The Education Secretary is in discussions about how to improve school performance in the country's biggest privatised education authority.
Charles Clarke is "very concerned" about education in Bradford, where Serco has a pound;360 million 10-year contract to run education services. His admission will be seen as another blow to the Government's faltering education privatisation programme.
Education leaders from the West Yorkshire city held talks about standards with the Department for Education and Skills late last month.
"There has been massive government investment in Bradford but there remain very serious issues," Mr Clarke told a Labour party fringe meeting last week.
Government officials have been sounded out on the idea of funding extra specialist teachers to help under-achieving groups such as Pakistani pupils and white boys from poor backgrounds. So far there has been no response.
The news follows the decision of engineering and consultancy firm WS Atkins to pull out of education in Southwark, south London, less than half way through a pound;100m five-year contract.
Nord Anglia also failed to make an impact in Hackney, east London, where it was replaced by a not-for-profit trust and Cambridge Education Associates twice lost a significant percentage of its management fee after failing to hit targets in Islington, north London.
Serco, which started out specialising in traffic light maintenance and early warning defence systems, began work in July 2001 insisting that it could transform schools in Bradford and bring their results up to national averages by 2006.
But in its first year Education Bradford, Serco's trading name in the city, met only five out of 50 targets and earned only pound;8,450 in performance-related bonuses out of a possible total of pound;870,000.
This year the company attracted controversy by negotiating lower targets that will make it easier to earn bonuses.
In January the Office for Standards in Education reported that significant improvements had been made in the LEA since it last visited in 2000.
But there was more disappointment when key stage 2 results fell even further behind the national average in 2003 with the proportion of pupils reaching the expected standard falling in English and maths and standing still in science. The results were also well below the average among a group of 11 statistically comparable LEAs, with only Nottingham finishing lower.
Mark Pattison, Education Bradford's managing director, said significant progress had been made in both exam results and attendance but the scale of the challenge remained considerable.
Around 10 per cent of schools in the district are in special measures or have serious weaknesses. Mr Pattison said the scale of this problem was hidden when Serco started work because inspections were suspended for a year during a schools reorganisation.
There had been discussions with the DfES and the council about a collaborative approach. The idea of a "school improvement partnership board" was being explored.