There is a lot of truth in what you say. However, there are still sections in the government where government employees develop the software and do the engineering. It isn't common, but I like it when I encounter it (as a management type myself) - when the government develops and owns the software, we don't get raped when we want a change made.
I'm looking at one project now where it looks like the government has its own software that the engineers think can be modified for about $30K in salary. A private company has offered to EXPLORE doing the work - for $300K. With a bit of luck, later this summer, I'll be able to tell the company no thanks...
I know, I know of a few such instances myself, but they are few and far between. There are other instances, where there is a "captive" contractor doing such work, and in such cases they can often do such mods and even major overhauls much more cheaply. It's not so much that the other contractors are raping you, as the system is raping you and the rest of us taxpayers as well. The on again, off again nature of the budgeting and contracting process makes taking on such small tasks not really worth the candle, unless there is a significant prospect of follow on work. The cost to bid on such projects is more than they are worth by themselves. Smaller contractors often will do so anyway, because they are hungrier, and because it doesn't cost them so much to bid.