How the UK Public Sector Wastes Money on Contractors – and How to Fix It

The use of contractors in the UK public sector has long been a double-edged sword. While contractors bring specialist expertise and can provide flexibility in projects, the way they are often engaged results in substantial financial inefficiencies. Without tighter control and smarter strategies, taxpayers' money continues to be wasted — year after year.

In this blog, we’ll explore the main causes of this waste and, more importantly, offer practical solutions to address the problem.

Where the Public Sector Goes Wrong

1. Overreliance on Long-Term Contractors

Contractors are typically intended to be short-term experts who plug skill gaps. However, in many public sector organisations, contractors stay for years — sometimes even outlasting permanent staff. Rather than building in-house capabilities, departments become dependent, leading to spiralling costs.

Example:Some government IT projects have seen contractors retained for 5+ years at day rates equivalent to double or triple the cost of a permanent employee.

2. Poor Scope Definition

A frequent issue is that projects are poorly scoped from the start. Contractors are brought in without clear deliverables or timelines, resulting in work that drags on unnecessarily or moves far from the original purpose.

Consequence:Contractors effectively work on a time-and-materials basis with little incentive to deliver quickly or efficiently.

3. Inflated Day Rates

Without strong competition or market benchmarking, the public sector often accepts higher day rates than necessary. Agencies and consultancies also apply significant margins, meaning the true cost to the taxpayer is vastly inflated compared to what the contractor receives.

4. Misuse of Consultancies

Large consultancy firms are often brought in for "specialist" advice but end up simply providing expensive manpower. Instead of high-value strategy input, many consultancies deploy junior resources at premium rates, leading to poor value for money.

5. Lack of Knowledge Transfer

Contractors often leave without properly transferring skills or documentation to the permanent team. As a result, knowledge is lost, creating further dependency and requiring more contractors for the next phase.

How to Fix the Problem

The good news? These problems are solvable — but they require cultural change and better management practices.

1. Build Stronger In-House Capability

Prioritise recruitment, training, and retention of permanent employees with critical skills. Contractors should be used only for short-term, specialised tasks — not to permanently prop up under-resourced teams.

2. Enforce Clear Deliverables and Exit Plans

Every contractor engagement should have:

• Specific, measurable deliverables

• Strict timeframes

• Clear expectations for knowledge transfer before contract end

• An exit plan to reduce dependency over time

3. Benchmark Rates Regularly

Public sector organisations must actively benchmark contractor rates against private sector standards. Regular competitive tendering and rate reviews would prevent unchecked day rate inflation.

4. Use Smaller, Specialist Suppliers

Instead of relying heavily on the "Big Four" consultancy firms, departments should work more with specialist SMEs (small and medium-sized enterprises) that offer genuine expertise without excessive overheads.

5. Mandatory Knowledge Transfer

Contracts should mandate formal knowledge transfer processes, including documentation handovers, training sessions, and mentorship of permanent staff. Departments must ensure they are not paying for the same expertise twice.

Final Thoughts

The public sector's overreliance on contractors is not a necessity — it’s a choice, fuelled by poor planning, weak project control, and outdated procurement practices.By taking proactive steps to build in-house skills, enforce accountability, and demand better value, the UK government can save millions (if not billions) of pounds — and finally deliver more efficient services for the public.

Change is difficult, but the rewards — both financial and societal — are too important to ignore.