P.W. Singer's paper "Can’t Win With ‘Em, Can’t Go To War Without ‘Em: Private Military Contractors and Counterinsurgency" is online at Brookings. I suggest you read it. Let me draw your attention to the very important quote from Nick Bicanic's testimony to Congress at the bottom of page 9 that helps give context to the issue:
Iraqis do not differentiate between armed security contractors and US soldiers. In other words, security contractors are America’s public diplomats– and yet these same contractors are not held to same oversight or standards of accountability as our soldiers. We may try to distance ourselves by the actions of the contractors, thinking they provide convenient temporary manpower whose deaths won’t be marked by a flag draped coffin coming through Dover, but that only plays in the United States. Overseas, where the public opinion really matters in the struggle for minds and will in the insurgency, the contractors are the U.S. and are directly involved in the mission.