The system, ordered by intelligence experts, was delivered two years late, says the National Audit Office.

When it arrived, it could not be linked to other computer systems, the word-processing system was not compatible with other MoD machines and the screens could hold only one piece of information at a time.

The system was ditched and the £34.6m cost was written off. The MoD then spent a further £6m on a new computer system.

It was one of three areas of overspend by defence chiefs, according to the report.

The audit office report says the computer system was ordered to handle large quantities of classified information.

It won Treasury approval in February 1988 and in July of that year a contract was awarded to deliver the new system by October 1991.

By 1991, however, it became clear the programme was well behind schedule and a new completion date of 31 January 1993 was agreed.

Order blamed

The system was eventually delivered in November 1993, more than two years later than originally planned, and was ready for use by May 1995.

In his report, head of the National Audit Office, Comptroller and Auditor General Sir John Bourn, said: "By then, however, general developments in information technology and health and safety legislation meant that the system could not meet the developing needs of the Defence Intelligence Staff.

"Specifically, the original specification had not included a requirement for the system to be capable of being linked to other computer systems. By 1995 this requirement was viewed as essential.

"The limitations of the system also meant that users could not view on screen several files at once or merge and edit easily the information contained in separate computerised documents, as was possible with systems developed more recently, and the word-processing facility included as part of the system was incompatible with others in use in the department."

The report said: "In view of the shortcomings of the system, the department decided not to commission it into use."

MoD admits failings

The report said the Ministry of Defence acknowledged there were failings in their management of the project.

It said they had now recognised problem areas which had to be avoided in future projects, including getting more involved in contracts at an early stage and introducing computer systems in phases to take into account advances in technology.

Elsewhere in the report, the National Audit Office found the Ministry of Defence had overspent £2.3m on logistics and spent £4.4m more than expected on retirement pay and pensions.