Sometimes it was a way to be able to say that you were Reducing Government. There is a similar process in private companies, where one of the productivity ratios is [sales/number of employees]. Some companies and some governments prefer to minimize the number of employees, whereas others prefer to minimize the cost of getting the work done (which does not necessarily mean doing all the work in-house, either; it means being smart about it).
Also, for some projects there is a fear of the “bureaucrat mindset”. There are people who believe that by outsourcing a project, it will be done faster. Sometimes it does; sometimes it does not. Another belief which is very often untrue is that when you get a subcontractor, their team consists of people who already worked for that subcontractor, already were familiar with the procedures and with each other (unlike a new team that you build in-house); thing is, subcontracting chains can grow to an impressive size and many companies will cover projects with either more subcontracting or with temporary contracts.