The Competition and Markets Authority said fragmented buying, short-term funding and inconsistent procurement are weakening contractor confidence and stopping firms from investing in people, plant and innovation.

Its final Civil Engineering Market Study said public bodies spent around £19bn on roads and rail infrastructure in 2023/24, excluding HS2.

But the CMA warned that the public sector is failing to use that buying power properly, with costs high, overruns common, quality variable and innovation limited.

The watchdog said the prize from reform could be huge, with possible efficiency savings of up to £5bn a year if government gets a grip on the market.

Central to the report is a call for HM Treasury to take strategic ownership of reform across the sector.

The CMA said Treasury should drive system-wide change because responsibility for road and rail work is currently split across a maze of government departments, devolved administrations, national bodies and local authorities.

It wants that backed by a new road and rail civil engineering sector plan setting out clear objectives, annual progress reports and a framework for using procurement and regulation to shape the market.

The watchdog said short-term funding and shifting government priorities are forcing authorities into lower-risk, short-term schemes rather than long-term programmes.

It warned that stop-start pipelines are also making contractors wary of investing in skills, capacity and new technology.

The CMA is now urging ministers and devolved governments to give procuring authorities credible multi-year capital budgets of at least three years.

It said that would give clients more stable funding and procurement plans, while giving contractors the confidence to invest ahead of future workloads.

The report also calls for longer-term contracts, a UK-wide infrastructure pipeline and more detail on whether projects have funding, planning approval, procurement dates and intended buying routes.

Procurement practice also comes in for heavy criticism.

The CMA said weak scoping, poor early engagement and over-prescriptive designs are driving up bid costs, deterring bidders and increasing the risk of changes during delivery.

It wants compliance with the Construction Playbook to be made mandatory for national procuring authorities, ending the current “comply or explain” approach.

The watchdog also calls for wider use of standard designs for repeat road and rail structures such as bridges and gantries.

It said standardisation would cut costs, reduce delivery risk and support greater use of industrialised construction methods.

Other recommendations include more joint procurement by councils and Network Rail regions, a review of bespoke Z clauses in contracts, a single approved list of supplier accreditations, faster approval routes for new technologies and standard response times for utility diversions.

The CMA said the full package should be delivered as soon as possible to cut costs, reduce delays, increase innovation and help smaller firms scale up.

A government response is now expected within 90 days to set out how far ministers will go in adopting the recommendations.