It's not the cost of drawing up the contract that adds a significant part of the cost. The contract work itself that adds overhead.
Of course not. You accept the tradeoff because it is in your interest to abstract away risks. Part of the costs involved in this risk taking comes from how the contracts are set up.
For example, your employee doesn't have an actual contractual obligation to fulfill such and such goals every month, while an external contracted firm may have.
I didn't say the tradeoff is that other people make profit. The tradeoff is the overhead cost. Sure, that can be another tradeoff -- obliged fulfillment. Either way you're paying the contractee a little more for that.
It's not the contract itself (the legal expense) that is the major cost in a contract. Yes it is some overhead, but is it really a significant part compared to the excess you are paying to have it contracted vs in house?
The point is. It's still going to cost you more, even if the legal cost is zero.
It occurs to me that if we believe this, the USA as a country could make our entire economy more productive by making contracts less expensive. 5 seconds thought leads me to believe that "less expensive" might have a number of things involved, from simpler legal language that doesn't require a lawyer to understand, to a legal system that isn't set up to benefit lawyers, to less intellectual property restrictions, to a less adversarial legal system. Clearly much of this is impossible to implement.