"Overhead" is a large part of costs, and profit is often contractually limited in government contracts. But much of the profit is hidden in the markup, which can sometimes be 50%, meaning you pay $1.50 for $1.00 of supplies, labor, etc.
To add to this, the gov requires that all the markup is broken out, so it can be audited. I think usually contractors are allowed things like R&D budgets, salary (maybe not bonuses?) etc. I'd love someone more knowledgeable than I am to chime in.