There's two types of contractors - those that have a very strong skillset and can get things done quickly, and the second type which basically can't hold down a permie job. In my 25 years experience, the latter vastly outnumber the former.
I agree with your two types, but in my experience the former vastly outnumber the latter. There's a good reason for this: movement.
Whereas a permie can settle into a position and stay there for years, most contractors move on every few months. They then have to "sell" themselves to the next client. If they did a bad job for the last few clients, they won't be able to provide positive testimonials or references. Agencies will start black-listing them. Gaps will start to appear in their CV. Added to which, they are likely to meet contractors from previous clients, who will let their client know about previous experiences with them.
On top of all of this, if the work is not getting done the client can get rid on the spot.
In my experience, "bad contractors" don't continue contracting for very long. They are fairly quickly found out and struggle to find any more clients.