[gutnor]

Sometimes, like in the UK, the agency is used to avoid getting caught by employee regulation or IR35. When caught, the client is considered the employer of the contractor and the contractor an employee. That has costly consequences on both, hence the intermediary.

About the cost though, if you do the hiring yourself, the overhead is around 5%. Quite OK for insurance considering the agency also handle payment and invoicing (some big clients are bad at paying on time, but the agency will still pay you on time, weekly for example). If you use the agency for recruitment too, that jumps to 20% and much more depending how much service you require up to full outsourcing.

[wsc981]

In The Netherlands this is the main reason why big companies use agencies as intermediaries. It makes it easy to get rid of people when required. I suspect the contracted developers are often of higher quality than your average dev, since they feel safe finding work without the security of a permanent job. Therefore, if the need arises to let people go, I doubt the contractors will be the first to leave unless absolutely required.

Disclaimer: I'm a Dutch contractor and while I don't think I'm an über developer, I do notice I'm more passionate about the job as most of my (ex-)colleagues with permanent contracts.