Sources in Papua New Guinea have told the ABC the two main companies being considered are Transfield and Serco.
However, both reported frontrunners have been embroiled in scandals in recent weeks, with allegations of sexual assault on Manus Island and brutal 'fight club' videos filmed within a New Zealand prison.
The ABC understands Australia wants to hand over total control of the Manus Island detention centre to PNG authorities in the five-year period but is willing to extend the contract for an extra four years if that does not happen.
