I say yes.
Google apps already has governments using it.
Like the city of Los Angeles http://www.youtube.com/wa
and DC http://www.youtube.com/wa
Google also has a specific government edition for google apps.
http://www.google.com/app
The security measures employed by google with google apps already meet and exceed the strict requirements of the US government. The performance and reliability of a virtually maintenance free email system and document collaboration, chat, calendar, etc…
I'd say it's quite the contender for government contracts.
