Aid money has been wasted and projects hit by delays as a result of poor management by the Government, according to an independent report.
The Department for International Development must make improvements to the way it uses contractors to deliver overseas schemes, the Independent Commission for Aid Impact (ICAI) found.
It said programme management is "weak", which has led to "significant delays and wasted costs" in some areas, although it found steps towards improvement were being taken.
The reports provide insight into DfID's use of third parties to deliver aid programmes through different channels and mechanisms. In the evidence that we considered, both civil society organisations and contractors have helped to drive innovation and, while it is too early to say whether all the programmes will have a sustainable impact, the signs are promising.
Shadow International Development Secretary Ivan Lewis said: "ICAI's report reinforces Labour's concerns about DfID's capacity to effectively oversee these contracts.
"I urge International Development Secretary Justine Greening to implement ICAI's suggested reforms - from procurement to management through to the evaluation of aid programmes - to ensure that DFID is maximising both poverty reduction impact and value for money.
"The voluntary code of conduct she has introduced is inadequate and will not achieve the changes which are necessary. I am particularly concerned that there is total lack of transparency with regard to bonuses paid to consultants' staff from DfID funding. I would also urge her to introduce standards which require all consultants to show they are promoting environmental sustainability, paying fair taxes in developing countries and ensuring decent terms and conditions for workers throughout their supply chain."
In 2011/12, DfID awarded 135 contracts to 58 contractors, totalling £489 million and five contractors won half of the total value of the contracts awarded, according to the report. Overall, the ICAI gave DfID a "green-amber" rating for its use of contractors and programme partnerships, which means it performs relatively well but improvements should be made.
Graham Ward, ICAI chief commissioner, said: "The case studies that we examined for both DfID's use of contractors and programme partnership arrangements show promise for impact on intended beneficiaries. Civil society organisations and private sector contractors are valuable delivery mechanisms for aid and we have made a series of recommendations to increase the value that they deliver."
A DfID spokeswoman said: "Since 2012 we have radically overhauled the department's approach to using contractors and tightened both procurement controls and ministerial oversight of contracts."