District auditors say there was no tendering process for the contract and no case made for outsourcing the service.
Concerns were raised in the annual district auditor's report over the£600,000 payment to Dutton Consulting to run the human resources department, and a further£200,000 on additional consulting without a competitive tendering process.
In-house administrative costs for the same period were estimated to be£350,000.
Mr Holmes was appointed by the then head of human resources Francesca Okosi in March 1998 and finishes this week when a full-time staff member will replace him.
Auditors said there was no business case made for not using council staff and no evidence of value for money.
At a meeting of the scrutiny committee last month the Labour-run council voted through a report defending its conduct in the face of protests from the opposition.
Chief executive Roger Paine said he was 'disappointed' the district auditor had not taken into account the value of Mr Holmes' work, which he said far exceeded the costs.
He added the council had since established a new code of practice for the employment of consultants which would address 'gaps' in the process.