I'll take a different spin on this. I've been a government employee and a contractor at different times. Right now I'm doing both. I have a full time government job and I contract to private organizations on the side (some of the work in the past has been back to the government but I've navigated the "conflict of interest" waters with care).
Anyway, I agree that contractors are not always much more expensive when everything is taken into account. That is clearly true. However, there are times when the government needs an important task accomplished and is fleeced by the one or two contractors who can actually deliver on a bid. This is unfortunate and puts everyone else in a bad light. I think contractors also get a bad name because some government contract reps can't manage their contractors. Then you get this vibe of "I can't believe we're paying these guys to fail" sort of mentality. That is completely the government's fault.
Overall, it's a mixed bag. I'll say that I'm generally more confident in the abilities of government employees to "do the right thing" but I'm more confident in the abilities of contractors to "do the competent thing." They are NOT the same.
Certifications: CREA, MCSE: Security, CCNA, Security+, other junk