Schools should be consulted before local authorities contract out services such as meals, cleaning and grounds maintenance, according to a survey by the Audit Commission.
Its report, "Making Markets", found that while councils had generally handled compulsory competitive tendering well, there was too little competition in the market.
The report recommended local authorities do more to establish and nurture markets to achieve the cost benefits of competition. It said councils should investigate what the consumers wanted before letting contracts; find out why some companies failed to submit bids; specify what results were required and encourage customers to help monitor contractors' performance.
The report found only 30 per cent of authorities made positive efforts to generate contractor interest and encourage bids.
Most received only three bids, which included those from their own direct-service organisations. The study also found many small companies failed to submit bids because they felt unable to cope with the demands of the work.
Andrew Foster, controller of the Audit Commission, said: "Most local authorities have handled compulsory competitive tendering well. But most should work harder to increase competition, by actively encouraging potential contractors into the market.
"Many could do more to give consumers a voice in the specification and monitoring of services."
"Making Markets: a review of the audits of the client role for contracted services", HMSO, price Pounds 6.