If you were building a house, would you like the person that lays the foundation of the house to be faster and cheaper, or would you like the foundation to be proper and robust to support your house?
My first point: you want a BA who can develop "functional Specifications" that are robust to support your business systems.
I once contacted two concreters to lay my driveway of my house. Two young fellows turned up with a very detailed car (mags wheels the works) and said they could do it for about $1200. An old Italian guy turned up with his beat-up truck. He surveyed my property, looked at my back yard and the incline of the driveway and recommended that I use reinforced steel and make the driveway slightly thicker. Because of the incline of the driveway and the forecasted temperature (it was 35 degrees C that week) he warned that the cement might dry too quickly and the driveway would later show little cracks. He suggested I keep the cement wet, by hosing it down for a few days. Well I accepted his quote of $1800! My driveway never cracked, others in the neighbourhood had to replace theirs or paid extra money to remedy some unsightly cracks in their driveways.
My Point: Go for the experinced BA and pay him/her the money, in the long run it will save you money.
If I was in the business of creating driveways, I would have employed the Italian Concreter or partnered with him at least. But since I was only doing driveways very infrequently, I have not done one since, I only needed the experienced concreter for one job.
My point: Unless you are building more systems in the long run, its prudent to employ a BA and have your own expert. If not contract the resource.
Furthermore contractors are not that expensive. Take a permanent employee and factor in sick leave,paid maternity leave, holidays, compulsory training, recruitment cost, redundancy cost, super annuation contribution, medical insurance, liability insurance, office space (I've named a few); the permanent employee cost sometimes surpasses or matches the contract rate.
Now buidling driveways and building systems are two different things. Building systems depends very much on the methodology used. If you are using the older "waterfall" SDLC then the analogy of the driveway is reasonable, because once the requirements are done the BA can leave. However, if you are going to use RUP or an iterative methodology, then you will need a BA for the duration of the project, as you'll specify a little, build/implement a little.
Lastly, A good BA need not know your business; he or she is an expert in business analsysis. Its better for the BA to analyse your business with the help of subject matter experts, than for subject matter experts to learn BA skills while leading a project. The latter is a luxioury that you just cant afford on a project.
In summary: this whole thing is not about money, but its about having "the [BA] experience and the best [BA] knowledge" to lay a good foundation ( I agree with your colleagues). The issue of contracting or employing the resource depends on whether its prudent to build an inhouse resource. This in itself is another big argument, especially those who believe that we should outsource processes that we need not do inhouse.
I hope this helps a bit. I've avoided the "innovative design skills for system design" thats a later discussion!