Services Australia has turned to service delivery companies Serco, Datacom and Stellar Asia Pacific for labour hire workers as COVID-19 restrictions have led to a surge in job seeker claims.

The labour hire spend follows 1500 job losses at Services Australia in 2019 shrinking the agency to 30,000 staff before the pandemic took hold early this year.

Services Australia is spending most on a contract with Datacom Connect for labour hire staff, directing $56.7 million to the international IT services company in a six-month arrangement ending in October.

Stellar Asia Pacific will receive $55.4 million, and Serco $38.7 million, for supplying temporary workers over six months to help the social welfare agency.

Hundreds of redeployed staff from across the Australian Public Service also helped Services Australia meet surging demand for welfare assistance.

The agency has turned to private sector firms for temporary staff after spending hundreds of millions of dollars on outsourced contact centre services since 2017 under the Coalition government.

Services Australia entered two-year contracts in 2018 with Serco, Datacom, Stellar and Concentrix Services, at a combined cost of $457 million. It entered another three-year contract with Serco for call centre services in 2017 for $144.9 million.

In the three years to 2020, Services Australia also lost 3000 internal staff.

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Services Australia spokesman Hank Jongen said the agency had experienced unprecedented demand at the height of the coronavirus crisis.

"In response to this, we modified our service delivery approach to mobilise and bolster our workforce capacity so Australians could quickly get the support they need," he said.

Its short-term contracts with the service delivery companies had helped it process more than 1.4 million claims from job seekers since March, Mr Jongen said.

"Our flexible workforce includes the use of contractors and outsourced providers, and has been specifically designed to give us the flexibility needed to respond to changes in our service demand," he said.

"This includes during peak periods such as the current coronavirus pandemic, but also to manage day-to-day business priorities."

Services Australia relied on the companies to manage less complex queries and processing work as the agency experienced surges in demand, Mr Jongen said.

Service delivery companies were responsible for managing their own staffing levels to meet the allocated work and contract requirements, he said.

The recent major review of the APS found spending on contractors had significantly increased between 2012 and 2017, reaching $738 million a year in a sample of 24 agencies, while costs from APS internal staffing had remained steady.

"These increases have occurred against the backdrop of a significant increase in the size of programs administered by the APS but almost no increase in departmental budgets," the APS review's report said.

"The review has heard, and data suggest, that contractors and consultants are being used to meet the increased burden of program delivery - work traditionally done by APS employees - as well as policy design and implementation."

The APS review, led by businessman David Thodey, found the federal bureaucracy would need to find the right balance between retaining and developing core in-house capability, and using the private sector, "to ensure a sustainable and efficient operating model for the decades ahead".

The Morrison government in December rejected a Thodey review recommendation to abolish the public service staffing cap, a restriction blamed for the increasing use of contractors.