But the government knows approximately what the range ought to be based on a required market analysis beforehand. The contractor, as you know, will make a bid on labor, but they'll also bake profit and overhead costs into the contract. My old company run afoul of this- they were a small company with pretty nice diggs and thus always had to bid high to meet internal requirements to cover overhead/profits... and thus when I left the company they were on a 4-5 contract loosing streak.

The contract I went to when I left that old company actually won its bid despite being underbid by about $800k on the work- but that's because the underbidder was going to require only 3-4yrs experience for its team versus our 10yrs+ required ... government wanted the experience and was willing to pay for it (working at very high level DoD- you needed people who had been there talked with the cabinet level folks before... )