If the ownership of the excavated soil is retained by the owner of the site, then they are liable for all the subsequent costs of storage, transporting, landfill charges, etc for the material.
It makes much more sense to transfer ownership of the soil to the contractor.
If they can find a way of making money from it, then they will factor that into their tender to help win the contract, which will reduce the cost of the contract to the site owner.
I had exactly this situation as an Engineer's Representative when people who should have known better complained about spoil being re-used on another site.
It had not occurred to them that both tenders were lowered because the contractor knew that he could save the costs of dumping the material in a landfill site and having to buy replacement material elsewhere.
And those who complained most were the 'greenies'. who should have been overjoyed by the environmental considerations.
In any case, I doubt if the officer in question wrote any part of the contract himself, as the MOD would no doubt have dealt with such issues.