Five government departments awarded G4S and Serco fresh work during a period in which Whitehall "gave the impression" that all business with the two outsourcing companies was on hold until the outcome of a review.
The Cabinet Office was widely understood to have barred Serco and G4S from winning new government work until they had they undergone a period of "corporate renewal" after both companies were referred to the Serious Fraud Office for overcharging on electronic monitoring contracts.
But an investigation by the Commons public accounts committee found that the two companies were quietly awarded 14 pieces of additional work worth £350m in the probation period that ended in February for Serco and in April for G4S.
The committee found that "the quantum of additional work that was awarded to the companies during the period was not clearly communicated to parliament at the time". It demonstrated that the government remained overdependent on G4S and Serco, which were in a "quasi-monopoly position" and therefore "too big to fail".
Margaret Hodge, who chairs the public accounts committee, said "the impression the government left was that all business with these two companies was on hold until the outcome of a review". "Instead, what we uncovered was that they had given extensions and new contracts," she said.
The Department of Health, the Ministry of Justice, the Department for Business, Innovation and Skills, the Ministry of Defence and HM Revenue & Customs all gave the companies new work during the period of apparent purdah.
The contracts came despite a statement by Chris Grayling, the justice secretary, in October in which he said the government was investigating all contracts held by the companies worth more than £10m. "We will not be awarding the companies any new contracts unless or until those audits are completed to our satisfaction," he said.
The Cabinet Office told the committee it was unable to blacklist companies from new contracts because of EU procurement restrictions. It said it believed "the "government worked within legal and operational necessity constraints to limit work placed with both companies".
Both G4S and Serco remain under investigation by the SFO for overcharging on contracts to electronically tag prisoners, including offenders who had died. Serco also lost a contract providing out of hours GP services in Cornwall after it was found to have altered performance data and remains under investigation by City of London police for manipulating figures on contracts to escort prisoners to court.
The cross-party committee said that too often "the ethical standards of contractors had been found wanting". "A culture of revenue- and profit-driven performance incentives has too often been misaligned with the needs of the public who fund and depend on these services," it said.
But the watchdog also urged the government to pay more attention to contract management given that the private sector delivers about £90bn of services on behalf of the public sector - almost half of public sector expenditure. Although Ms Hodge welcome government initiatives to improve monitoring in the wake of the tagging scandal, she said the improvements "were on the margin".
A Serco spokesperson said yesterday: "Since the events of 2013 Serco has put in place a corporate renewal programme that was positively assessed by the Government Oversight Group, and has strengthened internal management systems and governance. There has also been significant changes within the senior management of the company."
G4S said: "We are pleased to have been able to contribute to the inquiry. We welcome improved contract management processes and more effective engagement with contracting government departments. We think this will lead to improved services and greater value for money for the taxpayer."
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