The Public Accounts Committee said there was "significant scope for improvement" and a need for a more professional approach to managing contracts.
The Government spends £187b on goods and services with third parties every year, around half of which is on contracting out services.
More and more public services are being contracted out, but the Government was "clearly failing" to manage performance, said the committee.
It made a series of recommendations, including improved transparency of performance and costs, a review of contracts by government departments and a requirement for suppliers to have policies on whistleblowing in place.
Labour MP Margaret Hodge, who chairs the committee, said: "We believe the Government needs to get its house in order."