Personally my money's on corruption but I have no proof.
Sig also won contracts for suppressors, optics, and probably more I'm unaware of or can't remember. Unit cost of the M7 is several times higher than the M4, it's heavier, has more recoil, carries less ammo, and the cartridge it fires is still stopped by commonly available body armor that's manufactured today.
Corruption is obvious in my mind, it's shocking Congress seems either oblivious or so complacent.
The requirements may be goofy, but that's a requirements problem and not a Sig problem.
I can sort of see why they went with a completely new cartridge with the XM7; they want a common cartridge between the service rifle and machine-gun, and they want ballistic performance that can defeat certain types of body armor out of a barrel that's short enough to be maneuverable with a suppressor affixed to it. Would 7.62 NATO do that? I don't know. Maybe not.
The one that gets me, though, is the "modular grips" requirement for the competition the P320 ended up winning, with part of the rationale being a better fit for more hand sizes. C'mon. That seems like an interesting idea, but the idea of fitting soldiers for custom grips and keeping them in inventory, just seems far-fetched. Maybe I'm wrong. More importantly, it made the P320 the apparent shoo-in for the competition. It's like someone involved in the process knew someone at Sig and the two devised a requirement that only Sig could reasonably hope to fulfill. Then they undercut Glock on the price, and suddenly a well-regarded service pistol that is proven the world over just isn't good enough for the price, but this completely new design somehow is.
It just stinks of collusion between the military and someone putting in a tender for a contract.