"administrative grift" as you call it is on top of awarded amounts, not a part of it. If the University is forced to spend all $3M themselves and also forego the operating overhead, what you'll get isn't more projects but fewer projects and also smaller, less capable research organizations.

Which is what some people want, but other people recognize that more research, bigger projects, and large, world-class academic organizations capable of conducting it are part of maintaining strong national security. Such activities are not cheap, they are also not profitable, but again because they are crucial for national security, it's the government's prerogative and obligation to help fund such activities, even if you consider it grift.

Note that it depends on the grant if indirects are included in the award amount or on top; NIH is the latter.