Regardless of capability, it's in NASA's best interests and our best interests to encourage others to try. I think we are better off if the rocket industry (and every industry) is not dominated by a single organization, even if we believe that organization is altruistic and excellent.
Well, NASA tried that originally but didn't have the budget, and in that sense it's better late than never to fund something different.
The reasoning as presented just doesn't reflect reality.
I think it did amazingly well with its shoestring funding.
They didn't handle the scale up in vehicle size well. They didn't have a guy who really understood electronics. I'd say those were the biggest problems. They did have an amazing metal worker (and I don't think they ever understood how important that was) and an amazing programmer.
They should just get an Apollo lander, maybe strap on some rockets from Nike Ajax missiles, buff it up a bit, maybe throw a shuttle windscreen on it too. Job done.