A new report by the Public Administration and Constitutional Affairs Committee released following the collapse of Carillion slammed the Government's overriding priority for outsourcing as "spending as little money as possible while forcing contractors to take unacceptable levels of financial risk".
"This approach has been made more damaging by the fact that the information the Government uses to inform the outsourcing process can be either incomplete or simply incorrect," the Committee said.
"The Government must be aware of this: it has written contracts that force contractors to pay out when it gets its own data wrong and has been known to forego performance penalties in the initial phases of contracts."
Further investigations by the Committee has found the Government had has to renegotiate over £120m of contracts since the beginning of 2016 to ensure public services would continue.
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"Ultimately, this has led to worse public services as companies have been sent a clear signal that cost, rather than quality of services, is the Government's consistent priority," the committee continued.
"Contractors told us that the Government was known to prioritise cost over all other factors in procurements, driving prices down to below the cost of the services they were asking firms to provide. Worse, the Government was unable to provide significant evidence for the basic assertion behind outsourcing: that it provides better services for less public money, or a rationale for why or how it decides to outsource a service. This was especially true for PFI.
The Committee added the Government has also "shockingly" admitted that the"entire [PFI] structure is to keep the debt of the balance sheet".
Committee Chair Sir Bernard Jenkin MP said it was "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," he said.
"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.
"Public trust requires that outsourcing better reflects public service values. The Government must use this moment as an opportunity to learn how to effectively manage its contracts and relationship with the market."
(LM)
