Prospect National Secretary Steve Jary said: "The internal MOD report into the misue of the Framework Agreement for Technical Support clearly shows that the department's political imperative to shed 25,000 civilian staff by 2015 and then another 8,000 by 2020 has seriously affected the ability of the department to undertake its role as an intelligent customer.

"The internal audit report validates Prospect's decision to blow the whistle on these abuses. Our Freedom of Information requests prompted the audit and the allegations we made have been upheld.

"The Coalition cannot simply blame the previous government. It is MOD that is at fault. It has been cutting its in-house capablity without cutting its outputs. It has had no choice but to get this work done elsewhere at huge additional cost. And it has been dishonest: ministers were not told what would happen if they cut specialist staff and FATS was designed to keep the real costs out of sight.

MOD plans to cull another 5,000 jobs from its equipment arm – with 2,500 due to go by the middle of 2012.

"When the department is faced with swingeing, across-the-board cuts the last thing it needs is a bill for £600m for outside technical assistance. The tragedy is that the department is busy making its specialist staff, who would normally undertake that technical work, redundant. It is economic madness," said Jary.