It's been a while, but unless things have changed, if you sell any product to the government, according to the law you are required to charge the government no more than what you charged under the best discount to any other party for the same quantity and product.
MIL-SPEC is the key here. Make a version that doesn't meet some sort of specification for the civilian market (cheap) and leave the properly spec'd item jacked up! (just to elaborate on what you said here:)
Sometimes the method is to have two different 'models' or configurations in the price list, that accomplish the purpose.
It gets even hairier when you deal with other suppliers who want to get in on the free-for-all. Oh, and the people who pitch needless services from those suppliers for huge premiums (profits all around!) and then when those services start causing the company more issues than they're worth they have to try and figure out a way to make that magic elixir look like snake oil without seeming crooked. God help me I love it so. I could write a book it gets so absurd.
What do you mean you've never seen a government bulk discount? Happens all the time. For any item where the number needed by the government is in the thousands or more, you can bet they're paying less per unit than you would be if you wanted to purchase just one of the same item from a store. It's no different than when big companies buy in bulk.
Oh yeah, what I said definitely reads wrong. Sorry. I mean not like a special for-gov't-only bulk discount. You are correct and I am uhhh sloppy