I'm quite glad we nabbed that particular hire (your potential intern), and I think he's very happy with his decision as well. Ironically, he was probably one of the better informed people we've hired lately in terms of being aware of what his options are.
I seriously doubt I could do 2x better in industry, especially considering cost-of-living calculations. And our location is an asset, liability. Seriously; a gorgeous beach across the street from the office? And you can actually afford a place on the water if you want? You can't beat that.
I think you're basing your opinions on a mental image you have (and most people have) of who we are and what we do that is inaccurate.
As mentioned in the article, we were a separate company purchased last year. We still operate fairly independently from our corporate overlords (someone actually used that reference when we were first meeting them). We have exactly one layer of management for any given project. Our customers work with a PM at most, but usually also directly with the engineers.
While I'm sure your criticisms are quite accurate for many large government jobs, for us (and a number of others I know of doing some similar work), the situation is quite different.
In regards to people working here because they don't know their other options, let me put it this way -- in the company's entire existence, we've had exactly two employees leave for another job, and it was to another small contractor, not the commercial sector. I'd suggest it's unlikely that the retention rate is so high just because we're all so ignorant of our options. There's a lot of reasons for it -- I'd be happy to talk about it more at Defcon if you're there this year.