The contracting company receives usually 2-3x what the actual developer makes- so if the gov't pays $300K for a developer, they get a $100K developer. Some of that overhead is justified, but a lot of it is the company's profit.

The old answer used to be for the government to hire directly, but that's been hamstrung for like 40 years by now.

At my old firm, our federal project profit margin was a bit lower than median, though once you factor in the sales, contracting, and leg overhead the bottom line was somewhat worse than the project actuals made them look. Since our side of the house did relatively short-burn contracts (6-12 months), federal work was generally not that valuable for us; I used it for filler work when our usual sales pipeline was weak. The real value was for the side of the house that did long-term software and support work or heavy citizen support outsourcing, when contract durations can be measured in decades. Same for a friend who inked a $5bn DOD deal; the margin isn’t great, but it’s a 10-year deal that gives her a stable cash flow basis to grow on.

(Also, OP is probably underestimating the full-sheet cost of a federal FTE, as well as the complexities of fund-based budgeting and forecasting.)

Worked for a govt contractor years ago and I would imagine the payout from the govt contract was at least 2-3x. There were usually 2-3 layers of people getting paid and I don't think any of them were hurting. Of course no employee was getting a massive payout compared to private.

Govt > contractor > sub-contractor > employee was pretty common. I never knew of anyone being a direct contractor to the agency since the contracts were so large and involved a lot of employees.

It's been several years since I've done contracting work (and for the FAA no less), but that can't really happen to the extent you're implying. The open roles for contract positions specify a pay range based on experience (degrees and/or years of experience). You can have a prime and then a sub contractor, but the amount that each can add for management overhead is limited and depends on the contract vehicle. I want to say it was around 5-10%.

The actual employer can pay the employed contractor whatever they want, but the rates are published and if they underpay too much the employee will be poached by a competitor. Because the rates are public info the employee can look up how much profit their employer is making any time they want.