Highways authorities are being encouraged to pool their resources to get better value for money when it comes to maintaining the network.
Watchdogs at the Audit Commission claim the cost of repairing roads is 50% higher than in 2001.
And the spending body said local roads are facing a toxic mix of lower funding, higher costs, increasing traffic and harsher winters.
The commission is suggesting a complete shake-up in highways procurement after discovering only 40% of authorities benchmark their maintenance prices.
Cost discrepancies discovered by the commission included one authority which paid £3.50 for emptying each of 13,000 gullies a year whereas another paid £9.70.
The watchdogs want to see more ‘pain and gain’ clauses in contracts and the shift towards longer and larger deals.
Collaborations like the Midlands Highways Alliance are seen as the future model after saving £13m already for participating authorities.
The report also urges councils to consider asset management plans, such as Cornwall's Transport Asset Management Plan (TAMP), which for an investment of £80,000 is driving consistent levels of service and road condition across the whole county.
Such plans also indicate when best to intervene with works to extend the whole life of a road, typically a maximum of only 20 years.
The report said there would be a 26% drop in government revenue funding for local authorities and 16% less capital funding via local transport plans over the next three years.
Road traffic is expected to increase by more than 30% by 2025 while damage to roads by utility company roadworks is costing councils nearly £50m every year.
Audit Commission chairman Michael O'Higgins said: "Prevention is better than cure, but councils have to consider the safety and insurance risks of damaged surfaces.
"Roads costs are rising while councils' belts are tightening."
But, he said, councils could be more effective at using the resources they did have.
"Sadly we found collaboration between councils to be rare, with too few councils procuring in cost-saving partnerships," he said.
The report also suggested asset management to show when road maintenance will be most effective, new ways of keeping residents informed, and weighing short-term repairs against long-term resilience.
O’Higgins said: "Pick up any local newspaper and you will see that people care very much about their local roads. Our report aims to help councillors maintain their local network against a backdrop of reduced funding.
"Roads in disrepair can put the brakes on trade, economic prosperity, even emergency services. But a well-maintained network helps people, goods and services to move freely and safely."
Local Transport Minister Norman Baker urged councils to "carefully consider" the report.
He said: "They are best placed to use their local knowledge and experience to decide how to prioritise expenditure across all their services, including their local roads.
"Despite the current severe fiscal restraints, we are providing more funds to councils for road maintenance over the next four years than was provided over the previous four years, more than £3bn in fact.
"We have also allocated an additional £6m to develop a comprehensive and long-term efficiency programme for highways maintenance to help local authorities improve performance. This chimes with the helpful observations in today's Audit Commission report."
