The Confederation of British Industry (CBI) in Scotland has submitted its arguments in a paper to the Holyrood finance committee, which has been tasked with seeking out up to 3.9 billion in savings a year in public spending.
The organisation argues that if productivity in the UK public sector had risen alongside of that in the private sector, government could have saved 31bn in 2007/8.
The CBI's paper to the committee has called for a "radical re-engineering" of public services in Scotland, arguing that the government needs to create a "level playing field" for private firms bidding for service contracts against government or not-for-profit firms.
The paper claims the government's decision to ban private firms from GP services, hospital catering and cleaning and prisons is "misguided" and that government must offer contracts without "institutional bias" against private firms.
CBI Scotland's assistant director, David Lonsdale, said: "Greater competition in the delivery of public services has the potential to drive up performance and ensure better value for money, which will be critical as the public finances enter a far leaner period over the next decade. However, a firm commitment is needed from government to a fair and consistent approach to competition in which the private sector is given the opportunity to prove its worth on a level playing field."
In January, the SNP government passed a bill banning private companies running GP surgeries.
SNP deputy leader Nicola Sturgeon had told her party conference in Inverness: "We will never put private profit before public services."
The CBI cites examples in England and Wales where private firms have improved productivity and saved money, particularly in health services, where Westminster has not banned their work in the NHS.
The organisation also called for Scotland's 32 local authorities to farm out "back-office" administration to private firms.
Derek Brownlee, finance spokesman for the Scottish Tories and an elected member of Holyrood's finance committee, said the tide was turning against the government's stance on private firms working with the public sector.
He said: "If someone in the private or voluntary sector can demonstrate they can deliver something more efficiently then why wouldn't you look at that? It seems daft not to. If you don't look at opportunities for saving, what that means is public services elsewhere will have to be cut more than needs be, and that won't be in anyone's interests."
A Scottish Government spokesman said: "We are doing extensive work to make sure that public sector contracts in Scotland are available to the private sector, particularly small and medium sized enterprises. We are also continuing dialogue with the business sector and actively looking at ways we can improve all private companies' opportunities."
Shona Robison, Scotland's minister for public health, said: "I don't think there is a lot of evidence to show that where the private sector has been involved in the NHS that has led to a more efficient service."