Sherwood,
I have a lot of experience in this area and can tell you that all government contracting actions are covered under the Federal Acquisition Regulation (FAR). The FAR covers all the rules that govern sole source contract justification. There are very few circumstances that for all sole source contract awards. I have provided a link below should you want to look them up.
Concerning contract type (cost plus, firm-fixed price, time and materials, etc.) that is generally at the discretion of the contracting officer.
The system is not perfect, but there are layers of oversight in place that work to prevent, "sweet heart deals". As well, if other contractors do not agree, there is a protest function governed by the FAR.
Lastly, all solicitations for contracts are listed on a website that all industry has access to...industry has people that do nothing but scan the site.
Hope the a-political post helps.
http://www.arnet.gov/far/