Unless government is forcing you to do this this way, it makes no sense to hand money and your advertizing over to government employees, much better to hire an advertizing company. Cheaper, and it is what they do best. Government employees find all kinds of ways it can't be done, that is what they do best, not advertizing!
In any case, involving the government was a mistake, one that is now obvious. Is there no way you can just go ahead and do this amongst yourselves like things used to be done?
It doesn't make sense to us but it apparently made sense to the Christmas tree industry. If they want to hand over their hard-earned cash to the government instead of an ad agency, that's their right. Being outraged at the government for taking it though just seems misplaced blame.