The government may be paying up to 10 times more for IT projects than the standard commercial rate, a group of MPs has said.
The public administration select committee (PASC) found ministers were "overly reliant" on a few large suppliers, resulting in the waste of an "obscene amount of public money".
Committee chairman and Conservative MP Bernard Jenkin said that according to some sources the government paid contractors between seven and 10 times more than the standard rate – although ministers had not collected the information required to verify these claims.
In a report published on Thursday the cross-party committee found the government's overall record in developing and implementing new IT systems was "appalling".
The report stated: "The lack of IT skills in government and over-reliance on contracting out is a fundamental problem which has been described as a 'recipe for rip-offs'.
"IT procurement has too often resulted in late, over-budget IT systems that are not fit for purpose.
"Given the cuts that they are having to make in response to the fiscal deficit it is ridiculous that some departments spend an average of £3,500 on a desktop PC."
The committee criticised the dominance of government IT by a small number of large companies.
Jenkin said: "The government has said that it is overly-reliant on an 'oligopoly' of suppliers; some witnesses went further and described the situation as a 'cartel'.
"Whatever we call the situation it has led to an inexcusable situation that sees governments waste an obscene amount of public money."
The PASC called on the coalition to break out of its relationship with the few large suppliers.
Ministers should widen the supplier base by reducing the size of their contracts and simplify the procurement process to let in small- and medium-sized enterprises (SMEs), the MPs said.
They should also improve the information held on IT spending so they were better able to secure the best price and publish the costs of IT projects to allow external experts to find savings.
Jenkin said: "To address these challenges successfully the government needs to possess the necessary skills and knowledge in-house, to manage suppliers and understand the potential IT has to transform the services it delivers.
"Currently the outsourcing of the government's whole IT service means that many civil service staff, along with their knowledge, skills, networks and infrastructure have been transferred to suppliers.
"The government needs to rebuild this capacity urgently."
He acknowledged that the coalition, like many governments before it, had set out an "ambitious programme" aimed at reforming how it used IT.
"We are greatly encouraged by the government's plans, and we promote a number of solutions which can transform how we deliver public services online," he said.
"We will need to wait and see whether it can make progress in an area that has resisted so many previous attempts at reform."