engineers who work in large teams on some component, talk about the design with their managers? Yes you can replace them.

Firing the maintainer and author of 90% of the commits of the OSS project your company is relying on in a way that it is hard to migrate away? Who can replace them??

You don't provide health insurance to vendors.

Contracts are usually of fixed, short, duration — 6 or 12 months. You just stop renewing the contract. Employees are forever.

Employees gets legal protections that contractors can only dream of. Also, most contracts have specific terms of completion and duration. If the contractor screws up, you can sue them, withhold payments for lack of specific deliverables, or just let the contract run out.

Firing is costly to morale, and carries legal risks.

Not renewing a vendor contract is easy.