Even if Congress corrected for that, they'd still be locked into slow moving pay raises, and they'd probably become a political target at some point, when some anti-spending congressperson begins harping on how there are so many federal employees make a quarter million dollars a year.
Being a military contractor, for better or worse, inoculates you from a lot of politics. So, yes, the government could pay competitively, but I would be leery about accepting such a position.
