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Officials in the Welsh Government could face disciplinary action after a court ordered it to pay £1.25m compensation over a contract it awarded.

Permanent Secretary Sir Derek Jones told AMs he was "deeply unhappy" about the "avoidable" payment - listed as a loss in the 2015-16 accounts.

It came after the Welsh Government was challenged by an unsuccessful bidder over the contract decision.

Sir Derek did not reveal the contract or the bidders involved.

A further fraud case involving the concessionary travel scheme - where the Welsh Government funds bus travel for older passengers - is pending.

Sir Derek, who was giving evidence to Public Accounts Committee in the Senedd, said the buck stopped with him over flaws on how the policy was implemented.

The senior civil servant said he was "deeply unhappy" with the £1.25m payment.

He explained officials had "decided on some very narrow margins in favour of one tenderer".

'Naive'

The Welsh Government initially defended the decision but was subsequently given legal advice that the "costs of continuing to defend the action, taken with the prospects of success, was such that it would be better to enter formal arbitration with the claimant".

Arbitration is where two parties attempt to settle a dispute outside the courts.

"In my view this was avoidable," said Sir Derek, blaming in part "poor record keeping and some ill-judged, naive administration".

Actions had been taken to "minimise the risk of anything happening similarly", he said, adding he had asked officials to "pursue the possibility that some disciplinary action might need to be taken in the case of the staff who are involved".

The accounts also refer to a case where two Padarn Bus bosses were jailed after falsely claiming £800,000 by lying about the number of concessionary fare passengers they carried.

John Hulme, 55, and Darren Price, 46, falsely claimed the money from Gwynedd council.

Questioned about the fraud by Llanelli AM Lee Waters, Sir Derek Jones told the committee: "I was quite shocked about that loss."

Mr Waters said there was concern that the system was open to fraud "for some years".

Sir Derek said he was not aware of the rumours mentioned by Mr Waters.

Pressed further by Mr Waters, Sir Derek replied: "This clearly was a policy decided by the government which had a flaw in its implementation, actually at local authority level, where I think we are satisfied that the processes could have been more robust.

"I can't say for certain, but had they been, they might have been able to prevent that fraud."

Sir Derek also said he did not feel performance management of Welsh Government staff was tough enough.

"I don't actually think it's robust enough, is my honest answer.

"I don't know whether people are just too nice but I think sometimes the difficult conversation over performance management doesn't take place as frequently as it should."