Private businesses exist to make money, not necessarily provide every good or service for which there may be a market. There must be both a market demand AND the potential for profits. And, they need to consider profits left after exposure to various risks, including liability lawsuits by suit happy anti-gun groups.
If there is a demand, but no chance for profit, companies simply will not enter that market, or leave it. They can probably use their workforce and capital investments for other goods or services and make a bigger profit. If no private company wants to bid on government small arms ammo contracts, private companies don’t care who might get the contract, or if no one bids.
Government procurement contracts are a daunting maze of sometimes conflicting requirements, reports, oversight, “hurry up and wait”, fickle inspectors, and subject to be reduced or cut at any time. That, of course makes bidders likely to bid higher to cover the added costs and risks. At some point it is just more hassle than the potential profit.
At that point, if the government wants ammunition, and no one wants to bid, we may get back into government owned and operated plants, or govt owned and contractor operated.
Companies may find that research and development contracts or new product lines are more profitable than boring old small arms ammo.