The government will be urged today to rethink its controversial NHS building programme with the publication of a report which makes sweeping criticisms of the disastrous attempt to build a super-hospital in London. A watchdog group of MPs says the collapse of the £900m scheme in Paddington Basin was the result of incompetence, appalling planning, local staff who floundered and were out of their depth, and a lack of clarity from the Department of Health.

The Commons public accounts committee says there are many lessons to be learned from the cancellation in June 2006 of plans to merge and renew three out-of-date hospitals, St Mary's, Harefield and the Royal Brompton, after five years and £15m had been spent on failed attempts to put together a robust business case.

Its report criticises amateurish efforts from local NHS officials who were out of their depth and a failure on the part of the government to engage. It calls on the Department of Health to abandon its hands-off approach to private finance initiative schemes in favour of much more involvement and control.

"The collapse of the ambitious Paddington health campus project after five years was the direct result of appalling planning and forecasting of costs by the NHS trust partners; rows between them over the way forward; and uncertainty over the Department of Health's degree of support for the scheme, which was lukewarm at best," said Edward Leigh, the committee chairman.

"The department, in effect, left this £900m construction project to local NHS staff who were rapidly out of their depth and floundering. Their amateurism and incompetence in this field compounded the consequences of bad decisions made at the outset."

The government's hospital building programme is now estimated to cost £4bn more than the approved costs, he said. The department "must crack down on those NHS trusts where the costs of schemes are forecast to rise by more than 10% and demand full appraisals".

It must also take a long hard look at its private finance unit to find out whether it is "really up to the task of supporting local NHS trust procurement teams", he said, and the department's hands-off attitude towards large capital investment projects must be abandoned in favour of closer and sustained scrutiny. The committee says the campus partners were imprudent in submitting a "manifestly inadequate" outline business case in 2000. They had not even consulted the doctors and nurses to find out what facilities they would need for the care of patients.

The outline business case, costed at an estimated £300m, was approved with a completion date of 2006. But by May 2005, projected costs had risen to £894m and the completion date had slipped to 2013. The original design packed in patients too tightly and had to be redrawn with more space between beds and more single rooms. The campus partners had not secured enough land for the proposed redevelopment.

The committee says that many of the mistakes are familiar from other major capital projects, such as redevelopment at Guy's hospital in London which was £68.7m over budget and three years late.Liberal Democrat health spokesman John Pugh blamed the government for the failures: "Yet again, huge amounts of NHS time and money have been wasted ... It's the perfect example of what goes wrong with an NHS management structure where central and local bodies fail to communicate effectively. It is patients and hospital staff who are being let down when plans for better hospitals fail in this way."

The Department of Health says it takes the committee's report seriously and has already learned the lessons of Paddington. PFI hospital schemes in the pipeline are all undergoing a review. "Paddington needs to be seen in the context of taking forward the largest hospital building programme in the history of the NHS, worth over £9bn. Out of 84 hospital schemes now open and another 25 under construction, this scheme is a rare one not to proceed," a spokesman said.

At a glance

Private Finance Initiatives are intended to harness private funding for public building projects, such as schools and hospitals.

Under the schemes, introduced in the 1990s and expanded under Labour, private firms pay for work on buildings, then lease them back to local authorities on a contract of up to 25 years.

The government points to figures showing that PFI projects are more likely to come in on time and budget. But critics condemn the practice as back-door privatisation and say it is more costly in the long run.