Layoffs almost always mean the few engineers that can do better than more engineers are on the way out, if not via layoffs, then voluntarily.
Apparently one of the largest contracts wasn't renewed, and there was a couple rounds of back to back layoffs. Though none of them were affected, every single one was gone within a year. The only people that remained were those who couldn't get a job elsewhere, and those super comfortable who weren't necessarily bad but not setting the world on fire. The company was pretty much a zombie until it was bought out years later.
You can guess who took the offer. 5000 of your experienced employees who have the ability to pursue other opportunities.
On the contractor front though, you aren't going to remotely get the best and brightest by going that way, not unless you're actually contracting with industry leaders who are going to be charging way more than FTEs will cost you (and there aren't that many industry leaders). There are so many good tech companies out there offering FTE positions, so a company offering a lower-paid, lower-benefits contracting positions is simply not going to be competitive in the labor marketplace.