The problem is usually interacting with other agencies; those don't have well-defined data formats for data interchange, instead they often work with forms in Word documents, and require the document to be edited with a very specific version of MS Word. Of course that makes interaction harder.
The technical lead of the LiMux project told a story once about a German federal agency that required documents to be submitted in a very specific, unusual font that basically everybody had to buy first.
I am sure that requirements like this aren't that unusual (the NIH requires grants to be submitted in one of 3 fonts), but an arbitrary rule shouldn't be confused with a compatibility issue.
As you note, these requirements tend to be with specific versions of Word, and so libreoffice and co present no more of an impediment that using other/current versions of Word.
The technical lead of the LiMux project told a story once about a German federal agency that required documents to be submitted in a very specific, unusual font that basically everybody had to buy first.