When historians look back on the Iraq occupation, the policy of outsourcing basic U.S. military functions to private contractors will stand out.

The September incident in Baghdad that killed 17 Iraqi civilians and wounded 24 has put the spotlight – including a high-profile Tuesday hearing of the House Oversight Committee – on one contractor, Blackwater USA. But the larger issue is the increasing dependence of the U.S. military on private military companies a Bush administration policy to “liberate” the defense sector by privatizing it, as former Defense Secretary Donald Rumsfeld put it.

In Iraq, private contractors guard U.S. military bases, the Green Zone, critical infrastructure and important people. They provide armed escorts for supply convoys, gather intelligence and interrogate detainees, engage in covert operations and more.

This outsourcing of core military functions has hidden the true cost of war from Congress and the American people. That has allowed President Bush to low-ball the size of the U.S. occupation. Though the Bush administration does not track how many private contractors operate in Iraq, various sources have estimated the numbers at 127,000 (with 20,000 to 30,000 who are armed) – nearly matching the 140,000 U.S. military forces in Iraq.

It also has allowed the president to underreport casualties, since the administration doesn’t track private contractors killed or wounded. Other sources estimate that more than 1,000 private contractors have been killed and more than 12,000 wounded. Add that to 3,800 U.S. military fatalities and 28,000 wounded and you get a different picture of the occupation.

The bill to taxpayers is unknown – but it’s billions.

And that’s not to mention the inequities of one-source, no-bid contracts and the $500 to $1,500 per day that private contractors get paid (compared with about $70 a day for soldiers).

The legal status of private military companies remains unclear. Blackwater owner Erik Prince insisted at Tuesday’s hearing that contractors are part of the U.S. Total Force and thus are not subject to civilian law. But Blackwater also insists that contractors are not soldiers, who are subject to the Uniform Code of Military Justice. That’s like Vice President Dick Cheney’s claim that his office is part of neither the executive nor the legislative branch.

Allowing private contractors to act independently of the military chain of command and rules of engagement has had serious consequences, such as the Fallujah ambush and Najaf firefight in March and April 2004. And Blackwater isn’t alone. The Army’s Takuba Report found that private military contractors CACI and Titan were at the core of detainee abuse at Abu Ghraib in late 2003. These private contractor incidents do nothing to help the U.S. effort to “win hearts and minds” and surely have contributed to the rise of the Iraqi insurgency.

The House passed a bill Thursday that would make contractors subject to prosecution by U.S. courts; the Senate is likely to follow. But Congress also must pass legislation requiring disclosure about the numbers of private contractors, the cost of contracts, contractor use-of-force incidents and contractor injuries and deaths. Removing the veil of secrecy is the only way to pin down the true cost of the Iraq occupation.

The Sacramento Bee is based in Sacramento, Calif.