"RDOF rules set speeds of 25/3 Mbps as the minimum allowed for broadband service delivered by winners. However, participants were permitted to bid at four different performance tiers: 25/3 Mbps, 50/5 Mbps, 100/20 Mbps and 1 Gbps/500 Mbps"

If SpaceX had bid on a lower tier of service that they were actually capable of delivering, they would have been fine.

This grant was not designed to fund the development of new technology, it was designed to build infrastructure (fiber, 5G, WISPs, etc) and they were originally going to exclude satellites from the bidding completely. The companies who would have used the grant to build fiber or set up point-to-point wireless would have had no problem meeting the requirements since it's all proven technology.