Australian Public Service Commissioner Peter Woolcott has admitted the Commonwealth bureaucracy has major capability issues - but says the staffing cap is not the source of the problem.
Mr Woolcott also defended the growing use of external contractors and consultants, during Senate estimates on Monday night.
The average staffing level cap was introduced in 2015 to keep the size of the Australian public service at or below 2006 levels.
The Department of Prime Minister and Cabinet has previously conceded agencies have been forced to hire external contractor and consultancy services to fill key roles since the caps were brought in.
But under questioning from Labor senator Jenny McAllister, Mr Woolcott - who was Malcolm Turnbull's chief of staff - said the cap was not having a negative impact on the bureaucracy.
"Clearly building capability in the Australian public service is a major issue for the future and something we're focused on," Mr Woolcott said.
"Capability is a real challenge. We're talking about a much more competitive labour market, we're talking about a much more complex interconnected political and global situation and also the impact of digital data. To get the right capability is a huge challenge.
"With contractors and the use of consultants, that's an important part of how departments and agencies approach these issues and so whilst I would not agree that is part of the problem in terms of our capability, I would say we are enormously challenged and we need to use consultants and contractors but at the same time we need to work very seriously on our own capability."
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Senator McAllister asked, "Just for clarity your evidence just now I think is you don't think the use of contractors and consultants is impacting negatively on capability?"
Mr Woolcott said, "That's correct but at the same time I would say senator that there are major capability issues that we confront in the Australian public service."
Asked if he thought the caps were contributing to the capability problem, Mr Woolcott said: "I don't think that's the basis of the problem".
Mr Woolcott said the upcoming Thodey review would deal with the issue of the caps. He was unable to say when it would be released.
The problem of workforce capability would be dealt with through the first whole-of-service workforce review.