Everyone knows the government has a problem with procurement. The recent shutdown of the California High Speed Rail project is just admitting defeat in a process that's been doomed for more than a decade. When I enter the market, I can find services for pretty reasonable prices. So why is the government (a large contract provider, and therefore, presumably, in a strong negotiating position) getting bilked?
I think it's safe to say the procurement process is to blame. That might seem obvious, but to clarify, it ISN'T: analogous with the King who, while traveling and staying at a rural inn, is quoted an outrageous price for a meal, and when he says, I've never seen a meal so expensive, they say, we've never seen a king so rich. The process isn't so bad that people are using government contracts as a way to hold the government hostage (in most cases – there are some quasi-coordinated "cost+" defense contracts, among other things, that are hard to reform because you actually don't want super secret military tech in the hands of two dozen different competing organizations – the DoD does what it can with this but congressional leadership is probably important to change that part of the system in any meaningful way).
And the system isn't so bad that things never get done at all – say what you will, most projects (even those that overrun) do eventually complete. I have made plenty of fun of the issues with the James Webb Space Telescope, and how even with all these overruns, it can't be used for perhaps the most interesting task in astronomy – finding nearby exoplanets. The delays have been legendarily embarrassing, which is pretty on-par for NASA recently. But I do think it'll actually be launched. Just, for more money than they thought, much later than they thought.
That, I think, is the core of this problem. If contractors for the government couldn't just demand adjustments, maybe these things wouldn't have this issue. Or, at least, the initial plans would more accurately reflect the (higher) costs. Which is why I have a simple proposal: all overruns in cost, whether they result in a higher quality product in the end, must, when granted, give the company a permanent inflation to their bids. If they bid $10MM, that's all they get – but if their last project overran 50%, they won't win unless all other bids are over $15MM. Let's say they underbid the costs and adjust it again – their third project would have bid inflation of more than 100% and they face the very real specter of criminal defrauding the government charges if they continue.
There is at least one California contractor (somewhat in good standing) who would have to be adjusted by some amount so huge I can't even figure out what percent the adjustment would be (Tutor-Perini) – maybe over 1000%? It would solve a lot of issues with change-orders if just that one firm was handled better.
Now, if you wanted to be really hardcore, you could say failing to deliver government contracts on-cost is prima facie evidence of attempt to defraud the government. But that's probably a little too hardcore, and encourages a higher premium for government contracts. That said, paying a higher cost, and having things delivered on-time and for the amount taxpayers agreed to, might be a trade-off worth making. It's surely strictly better than our current high-cost-plus-dishonesty-and-delays system.