LONDON (Reuters) - Britain’s model of contracting companies to run rail services is broken and the government should review it before awarding any more franchises, a parliamentary committee said on Friday in findings rejected by the Department for Transport.

FILE PHOTO: On the day that rail fares increase, passengers arrive at Waterloo Station in London, Britain January 2, 2018. REUTERS/Peter Nicholls/File Photo

It highlighted recent problems with two franchises - one in London and southeast England, the other linking London and Edinburgh - to illustrate what it called the government’s “completely inadequate” management of rail contracts.

“The franchising model is broken and passengers are paying the price,” said Meg Hillier, chair of the cross-party Public Accounts Committee (PAC).

“If taxpayers are to have any faith in government’s ability to deliver an effective passenger rail network then it must conduct and act on a thorough review before any further franchises are awarded,” she added in a statement.

The criticisms were rejected by the Department for Transport (DfT) which said the report had failed to understand the complexity of the situation and called it “imbalanced”.

“Our franchising model already puts passengers and taxpayers first,” a spokeswoman for the DfT said in an emailed statement.

Passenger and freight rail services in Britain were privatised in the 1990s, when routes were grouped into franchises and operators bid to run services for a set number of years. The network infrastructure like track is owned and managed by the government-owned Network Rail.

The Thameslink, Southern and Great Northern franchise, operated by British company Go-Ahead GOG.L and France's Keolis, was beset with delays, cancellations and strikes in 2016-17, prompting huge criticism from passengers and lawmakers.

On the East Coast line between London and Edinburgh, the government could end up taking over running services from Stagecoach SGC.L after the UK transport company got its numbers wrong, forcing it to want to pull out early.

That particular franchise has already failed twice, in 2006 and again in 2009, when the government stepped in to run the line.

In a report, the PAC report criticises the DfT for being unrealistic on several fronts, awarding contracts to bidders who had over-promised and failing to recognise the impact of complicated rail upgrade projects.

Another problem was the small number of potential bidders for contracts, it added.

The idea that the franchising model is “broken” plays into the hands of the opposition Labour party who have pledged to nationalise industries like rail and water .

“It is now clear that public ownership is the only sensible option for the future of rail,” said Andy McDonald, Labour transport spokesman.

Last November, transport minister Chris Grayling proposed a shake-up of the franchise system, saying he was considering making some contracts smaller.

The next rail contract due to be awarded is for the South Eastern franchise, expected later this year.