Image copyright Getty Images Image caption An estimated £90bn of public sector contracts are outsourced to private companies

The government has become too dependent on a handful of "quasi-monopoly" private sector contractors to provide public services, MPs have warned.

The Public Accounts Committee said the fact Whitehall departments continued to award work to Serco and G4S while they were under investigation for overcharging highlighted the problem.

It said ministers had placed "too much trust" in a small pool of large firms.

The Cabinet Office said there was "more to do" to support smaller providers.

But it insisted that progress had been made over the past four years.

In a new report, the cross-party committee said there needed to be more competition in the £90bn market for private outsourcing of public services.

'Eye off ball'

The MPs said contracts should be split up to give small and medium-sized firms a better chance of getting business and to prevent a situation where a handful of firms were "too important to fail" despite questions about their performance.

"Departments have taken their eye off the ball and placed too much trust in contractors and relied too much on the information contractors supply," said Margaret Hodge, the Labour MP who chairs the committee.

Image copyright AFP Image caption Serco is one of the UK's largest public sector contractors

"Government's current approach to contracting gives too much advantage to contractors. Open book accounting and published contracts should be the norm," she added.

The committee said ministers had wrongly created the impression that all business with G4 and Serco had been suspended after it emerged they had been overcharging the Ministry of Justice (MoJ) for years in relation to electronic tagging contracts.

G4S and Serco were stripped of responsibility for tagging criminals in England and Wales last December after the revelations, for which they have apologised and re-paid nearly £180m in total to the public purse.

The two firms were, in effect, barred for bidding for public sector work for a time following a government review into their other contracts, which recommended there should be limits on the size and duration of contracts as part of a wider shake-up of Whitehall procurement.

'Duty of care'

The Cabinet Office said in May that G4S would be considered for government business again following changes to its business practices and that reforms undertaken by Serco showed it was on "the right direction of travel" towards rebuilding confidence.

But the committee said the government should be taking a much harder line on firms whose "ethical standards have been found wanting".

It suggested a host of government departments, including the Ministry of Justice (MoJ), the Ministry of Defence, the Department of Health, the Department for Business, Innovation and Skills and HM Revenue & Customs, all continued to award the firms additional work while a criminal inquiry by the Serious Fraud Office into overcharging was continuing.

It said the electronic tagging contracts were not isolated cases, with two other G4S contracts with the MoJ having been referred to the SFO while another Serco contract with the MoJ was being investigated by the City of London Police.

"The fact that government gave the impression that all discussion with Serco and G4S were halted whilst investigations took place... is evidence of the over-reliance on these larger suppliers," the report concluded.

'More to do'

Ms Hodge said the contractors had not shown "an appropriate duty of care" to the taxpayer and to users of public services.

The Cabinet Office said changes made to the government's procurement and commercial management since the last general election in 2010 had brought savings of £5.4 billion last year, but acknowledged that more needed to done.

"At the time of the last general election, departments simply didn't know how much business they did with strategic suppliers," a spokesman said.

"Despite our excellent progress over the past four years, we have long argued that there is more to do, including to strengthen transparency further and support SMEs.

"Public service providers should act with integrity and our action over the past year shows how seriously we take breaches of those high standards."