"Security contractor" is a term I hadn't read before the occupation of Iraq in 2003 by American armed forces. Of course, that's because it's a euphemism for the more morally loaded word "mercenary". In my very first job, my manager used to stop when he was bored to give me lectures about historical or political subjects, and I vividly remember one where he said government had to keep some things under its control, such as the armed forces. I had already read about the condottieri, so I knew there were historical examples of alternatives to the "nationalized" army. I wasn't surprised, therefore, to learn that some military functions were being privatized by the American government.
Throughout history, the reputation of mercenaries has never been high. However, they were common in warfare until the nineteenth century. For historically minded Americans, mercenaries most famously took the form of the Revolutionary War's Hessians, men perceived as agents of oppression. One of the best-known mercenary companies operating in Iraq is Blackwater, although not for reasons they would appreciate. They have become the subject of a lawsuit connected with this infamous attack in Fallujah in March 2004. Currently, there's an article in a series on the company and the lawsuit running in the Virginian-Pilot online, but in my experience things don't stay long on the Virginian-Pilot's web site, so get there quick.