Note: I'm not saying the $225 million is unfair. This is a complicated project with lots of unknowns. But refusing to test 9-figure quote adjustments is bizarre.
There is work that is 100% documented in the proposal and in those cases it’s reasonable to hold the winning bidder’s feet to the fire, but this isn’t one of those.
In the absence of time pressure they could have let a contract to fully specify the work, then one to do it. But if they’d done that there might not have been a dam by the time work started.
I agree that in this specific case, had the contractor come back and said "it will be $1 billion more," it would have been worth paying to avoid the destruction of the Central Valley.
The broader discussion is that this is avoidable. Two models abound in the private sector. For less time-sensitive situations, one has changeover processes [1]. For time-sensitive work, companies avoid like death being totally dependent on a single company.
The latter would require large changes in the way contracting is done in America. But it's not like nobody else in the world faces time-sensitive repairs. The defensiveness we, as Americans, have towards our system which shows clear and apparent pricing flaws is surprising.
In commercial projects, this often triggers an arbitration about the overrun. You get experts to challenge the fairness of the price, hopefully using market data. And, of course, there are the courts. In worst case, the buyer can cancel and/or rebid. Not 'competitive,' but adversarial.