Plunging share prices have exposed weaknesses in controversial government plans to outsource more public service contracts.

Major British services firms have seen their share prices fall steeply this week, in a sign that investors are losing confidence in the complex 'public-private partnership' deals used to encourage private sector companies to bid for government contracts.

Casualties include support services firm Capita Group, which was marked 9.5 pence lower at 246.5p in the City early on Thursday, while rail contractor Jarvis was down 18p at 277p.

On Monday, shares in the contract firm Amey - a partner in the consortium selected to upgrade the London Underground - lost a third of their value after the company said delays in finalising the tube contract would dent its profits.

Shares in WS Atkins, another successful bidder for the London Underground public-private partnership, have fallen by about 50% in the past two months.

Investor jitters

The falling share prices, which come amid a wider stock market downturn, reflect growing investor concerns that public private partnership deals could yet be affected by unsettled political disputes.

The powerful public sector trade union Unison is spearheading opposition to the deals, arguing that the involvement of private companies leads to wide pay disparities within the public sector workforce.

There are lingering investor concerns, too, over the structure of public private partnership deals, which promise bidders a flow of earnings over a number of years in return for funding new hospitals, schools, or public transport infrastructure.

Setback

Investor worries about PPP deals could deter other companies from bidding for public service contracts in the future.

This would come as a major setback for the government, which has made PPP deals the central plank of its plans for modernising public services.

The government is expected to invite firms to bid for a further round of lucrative public service contracts as part of its comprehensive spending review.

Government officials this week reaffirmed their commitment to the PPP model.