Herbert Smith was paid £3,256,000-worth of taxpayers money in fees for the sell-off of the Ministry of Defence (MoD) married quarters – twice as much as the MoD budgeted for.

The National Audit Office's report on the controversial £1.6bn sell-off of 57,000 married quarters homes to Nomura-led consortium Annington Homes, in the UK's largest ever conveyancing transaction, reveals that the MoD originally made internal budgets for legal fees of only £1.6m.

However, the report states that £800,000-worth of work on conveyancing and investigating title, initially earmarked for the Government property lawyers because they already held the title deeds, was transferred to Herbert Smith during the course of the project.

The Government lawyers “did not have the manpower to deal with all the legal tasks in the time available” and ended up doing only £515,000-worth of work, said the report.

Another £500,000 had been separately budgeted for organising the “data room” required for due diligence which was Herbert Smith's responsibility.

The firm received the second largest fee of all the advisers on the project. NatWest Markets pocketed the most with £4.6m. The total cost of all the consultants was £11m – £2.5m less than the MoD had budgeted for.

Herbert Smith won the job after a beauty parade of six top City firms was held in spring 1994. The competition was not held on the basis of lowest fees and it is understood Herbert Smith was not warned about any MoD limit on legal fees. Partner Stephen Barnard, who led Herbert Smith's team, was unavailable for comment.

Other legal advisers to the MoD were Edinburgh firms Henderson Boyd Jackson, Robson McLean and Maclay Murray & Spens. Freshfields acted for Annington Homes.