The Pentagon has more image problems than being a difficult customer to work with.
The "mission" they tout as being the main driver to work for then is often ill-defined and what is best known typically has an atrocious public image problem surrounding it.
There are people in the Valley who will work for less money if it's for a cause they believe in.
The Pentagon's work? It isn't a cause they believe in. In-fact many see it as a more noble cause to thwart all military actors - our own included.
Most research is in some way shape or form is funded by the military. The era of having some general commanding eggheads is long gone.
Since the 1970s, it's almost all outsourced to the private sector via PPPs because private sector players can deploy capital and execute much quicker than the DoD or DoE who have regulatory requirements and need to have specific line items defined for them within budgets.
Also, I think you underestimate or don't realize how much DoD related work is done in the Valley today. I'd estimate that 30-40% of startups in the Bay Area are in some way funded by the DoD - either via Federal sales or via strategic investments via In-Q-Tel or their private sector counterparts.
On top of that, most STEM research grants at Bay Area universities come from either the DoD, DoE, or DHHS.
This public private partnership model is what China copied, which is unsurprising, as most of their middle level leadership and policymakers attended these programs and benefited from the US-China Science and Technology Agreement which evangelized the American PPP R&D model in China since the 1970s.
The difference is, the Chinese system is much more lax about compliance and graft, which allows for it to be much nimbler. The downside is graft can be MASSIVE, such as the corruption scandals surrounding China's Big Fund and fiascos such as the collapse of Tsinghua Unigroup
The "mission" they tout as being the main driver to work for then is often ill-defined and what is best known typically has an atrocious public image problem surrounding it.
There are people in the Valley who will work for less money if it's for a cause they believe in.
The Pentagon's work? It isn't a cause they believe in. In-fact many see it as a more noble cause to thwart all military actors - our own included.