From my understanding developing Military Satellites is far more expensive than developing commercial satellites. The reason is actually the amount of secrecy and protocol behind the development of classified technologies.

Building a satellite is already an ultra-complex project that requires designing and sourcing specialized parts that need to comply with some very detailed specs.

I'm speculating but I'd have to imagine that a project so heavily classified, would result in a larger cost (reduced availability of contractors, more time required to design specialized parts, less availability of researchers and manufacturing workforce that meet the security criteria, etc.)

Just a reference, Envisat which was was an earth observation satellite developed by the EU, had a cost of around of $3 billion USD.

Most of the expense in government/military contracts comes from the many, many layers of "management" that have to be continuously fed a diet of large stacks of cash. Then you have to factor in the perverse incentives created for the contractor, where the longer they can drag a project out for and the worse of a job they can do and the cheaper the people they can hire to just barely get the sign-off for completion at the end, the bigger a success it is for the contractor. I worked for quite awhile doing maintenance on a system which was originally developed by an external contractor (one of the ones whose names appears in the comments on this thread). There was originally a contract to develop 3 separate systems. After years of delays and renegotiations and whatnot, 3 separate contracts had been given to the company, and once the government got sick of throwing good money after bad and said 'just give us whatever you have', they got 1 system delivered. That took 9 months of continuous effort to get into a state where it could be used. You know what you call that? A stellar success. At least, if you're the contracting company.

That is the program cost. Like with software, much of this cost would be in the design and intellectual property of the program. The replacement cost, the cost of goods sold, is far lower.

a lot of the cost of a given spacecraft is the years of test and verification that goes into inspecting the hardware and confirming that it is flight-ready. that involves dozens or hundreds of engineers working long hours in clean rooms with enormous vacuum chambers.

also god only knows what the electronics on these spy satellites looks like. i wouldn't be surprised if there is significant custom silicon on them.

Maybe the $3.5 billion dollar transaction was the product.