My first job out of college was working for a IT consulting firm on a project for a state government. All of this describes that experience precisely.

> Also aren't their some pretty tough mandates like x% of companies must be minority owned etc. I imagine it allows those companies to charge extortionist rates because they hit the relevant quotas and nobody else does.

One thing I saw was that the big players will have employees who fit the desired characteristics, and they just spin those employees off into their own corporation as needed.