Letwin said that James had found some alarming facts about the way the present government buys services.
He said: "He [James] has discovered that there are about 100,000 people in Whitehall who are involved in procurement or buying. That's an astonishing figure.
"I will be very surprised if he doesn't recommend to us some way of assembling a greater skill base in one place for large purchasing."
Letwin stressed that he was not anti-civil servants, saying that his proposed cutting of the civil service – by 100,000 to 400,000 – was as much cultural as it was about reducing the headcount.
He said: "Civil servants are very hardworking individuals. They make themselves busy, but this is what creates the engine, the smothering bureaucracy.
Letwin attacked the current Treasury over red tape.
He said: "There has been too much interference in every aspect of every department in the last six years. The huge Treasury apparatus and culture of targets has militated against effective delivery."
Letwin added that, despite believing that PFI contracts could work, he was neither for or against them in principle. He said: "I do not have a dogmatic view about PFI. It's not a question of right or wrong."