The British army authorised a £495m contract with the outsourcing giant Capita to bring in new recruits without understanding the complexity of the project, a report by Whitehall’s spending watchdog has concluded.

The National Audit Office found that the decade-long contract, signed in 2012, had been beset with problems, resulting in shortfalls in the number of serving soldiers for the past five years. The army currently has 77,000 fully trained troops, compared with a target of 82,500.

Capita’s online recruitment system was planned for launch in July 2013 but only went live in November 2017 at a cost of £113m – triple the original budget, according to the report. The outsourcing firm has consistently missed the army’s targets, with the total shortfall ranging from 21% to 45% each year.

Graham Jones, the Labour MP for Hyndburn and a member of the defence select committee, said the government’s failure to examine the contract before signing it had led to a “monumental waste of money”.

He said: “The fact that that this contract was signed off by ministers and officials who did so without any particular review or analysis has led to shocking recruitment levels.”

The army decided to enter a partnering agreement with Capita Business Services Ltd in 2012 “to secure its expertise in recruitment and marketing”, the report says. Auditors found that it took up to 321 days for new recruits to go from starting an application to beginning basic training, and that many dropped out of the process while waiting.

A total of 47% of applicants dropped out voluntarily in 2017/18, and both the army and Capita believe the length of the process is a significant factor in this, the report says.

People trying to join the army experienced technical problems with the online recruitment system after its launch. The army estimates there were 13,000 fewer applications between November 2017 and March 2018 than in the same period the previous year.

Auditors found that neither the army nor Capita tested changes to the recruitment process before they were introduced, and the number of local recruitment centres was cut from 131 to 68 to cut costs. The report concludes that the project will not achieve its planned savings of £267m for the Ministry of Defence.

A Capita spokesman said both Capita and the army had under-estimated the complexity of the project. “Our focus is now on working with the army to deliver a recruitment process fit for the 21st century,” he said.

“We have overhauled governance on the contract and are already seeing improvements, with applications at a five-year high and a reduction in the amount of time it takes candidates to join the army. We are absolutely committed to getting this partnership right.”

An army spokesman said: “Working with Capita, we have put in place a plan to address the challenges. The army has developed a range of measures to speed up the recruitment process. This includes new measures to reduce the time between applying and starting training, greater access to military role models for recruits and a new IT system.”