Let us be upfront: government spending changes affect everyone in the IT supply chain, including recruiters like us. 🏛️ The federal government’s push to reduce reliance on consultants and contractors is reshaping how agencies buy technology services, how system integrators (SIs) staff projects, and how contractors plan their careers. Here is our honest read of what is happening and how to adapt.
What is changing
- The APS is growing. Average staffing is expected to reach around 217,256 in 2026-27, up from about 215,941.
- Contractor conversions. Around 13,200 contractor and labour hire roles have been converted to APS positions overall.
- Savings targets. The government is targeting around $4 billion in savings from reduced use of consultants and contractors.
- Extra efficiency pressure. Agencies have been asked for up to 5% savings on top of the 1% efficiency dividend.
- Uneven impact. Some agencies are shrinking, including NDIA, Services Australia, the climate portfolio and Home Affairs, while others grow.
- More scrutiny. Consultancies of $2 million or more face extra reporting requirements.
The paradox
Spending on labour hire reached about $2.33 billion in 2024-25, with consulting close to $1 billion. Cutting it is harder than it sounds. Specialist skills in cyber security, data, cloud and enterprise platforms are scarce inside government, and building them takes time. Many agencies will still need external help, just bought differently.
Impact on system integrators
- Fewer large, open-ended time and materials engagements
- More outcome-based and fixed-price work
- Stronger requirements to transfer knowledge to APS staff
- Tougher competition on panels, with more focus on value
- Bench pressure as projects pause or are re-scoped
Impact on contractors
- More competition for remaining federal contracts, especially in Canberra
- Some roles converted to APS positions
- Continued strong demand for cleared and niche specialists
- Growing opportunity in state government, defence and the private sector
Impact on recruiters
For recruiters, the shift means more permanent APS recruitment, more demand for niche and cleared skills, and less volume in some generalist contract categories. It also means helping contractors find opportunities outside federal government.
How SIs can adapt
- Diversify across state government, health, defence, utilities and financial services
- Build outcome-based offerings with clear deliverables and pricing
- Make knowledge transfer a selling point rather than a threat
- Invest in scarce skills such as cyber, data and platforms
- Manage the bench actively. See bench strategy in a slow market
How we are adapting
- Helping agencies recruit permanent APS staff, not only contractors
- Supporting SIs with specialist delivery teams for outcome-based projects
- Helping contractors explore private sector and state government roles
- Focusing on niche and cleared skills where demand remains strong
What to watch next
Keep an eye on agency budget statements, procurement panel refreshes and the progress of contractor conversions. These signals show where demand will rise and fall over the next one to two years.
A practical scenario
Consider a mid-sized SI with 60 consultants, half working on federal programs. Over a year, two large time and materials contracts end early and a third is converted to an outcome-based statement of work. The firm responds by packaging its data migration expertise as a fixed-price offering, winning work with two state health departments, and redeploying cleared staff to a defence prime. Its bench shrinks within six months. The firms that struggle are those waiting for the old model to return.
For agencies: getting value from fewer contractors
- Prioritise external spend on scarce skills and knowledge transfer
- Pair contractors with APS staff from day one
- Use outcome-based contracts where scope is clear
- Recruit permanent staff early for ongoing capabilities
- Work with recruiters who can source both permanent and contract talent
Frequently asked questions
Is the federal government cutting IT contractors?
It is reducing consultant and contractor spend and converting some roles to APS positions, but specialist skills remain in demand.
How does this affect system integrators?
SIs face fewer open-ended engagements and more outcome-based, scrutinised work, plus pressure to transfer knowledge to APS staff.
Where are the opportunities for IT contractors?
State government, defence, health and the private sector, plus niche and cleared federal roles.
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