The public administration and constitutional affairs committee (PACAC) said it is ‘intolerable’ that the government is ‘spending £250bn with little evidence that it is currently following its own procedures to secure value for money.’

It said its inquiry found that the government's overriding priority for outsourcing is spending as little money as possible while forcing contractors to take unacceptable levels of financial risk. MPs were also critical of the ‘incomplete or simply incorrect’ information used to inform the process.

PACAC claimed that, as a result of the government's preoccupation with cost, it has had to renegotiate over £120m of contracts since the beginning of 2016 to ensure public services would continue.

The committee found the government was unable to provide significant evidence for the basic assertion behind outsourcing, or a rationale for why or how it decides to outsource a service, while it admitted that the private finance initiative (PFI) is structured ‘to keep the debt of the balance sheet.’

In addition, the report described the process of outsourcing as ‘opaque’ and said the government does not always follow its own contracting procedures.

PACAC is asking the government to commit to underpinning contracts with realistic assessments of cost and risk transfer, and says it must collect evidence about the benefits and disadvantages of outsourcing in general as well as for individual services.

The committee warned that some of the government’s contractors developed unsustainable business models over recent years and claimed ministers should have paid more attention to the sustainability of its service providers, pointing to a lack of the information needed to design, let and manage contracts more successfully.

Sir Bernard Jenkin, PACAC chair, said: ‘It is staggering that the government has attempted to push risks that it does not understand onto contractors, and has so misunderstood its costs. It has accepted bids below what it costs to provide the service, so that the contract has had to be renegotiated.

‘The Carillion crisis itself was well-managed, but it could happen again unless lessons are learned about risk and contract management and the strengths and weaknesses of the sector.’

The report calls for the government to follow its own processes to decide whether and how to ‘make or buy’, before any public contract is put out to tender, and to publish the justification (including its evidence) on which the decision is based, saying ‘this transparency is vital for rebuilding public confidence’.

After Carillion: Public Sector Outsourcing and Contracting is here.

Report by Pat Sweet