"it is far more economical to get in a third party with a bunch of bright, highly qualified engineers than it would be to employ your own"
But this is hardly the case is it? What the PHB goes for is the cheapest he can get away with and then try to recoup money via the missed SLAs (that the MSP desperately tries to mitigate). That's assuming he stays long enough after getting his bonus to see it all fall to pieces, The MSP will, without exception, try and maximize the profit by assigning the cheapest resource they can get away with.
And don't even get me started on patching and security. Its depressing seeing how many of these MSP contracts are signed with the PHB disguising the fact that most of their estate is pure junk the MSP can't patch because of some shitty in-house application someone wrote that won't run on newer operating systems!
Its just a perverse game of risk management. How low can the price go where costs are reduced, the PHB gets his raise, the MSP gets a contract they can cream money off the top of, at a level of service shitty enough to be a problem to the business but not so much that they get shafted on the KPIs and SLAs.