National Defence was put in the embarrassing position Wednesday of having to correct how it planned to spend $776 million in additional funding a few hours before appearing before a House of Commons committee.

According to government spending requests and a recent report by the parliamentary budget officer, the department was asking for more money to cover increased costs for contracted professional services.

But Defence Minister Peter MacKay told the Commons defence committee that the department incorrectly coded the request. The cash is actually for a revised severance program for military members.

The error was pointed out to the defence committee in a letter just hours before MPs were asked to consider the appropriation request. The department promised to fix the problem.

"The payments will be correctly coded and the public accounts will accurately portray the nature of the transaction," said the letter, filed with the committee chair, Conservative MP James Bezan.

MacKay had come under fire at the committee and the Commons for the dramatic surge in private contracting at the department.

It's something the Harper government promised to rein in, but public accounts figures show it increased by $500 million between 2009 and 2011.

Contracting costs down, not up?

The opposition charged during question period that spending was out of control, but MacKay insisted the hiring of private contractors and consultants, which rose during the Afghan war, is on the decline.

"The reality, Mr. Speaker, is that in fact contracting costs are coming down," the minister said.

"In fact, the Department of National Defence is finding efficiencies in government-wide spending reviews. In fact, we've seen examples of that where we've reduced the number of contracts and contractors, and resources extended on contracting, saving almost half a billion dollars."

Testifying later before the committee, MacKay acknowledged the savings have not been entirely realized, and that the goal was to save $455 million by eliminating or scaling back some of the thousands of outside contracts.

But even if the Harper government hits that goal, it will still be spending more on contractors than when it was warned the budget line was ripe for savings.

Leslie report called for cuts

Retired lieutenant-general Andrew Leslie, in a benchmark report in the fall of 2011, advised the government it could safely cut 30 per cent of existing agreements.

At the time of his report, the figure stood at $2.7 billion.

The latest set of public accounts records showed the number was $3.2 billion at the end of the last budget year in March 2012.

The lucrative deals involving some of the biggest defence contractors in the world "are beginning to look a lot like the tail wagging the dog," said NDP defence critic Jack Harris.

Liberal MP John McKay says the minister is "having fun with numbers" and somebody should straighten them out.

He said the timing of the "coding error" is suspicious. McKay said he wonders whether someone at National Defence was fudging the numbers knowing how sensitive the contracting out aspect has become as the Conservatives eliminate civil service jobs.