The Baird government is preparing for a new wave of privatisation, likely to include health and education, prompting a surprising warning against "crude outsourcing" from a Liberal pioneer of public sell-offs.

NSW Treasury has set up a special unit with instructions to save money and the guiding principle "the market should provide services where it can achieve better outcomes and value for money", according to the NSW budget papers.

Gary Sturgess says constant market testing can be distressing to staff.

The Commissioning and Contestability Unit is based on the work of Gary Sturgess, an adviser to former Liberal premier Nick Greiner, who coined the term "virtual government" in the 1990s to advocate privatisation. The latest buzzword is contestability.

Corrective Services Minister David Elliott has already called in Mr Sturgess to examine private bids to run the John Morony​ prison, but the formation of the unit shows the "contestability" push will go much wider.