Illegal is a very lose term...so many projects "overrun" their contract price...I don't believe that these companies that have decades of military and government contract experience cannot budget for overhead expenses and project delays. They just end up charging more later on, rather than be upfront with actual costs.

There is generally a fig leaf where the customer changes the requirements after the contract is signed. Partly because it's hard to define complex requirements ahead of time and partly because middle management always needs to leave their mark.

You wanted that to be blue ok, that's an extra 2 million.

So maybe they undercut all contracts except the DoD ones?