Hundreds of experienced inspectors are leaving for higher paid work because the fees paid by the Office for Standards in Education have plunged over the last two years, according to leading inspection agencies.
Inspectors' representatives and their employers told the House of Commons select committee inquiry into OFSTED on Wednesday, that the situation was critical.
OFSTED's "naive management" is leading to "a haemorrhage of many of the best inspectors and a general dumbing down of the process," said Geoff Penzer, of Penzer Allen contractors. "It is a recipe for mediocrity."
Inspectors who could obtain "more congenial or lucrative employment" were leaving. "They no longer find working in what one registered inspector recently described as 'the sudden-death Stalinist world of OFSTED' worth the aggravation," said Mr Penzer.
Two years ago, a registered inspector could expect about pound;5,000 for a secondary inspection but fees have dropped to pound;2,200, but, Mr Penzer said, the quality of inspections continued to be high. However, it was being put at risk by OFSTED's policy of selecting lowest cost tenders for contracts meeting minimum standards.
Brian Oakley-Smith of Cambridge Education Associates, one of the biggest contractors working for OFSTED, warned: "I don't think they have taken sufficient measures to avert really serious problems. The only way that you can tell that the price has gone too far is for the system to break down."
Robert Isaac of the Institute of Registered Inspectors told MPs: "We are being asked to do more and more for less and less and colleagues who have built the process up are leaving."
Neil McIntosh, of leading contractor CfBT education services, believed the system was unlikely to break down, but backed fears of a fall in standards.
"I don't don't think it will end in disaster. I think it will end in blandness," he said.
All of the contractors giving evidence to the committee backed the idea of a reduction of the number of players in an inspection market.
The work to be shared has shrunk following OFSTED's decision to inspect on a six-year rather than a four-year cycle and the introduction of "light-touch" inspections for successful schools.
* The Government has increased the pressure on local education authorities by announcing that they will all receive an OFSTED inspection by 2001, two years ahead of the previous schedule.