More than $500 million spent on child protection programs in the Northern Territory by Canberra and Darwin is failing to make efficient gains against high rates of contact with the system.

A Productivity Commission draft report has found the number of children engaged with the child protection system in the Top End remains “extremely high” despite the headline funding figure.

The report calls for a “fundamental shift” in the government approach, blaming a lack of coordination and decision making in isolation for fragmentation, inefficiencies and “significant” expenditure overlap.

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Children in the Northern Territory are four times more likely than others to have contact with the child protection system and face high rates of socioeconomic disadvantage, the Commission said.

“Governments are operating in isolation. We saw too many examples where one agency didn’t know what others were doing,” Productivity Commission chair Michael Brennan said.

“The system is so fragmented that government can’t know where all relevant services are being delivered and whether they’re having an impact on the lives of children and families.”

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One example was the North Australian Aboriginal Justice Agency receiving funding from 11 different grants totalling $6.5 million from the Department of Prime Minister and Cabinet - all for the provision of legal services in the NT.

The report pushes for local communities to work with regional government staff to better determine what services they need and want.

About 42 per cent of the 63,000 children living in the NT are Indigenous with the Commission citing the need to deliver outcomes for these communities.

“There should be fewer decisions made in Canberra and Darwin,” Mr Brennan said.

“Community priorities should form the basis for negotiation and agreement between governments on what each will fund."

The Commission found there was inadequate coordination between government agencies with each “often unaware” of the others funding pushes and on the ground efforts.

“There are overlaps, gaps and duplication in services,” Mr Brennan said.

It said governments should transition to “longer-term contracts” of a minimum of seven years to avoid over-complication of funding and processing.

The contracts should also cover the full costs of service provision and take into account the capacity of providers to deliver outcomes, particularly for Indigenous communities.

“Grants are too short and too uncertain,” he said.

“Longer contracts and more certain funding is needed to deliver children and family services in the Northern Territory."

In 2018/19, federal and territory governments collectively spent about $538 million, through nine funding agencies and more than 700 grants to more than 500 service providers.

The report cited a “history of abrupt policy changes” that had impacted service delivery and said current reform efforts needed to be strengthened.

“There is immense goodwill, positive reforms and pockets of good practice, but a fundamental shift in approach is needed - one that is underpinned by a stronger commitment to transparency and collaboration between governments, service providers and communities,” the Commission said.

The study originated from the Royal Commission into the Protection and Detention of Children in the Northern Territory, which followed the airing in 2016 on ABC's Four Corners of violence by guards against youths at the Don Dale Detention Centre.

A final report is due to be sent to the federal and Northern Territory governments by April next year.

Additional reporting: AAP