They get the "same bang for their buck" while you "simply raised the number of hours"? That sounds a lot like intentional misrepresentation of hours worked. Or more bluntly, this seems like fraud.

It's what basically every company that delivers project bids that include an estimate of work hours does, AFAIK. Higher hour counts make the managers choosing which bid to accept feel more comfortable, I think.

Doesn't necessarily make it right, but it's very common, maybe even expected and off-putting when not committed, in the way that a lot of business-related lies are.