[nonameiguess]

It's not some reason; it's the law. The GS pay bands are set by legislation. No matter what some federal agency wants to pay, they can't pay more or less than Congress has allowed them to. Procurement budgets don't work like that. You still have a capped pot of money, but you can choose to allocate that to fewer projects because the contractors doing the work pay their labor high enough rates that the cost of a project is too high to pursue more.

As to your proposal of giving government contracts to big Silicon Valley players, they already do that. Amazon already runs all the government cloud infrastucture, with Microsoft trying to get a piece. Google may have dropped the Project Maven thing, but they have plenty of other government contracts.

Congress is never going to make pay rates for engineers directly employed by the government comparable to private companies because they have to answer to voters, and voters kick, scream, and shout if they find government employees are earning high salaries. We're in the middle of a 40-year drive to cut taxes and privatize all government functions. You're not just going to turn that around.

On the other hand, give out big money to private contractors who pay their engineers well and Congress can go brag about they brought money and jobs to their home state.