Transaction costs

A friendly economist often stops by my desk to chat. He would tackle my research from a different perspective, of course, so he asks me about the transaction costs of employing consultants, which I have thought about - like here.

In the public sector, the make or buy decision matters to saving costs. Some years ago, the Inland Revenue outsourced its software development to EDS (now HP), and its employee civil servants all transferred. Presumably the reason for the change was because its core business is tax, not software development. I'd have to find the old newspapers to find out. Yet now, the UKBA is employing more software developers are the grounds that:

1. they're needed now
2. there'll always be more work for them (probably true)

Different public sector organisations at different times make different decisions. So what? And it's nothing to do with my question about engagement.