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The government has suffered another embarrassing setback in its bid to use private sector competition to raise standards in state prisons after the first attempt to privatise an existing prison failed to attract any bids from private prison provider companies.

Premier Prisons, UK Detention Services, Group 4 and Securicor all declined to bid against the in-house facilities team for the contract for Brixton Prison in south London.

Although the prison has consistently under-performed and has been described as 'totally unacceptable' by the prisons inspector, sources close to the deal said the government had failed to make the bid terms at all atrractive to the private sector companies.

'The contract terms were bad and very difficult to carry out,' said one industry source. The only way to make the privatisation of existing prisons successful is to outsource everything — both core and non-core, which has worked in new-build PFI projects, he added.

The employment terms and conditions in place that would have to be continued under TUPE are also understood to have been unattractive.

A number of other failing prisons have been suggested as candidates for privatisation.

But none, as yet, have been put on the market.

In light of the failure and with contractors calling for greater transparency in the tendering process, the programme will have to be rethought.

If the in-house bid fails to convince the prison service that the facility would meet requirements, the in-house team will be excluded from bidding for the contract for Brixton Prison. It will then be retendered in the private sector.