Prize funding has been shown to be an efficient method of development and research of which the Ansari X Prize is a prime example.
Currently there are back room deals and cost overruns costing the US people billions of dollars. Using a prize funded solution will offer a fixed cost for a fixed development request.
It will stimulate many companies to provide employment and create better products as there are multiple developers. The winning company will then get funding for the production of more units. The losing companies will have a product that can still be sold to other countries.