What makes you so sure and no one has specified which countries military we are talking about. If you want to take the UK it's no different to any other contracting out. It also depends on the nature of the equipment. but largely take a commercial item and put it into a military application and it just trebles in value. Electronics these days has come so far that there is not much between military requirements and what automotive use. once you understand that a specification is not about the point a part will just break at or stop working but it is as far as the manufacturer is willing to test you realize that it's not as super duper as "uh, made for da military". Testing to -40C is a lot cheaper than testing to -55C which is not as cold as what is often required, if you take specs so literally you won't actually be able to design anything unless you buy a huge batch of everything down to the last resistor and test a few, then know what you have is good. Tendering to the military is as competitive as any commercial tendering. There will also be long chains of supply, I remember picking up the phone to a random call and finding myself briefly involved in a querry over mercury content in the equipment. We were buying the equipment from a supplier, not making it and the customer may have been supplying it to another sourcing contractor.
The poor bastard that has to use the kit is not the one several levels up that paid for it and that deals with the suppliers, so unless it's really a problem, nothing happens.
The cost of military gear in my opinion is partly because the money is there and it is such a huge beast that controlling it down to that £20 lightbulb that was actually worth 20p is hard.
Sorry, I think we may be at cross purposes. However shut up I promised and on this this guys strange fantasies, shut up I will.
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