An annual review of the federal bureaucracy has found departments need to improve their commitment to innovation, innovation and workforce planning.
The review, which was conducted as part of the Public Service Commission's state of the service report, found departments were meeting project management targets but needed to improve in several other areas.
Each agency was asked to assess its ability to deliver change management, improving individual performances, workforce planning, project management, talent management and innovation.
"The APS has a good level of maturity in its project management capability, however work is required to build capability in the areas of innovation, talent management and workforce planning," the report said.
"There is a demonstrated need to focus on building organisational systems and evaluation processes to measure improvements over time."
At a policy level, innovation processes were either non-existent or being developed, and larger departments were seen as less able to embrace innovation than smaller agencies.
Larger departments recorded the most capability gaps with talent management and change management processes requiring additional resources, although project management was seen as sufficient.
"Specialist and policy agencies report the lowest capability gaps across all criteria, while larger operational agencies demonstrate a more mature approach to workforce planning."
Both small and larger departments struggled with workforce planning although specialist agencies with fewer employees were better able to deal with staff movements.
"Having an understanding of any gaps in organisational capability is fundamental to support agency planning to best meet government and citizen expectations," the report said.
The update comes after the Public Service Commission revealed the number of contractors employed by the APS has swollen by 22 per cent in just 12 months, prompting recruitment agencies to call for a strategic rethink.
Almost a quarter of public servants younger than 25 are contractors, while 18.2 per cent of those older than 55 are employed on a non-ongoing basis.
Karen Evans, the managing director of talent management company Acendre, said the figures demonstrate the need for public service departments to review their management processes.
"The APS could benefit from reviewing the roles and tasks they are bringing young contractors in to do," she said.
"With the end of the hiring freeze, some of these tasks may be able to be transferred to new permanent graduate staff.
The commission has also revealed the cost of physical and psychological injuries in the Australian public service continues to increase as departments seek to stem expensive compensation claims and sick leave.
The incident rate of psychological injury in government departments is now higher than the private sector.
Departments were also told they could do a better job looking after the health and wellbeing of their employees, with active leadership required from leadership teams.