Stuart Lancaster has suffered the first major setback of his regime as England head coach after the Rugby Football Union failed in their attempts to recruit Andy Farrell from Saracens.

Lancaster had told the RFU he wanted to retain the interim management team that helped guide England to second place in the RBS 6 Nations.

While Graham Rowntree, the forwards coach, is already on the Twickenham payroll, the RFU had been in negotiations with Saracens over Farrell's release for the last fortnight. Ed Griffiths, the club's chief executive, wanted to avoid the issue becoming a distraction over the closing weeks of the season and announced yesterday that Farrell had decided to remain with the club.

"It has been a special privilege for me to be involved in the Saracens coaching staff for the past two-and-a-half seasons," Farrell said in a statement. "We have made decent progress during this period but, in truth, as a club, we have barely scratched the surface of our potential. The job isn't anywhere near half done, and I have decided I want to help finish the job."

Lancaster must now decide how to replace him in time for England's three-Test summer tour of South Africa. Wayne Smith, the attack specialist who helped New Zealand win the 2011 Rugby World Cup, is a strong candidate having already expressed an interest in working with England, but he is unavailable until after the summer tour, while Brian Ashton and Mike Catt, the London Irish attack coach, have both been linked.

"We fully respect [Farrell's] wishes to continue as a coach at Saracens," said Ian Ritchie, the RFU chief executive. "We will continue to work hard with Stuart Lancaster to build a world-class coaching team."