The most visible legacy of David Cameron’s “big society”, a £1.5bn taxpayer-funded scheme that encourages teenagers to get involved in their communities, is under scrutiny amid evidence that it is failing to deliver value for money.

The National Citizen Service, which was launched in 2011, brings together young people from different backgrounds for a programme of personal and social development. It offers a three- to four-week part-residential programme where 15- to 17-year-olds work in teams building life skills, taking on challenges, making friends and contributing to their community.

Almost £1bn of the budget for its current programme, which runs until 2020, has yet to be spent, prompting frenzied bidding for contracts among organisations that provide activity placements during school holidays.

But the commissioning process has experienced problems. The NCS Trust, which oversees the service, recently dropped a claim to recover £780,000 against one provider, Engage4Life Ltd, which went into liquidation in December 2015.

Last year the House of Commons public accounts committee concluded that the service “may no longer be justifiable” if it failed to meet its targets for increasing the number of participants, or achieve its longterm societal aims at a cheaper cost per head. According to the committee, the trust paid providers about £10m in 2016 for places that were not filled. As of last December just £200,000 had been recovered.

The NCS, which was supposed to find 101,000 places for young people aged 16 to 17 in the last financial year, confirmed to the Observer that it had fallen short of this target.

“Alongside our network of providers and partners, we have achieved our highest annual participation number to date, with just under 100,000 young people participating in 2017, which equates to 98% of our participation target,” an NCS spokeswoman said.

The organisation has also seen some senior members of staff leave.

Natasha Kizzie, its director of marketing, left last month. Several others have joined a consultancy called Simpact CIC which advises clients on how to bid for contracts.

An NCS spokeswoman said it was recommissioning its partner network to “help grow scale and impact in the years ahead”.

She said: “The NCS recommissioning tender process will be fair, open and transparent for all interested parties. As with any public procurement we operate under strict regulations and take our responsibilities seriously. Everyone will receive the same information, and be asked to bid on that information alone. All suppliers will be asked to sign a conflict of interest form as part of the tender process.”

NCS said that nearly 400,000 young people had benefited from its services, making it the fastest- growing youth programme in more than a century.

It said an independent evaluation confirmed that for every £1 spent on its summer programme, NCS delivers between £1.15 and £2.42 of benefits back to society, while separate research found that it helped foster greater understanding and integration among 16- to 17-year-olds from different backgrounds.

But Cat Smith, Labour’s shadow minister for voter engagement and youth affairs, said closer scrutiny of the service should be a government priority, given that youth services had seen their funding cut by more than £400m over the past six years.

“The NCS provides great opportunities for young people, but we cannot allow this government to turn a blind eye to its failings.

“The public need to know that every penny is spent effectively and that NCS providers pitching for new contracts this year will do so in a fair and transparent manner.”