Vic prison under scrutiny after two escape

The escape of two inmates from a privately run Victoria prison could result in the operator being fined $220,000 or the government ripping up its contract.

Police on Saturday recaptured the two prisoners who escaped from Fulham Correctional Centre, which is operated by GEO Group.

Chris Lyons, 36, and 31-year-old Michael Jarmyn were last seen at the medium-security prison about 6.30pm on Friday.

The alarm of their escape was not raised until about 8.30pm when a prison count fell short.

A search of the immediate area failed to find them, and police warned members of the public not to approach them.

The fugitives were spotted walking along train tracks in Traralgon about 9am on Saturday and they were arrested after a short police chase on foot.

Acting Police Minister Robin Scott has promised a full investigation into what happened.

"This is clearly an unacceptable security breach," he told reporters on Saturday.

"We're taking this matter very seriously."

GEO Group is also conducting its own investigation into what went wrong.

Corrections Commissioner Jan Shuard said, "The private operator will also provide me with a report into this matter and how this occurred."

The escape could potentially affect GEO's contract with Corrections Victoria.

"There are serious ramifications within the contract for an escape," the commissioner said.

That could include a penalty of $110,000 per escapee, as well as the option of a default on contract if GEO failed to remedy any breaches.

"If that's what we find - if the prison hasn't done as they should do in terms of maintaining the security of the prison - then there's a range of options open," Ms Shuard said.

The escape was the first since the prison opened in 1997, she added.

Lyons and Jarmyn were on remand at the centre on charges of burglary, armed robbery, and vehicle offences.

It's unclear how they escaped, or if they got help from outside.

Prison authorities said they could not reveal those details for security reasons.