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It's the fact that there isn't any oversight. The most insidious development in government contracts - and this applies to all departments, not just defense - is the "revolving door" between the public and private sector.
"Ambitious" political appointees can guarantee themselves a cushy private sector position by turning a blind eye toward graft, and steering no-bid contracts to the right parties. Maybe this is nothing new, but it seems to have morphed into an absolute monster with the current administration. There has been absolutely no oversight, as emphasized by the fact that the Iraq conflict is the most expensive war the United States has ever fought in, despite the "privatisation" of non-combat functions that Rumsfeld had promised us would cut costs.
It is/was absolutely ludicrous to think that for-profit entities would be willing to make the cost/benefit sacrifices necessary to provide essential services, and get them right. They do the bare minimum, obscure their dealings, and try and place the blame on the public sector when they are caught.
There needs to be some sort of bar in place, where perhaps gov't employees are barred for a specific term from taking private sector positions. There isn't any easy answer here, and sure there is a concern of making government service too unattractive.
Corruption is not a joke either. It will eventually destroy the ability of our country to pay to support basic services for all its citizens, creating a privileged class of those wealthy enough to afford basic services like police protection, and those left to fend for themselves.
