Less than 3 per cent of the Commonwealth’s $20 billion external workforce spend was covered by the federal government’s flagship policy to reduce public service outsourcing, a scathing audit has revealed.
The narrow definition of core work in the Strategic Commissioning Framework allowed departments and agencies to hit their insourcing targets on paper while overall contractor expenses continued to soar.
Australian National Audit Office’s report into framework found the policy’s headline success of a $542.3 million reduction against a $527.6 million target in 2024-25 was driven almost entirely from two agencies.
Defence and the Australian Taxation Office made up for $388.4 million (74 per cent) of the total reported reductions, masking the near two-thirds of participating agencies that failed to fully achieve their own insourcing goals.
While agencies had hit their insourcing targets, the total contractor budget had expanded.
Speaking at the final budget outcome press conference, Finance and Public Service Minister Katy Gallagher said she was concerned about the amount still being spent on external arrangements.
“We brought in the Strategic Commissioning Framework precisely to deal with the problem that we came into government and found that key functions of the public service were being outsourced to private companies and we’ve tried to change that”, Senator Gallagher said.
“We’ve made a couple of attempts to reduce spending on those arrangements and we have bolstered the public service to a size that can do its job properly. So there’s more to be done and we will do it.”
The audit’s analysis of a sample of 22 Commonwealth entities revealed 12 departments claimed reductions of $90.3 million on core work spending under the framework while simultaneously increasing the overall spend on external contractors, consultants and labour hire by $375.4 million.
The total supplier expenses across the sample agencies rose from $32.7 billion to $35.6 billion in a single financial year.
The audit had two key recommendations to address the structural flaws of the framework.
First, it urged the federal government to strengthen and standardise public reporting requirements for external workforce expenses.
The second was for the APSC and Finance to work together to simplify the framework and integrate the rules with the Commonwealth Procurement Rules.
While the APSC agreed to streamline and align the framework, Finance merely note the recommendation to standardise the financial reporting.
In its formal response, Finance said financial disclosure remained a matter for individual agency heads, declining to mandate disaggregated reporting on external workforce lines as it was matter for the Finance minister.
In 2024-25, some of the sampled agencies reported a reduction in core work spending despite increasing the total amount spent on external labour.
The Health Department reported a reduction in core work of about $1.5 million in 2024-25 while its external labour spending increased by $86.5 million compared to 2023-24, reaching $287.1 million.
Services Australia also reported $2.6 million in reductions but its external labour costs surged by 41 per cent from $287.6 million in 2023-24 to $406.7 million in 2024-25.
The same trend was identified for the National Disability Insurance Agency and Home Affairs.
In April 2026, the Australian Public Service Commission (APSC) got ministerial approval to remove formal reduction targets and public progress updates for 2026-27, sunsetting the policy’s main enforcement mechanism as 62 agencies exempted themselves by declaring they had minimal to no core outsourced work remaining.
Four departments, Education, Employment and Workplace Relations, Infrastructure and Prime Minister and Cabinet, set no insourcing targets for 2025-26.
However, Education and Infrastructure, had increased their contractor spending in 2024-25 by $7.4 million and $8.5 million respectively.
The Community and Public Sector Union (CPSU) had previously criticised the federal government for the removal of the outsourcing key target, and said the move would reduce agency oversight despite greater contractor spending.
CPSU national secretary Rebecca Fawcett said the audit had confirmed the union’s concerns.
“Agencies continue to spend millions on labour hire, contractors and consultants, outsourcing core public sector work while appearing to meet their targets on paper or claiming it only occurs in ‘limited circumstances'”, Ms Fawcett said.
“And even though the purpose of the framework was to drive transparency and accountability, we are seeing inconsistencies across the board, with an increase in outsourcing spend and flaws with reporting.
“The Government must do more to strengthen the framework and provide central oversight, so it delivers on its key purpose, holding agencies accountable when they fail to meaningfully engage with its objectives.”
The audit highlighted key flaws in how the APSC structured the policy, especially allowing agencies to define core work themselves as it eroded the policy’s consistency and transparency.
Agencies had routinely reclassified core work from year to year. For example, 65 per cent of entities classified human resources as core work in 2024-25, but it fell to 49 per cent in 2025-26 without explanation from the APSC.
The commission did not conduct central audits or quality assurance after collecting the metrics through manual spreadsheets from the agencies. The published data also contained caveats that it was not reliable.
First published in The Canberra Times on 28 September 2026 as “Departments hit insourcing targets on paper while contractor spending surges” By Ray Athwal Licensed by C©PYRIGHTAGENCY. You must not copy this work without permission. +612 9394 7600 copyright.com.au
