Baloney...well, mostly baloney. There are times when it makes sense to do things in house and there are times where it very much does not make sense. Why hire full time employees for project management, development, QA, etc for an 12 month project? Does you organization have the expertise to run such an effort? What do you do with everyone once the project is over?
Yes, you will want your own technical staff to be part of the process. Yes, it may make sense to do the maintenance / support in house. Yes, you should never do time and materials but instead fixed bid with penalties (this does mean you will need to have a very good spec up front). Yes, you should get several bids and do your homework on the companies providing the bids. However, none of this precludes using an outside contractor.
The US government actually has a number of internal contractors, dev shops filled with federal employees that contract out to other agencies. I used to work for one, and despite the monumental amount of red tape we had to slog through to do our jobs, we had a reputation for finishing projects with a low budget and in a timely fashion. At one point we had a number of lobbyists trying to get congress to shut us down because we were taking contracts away from private companies that failed to deliver on their contracts. The resulting conflict of interest from this arrangement is generally less than from a private contractor.