I worked on a high profile government project that had five different vendors involved. FIVE. The inter-organizational management problems were astonishing. I'm pretty sure that by the time I left, managers actually outnumbered technical staff.

The biggest problem, though, was the lack of pushback. The government officials would ask for the moon, and the vendors would promise to deliver it. There was almost no one saying NO - the word that project most desperately needed to hear. Features outweighed core infrastructure reliability, so configuration management was a nightmare.

Because ramping up a huge staff to build a new project generally requires keeping them forever. It's much easier to request a budget for a project then it is to try to expand headcount of well-protected government jobs.

It's very good for the companies that benefit from the outsourcing.