Former Department of Prime Minister and Cabinet secretary Terry Moran says the world has passed the "high water mark" of outsourcing the delivery of public services.
Mr Moran told a Committee for Economic Development of Australia forum in Sydney that the delivery of federal government services was in "a hell of a mess" and the outsourcing model was breaking down in the United Kingdom.
"We now know a whole lot more than we did 10 or 20 years ago about what works in service delivery in the public sector," he told the forum.
"We can see now from what the Tories in Britain are doing that we are past the high water mark for outsourcing of public service delivery."
Outsourcing of government functions in the United Kingdom has been dogged by complaints over the quality of services and the collapse of major contractors including Carillion and Interserve.
Mr Moran's comments come as the government faces opposition to its controversial plan to outsource visa processing.
Key cross bench senators have vowed to join Labor and the Greens in opposing the privatisation if the government introduces legislation, and the Canberra Times revealed last week that one of the two consortia bidding for the lucrative $1 billion contract is led by a close associate of Prime Minister Scott Morrison who donated $133,000 to the Liberal Party in the lead-up to the last election.
Under the government's outsourcing plan, the cost of the contract would be offset by allowing the provider to collect fees and taxes on the Commonwealth's behalf.
The government had hoped to proceed without needing Parliament's approval.
But in an incoming government brief released under Freedom of Information laws, Home Affairs advised that the plan would "likely require new supporting legislation".
Mr Moran, who chairs the Centre for Policy Development, said Britain's outsourcing difficulties had lessons for Australia, and called on the Commonwealth to pay greater attention to work being done to improve service delivery at the state and local government level.
Mr Moran said the outsourcing of services in aged care, disability services, vocational education and training and employment services showed how heavily invested the federal government was in the outsourcing model.
But as the aged care royal commission continues to highlight serious failings and shortcomings in the nation's aged care system, the former PM&C head said the evidence showed that outsourcing was "just not working".
He warned, however, that because the outsourcing model had involved stripping departments of resources and expertise, they had little capacity to reintegrate service delivery functions.
"The Commonwealth has found it very difficult to come to terms with [the failure of service delivery outsourcing], having dismantled all the apparatus it used to have to run some of these activities within the Australian Public Service," Mr Moran said. "They are a little bit bereft."
Mr Moran said innovation was being killed by centralised bureaucracy and the government should be looking to the other levels of government for lessons on how to deliver services.
"There is another way to do it apart from a top-down, heavy-duty bureaucratic muddle," he said, citing the example of a pilot program including the use of local government to provide integrated services to refugees.
CSIRO head David Thodey told the CEDA event that the relationship between the Commonwealth and the states needed to be reviewed.
Mr Thodey, who led a recent review of the APS, said the respective roles of the different levels of government had changed since the federation was formed in 1901 and questions needed to be asked about whether the Council of Australian Governments was working.