons behind the extension of MTC’s services for more than $350m.
The contract for the previous garrison services provider, Canstruct, underwent nine amendments with limited competition over five years, expanding from $8m to $1.8bn.
MTC’s amendment will come into force just weeks after Australia announced a separate $2.5bn deal with the government of Nauru over 30 years for the island nation to accept non-citizens forcibly removed from Australia.
Geoffrey Watson SC, a director at the Centre for Public Integrity, described the contract’s increasing costs as “absurd”.
“Instead of locking them up on Nauru, they could have given each of them a suite at the Intercontinental hotel and $500 bucks a week to spend, and it would have cost half,” he said.
“This is insane. There comes a time when – it’s unfortunate, but true – good policy gives way to economics. So why shouldn’t a shit policy give way to economics?
“It’s plainly run out of control – either through poor administration or a lack of oversight. The government’s got to look at it again ASAP.”
The Greens senator David Shoebridge said the department’s process of dramatically escalating the contract price was a “gross breach of public trust, using the first contract as a Trojan horse to ramp up the charges later without any public tender or scrutiny”.
“It costs a fortune to be systemically cruel and this is playing out here as contracts double and double again.”
Shoebridge said the Albanese government was aware that handing a $787m contract to a US private prisons operator with a controversial history to run offshore processing would be a “hard sell” to the Australian public, “so they try to hide it from public view in every possible way”.
The independent ACT senator David Pocock said the contract raised “questions of gross mismanagement”.
“This is a particularly egregious example of a recurring federal government procurement process I’ve been raising concerns about for some time where contracts are executed then significantly expanded without a return to market,” he said.
“These contract blowouts, added to the cost of the latest MOU with Nauru, sends the total taxpayer subsidised figure of dealing with a small number of people into the millions of dollars per head.”
A department spokesperson said the amendments occurred as part of the contract’s “scalable operating and commercial model”, saying it afforded “operational flexibility and value for money”.
The spokesperson said while MTC’s work had not expanded since the original $47m contract for two months was entered into, the cost increase was “primarily related to the two-year extension of the contract”.
“The final cost will be dependent on a number of factors, including actual numbers of transferees supported by the contract,” the spokesperson said.
“The department takes the management of all contracts seriously, and a number of factors are measured when considering an extension of such a contract. This includes operational fluency, fitness for purpose, performance, integrity, risk, financial and legal considerations to inform value for money.”
A 2023 review of Australia’s handling of offshore detention contracts led by the former defence chief Dennis Richardson suggested the department improve the contract’s integrity by identifying “foreign bribery and corruption as risks in certain environments”. The review had found “no evidence” that home affairs officials conducted security or criminal checks when considering MTC Australia’s bid for the Nauru contract.
“Considering the issues that had been raised in previous contracts for regional processing and the previous allegations, the review expected to find greater levels of due diligence,” it said.
However, Richardson ultimately concluded “the government could have confidence in the existing contract”.
A Guardian investigation in 2022 found parent company MTC had been accused in historical civil suits in the US of “gross negligence” and “egregious” security failures that allegedly led to the gang-rape of a woman in detention, the murder of two retirees by escaped prisoners, and the months-long solitary confinement of a US citizen wrongfully held in immigration detention.
MTC paid the state of Mississippi US$5.2m (A$8m) in 2019 to settle a bribery case. Mississippi alleged MTC engaged in “a conspiracy scheme” of kickbacks, fraud and money laundering, paying bribes to state officials in exchange for contracts.
Home affairs officials said MTC had disclosed the case during the bidding process for the lucrative Nauru contract in an answer to a question on notice in March.
More recently, in 2023, MTC was forced to repay Mississippi more than US$5m (A$7.6m) for falsely billing the state for thousands of prison guard shifts never actually worked.
Allegations of corruption within Australia’s offshore processing regime on Nauru pre-date MTC’s contract.
A 2016 report by the Australian National Audit Office identified “serious and persistent deficiencies in … procurement activity … which reduced competitive pressure and significantly increased the price of the services without government authority to do so”.
The former Nauruan president Sprent Dabwido said the offshore processing deal had “turned our country upside down”.
“Lives have been lost, corruption and greed, and it’s overtaken my island.”
In 2023, Senate estimates heard that the Morrison government continued to pay millions of dollars to a businessman to provide offshore processing services on Nauru, even after he pleaded guilty to bribing Nauruan government officials.
The Richardson review identified Nauru as a “high-risk integrity environment” and was told cronyism, bribery and other corrupt behaviours were prevalent. In 2024, the then assistant minister for defence Matt Thistlethwaite accused the Morrison government in parliament of having overseen an “offshore processing regime that was basically being used as a slush fund by suspected criminals”.
And last year, a former assistant secretary of the home affairs department, Derek Elias, alleged in a workers’ compensation case that the department had signed “broken, unfit-for-purpose contracts at extraordinary expense to the … taxpayer” within Australia’s offshore detention system.
He alleged the department was engaged in contract negotiations involving “large amounts of money” that were “illegal” and a “waste of public money”, and claimed the department had “lied to Senators” in parliament. Home affairs had denied Elias’s allegations.
