You're right in that expertise in getting contracts often has a tendency to displace expertise in IT. This has been a persistent problem in hiring. Contractors need to fill billets that come with mandatory requirements dictated by the government. Skilled individuals are often bypassed because they lack a certain certification (often unrelated to their work) or a certain parameter. In defense, security clearances can be an enormous barrier by limiting only those who possess a clearance as eligible. (There's an "insidious" effect whereby you must be on or joining a project that requires a clearance to get a clearance, and you cannot join a cleared project without a clearance.) Pay is often much lower than compared to the private sector when compared to the industry as a whole, but since the layout of the federal government is separate than what drives the private IT industry, it creates opportunities for many where a grassroots IT industry wouldn't otherwise exist.

There are good people who enter the environment and make positive change, but they are few. There are many more who work at a perfectly capable level and do the best they can, but would be considered underqualified for their role. This is an area where the Digital Service seems to me trying to make a difference, as government IT rarely attracts the IT elite.