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Don't know quite how this happened, but via Kevin Drum we find out that the last Pentagon budget bill contained five little words that will finally put civillian contractors in Iraq under the military justice system.  Says P.W. Singer: 

Over the last few years, tales of private military contractors run amuck in Iraq -- from the CACI interrogators at Abu Ghraib to the Aegis company's Elvis-themed internet "trophy video" —- have continually popped up in the headlines. Unfortunately, when it came to actually doing something about these episodes of Outsourcing Gone Wild, Hollywood took more action than Washington. The TV series Law and Order punished fictional contractor crimes, while our courts ignored the actual ones. Leonardo Dicaprio acted in a movie featuring the private military industry, while our government enacted no actual policy on it. But those carefree days of military contractors romping across the hills and dales of the Iraqi countryside, without legal status or accountability, may be over. The Congress has struck back.

Amidst all the add-ins, pork spending, and excitement of the budget process, it has now come out that a tiny clause was slipped into the Pentagon's fiscal year 2007 budget legislation. The one sentence section (number 552 of a total 3510 sections) states that "Paragraph (10) of section 802(a) of title 10, United States Code (article 2(a) of the Uniform Code of Military Justice), is amended by striking `war' and inserting `declared war or a contingency operation'." The measure passed without much notice or any debate. And then, as they might sing on School House Rock, that bill became a law (P.L.109-364)

Given the fact that the number of military contractors in Iraq now exceeds 100,000, and that many of the jobs formerly performed by miltary personel are being handled by civillians, having them subject to no US law which could practically be enforced has created a horrendous hole in the system: 

Even in situations when US civilian law could potentially have been applied to contractor crimes (through the Military Extraterritorial Jurisdiction Act), it wasn't. Underlying the previous laws like MEJA was the assumption that civilian prosecutors back in the US would be able to make determinations of what is proper and improper behavior in conflicts, go gather evidence, carry out depositions in the middle of warzones, and then be willing and able to prosecute them to juries back home. The reality is that no US Attorney likes to waste limited budgets on such messy, complex cases 9,000 miles outside their district, even if they were fortunate enough to have the evidence at hand. The only time MEJA has been successfully applied was against the wife of a soldier, who stabbed him during a domestic dispute at a US base in Turkey. Not one contractor of the entire military industry in Iraq has been charged with any crime over the last 3 and a half years, let alone prosecuted or punished. Given the raw numbers of contractors, let alone the incidents we know about, it boggles the mind.

The situation perhaps hit its low-point this fall, when the Under Secretary of the Army testified to Congress that the Army had never authorized Halliburton or any of its subcontractors (essentially the entire industry) to carry weapons or guard convoys. He even denied the US had firms handling these jobs. Never mind the thousands of newspaper, magazine, and TV news stories about the industry. Never mind Google's 1,350,000 web mentions. Never mind the official report from U.S. Central Command that there were over 100,000 contractors in Iraq carrying out these and other military roles. In a sense, the Bush Administration was using a cop-out that all but the worst Hollywood script writers avoid. Just like the end of the TV series Dallas, Congress was somehow supposed to accept that the private military industry in Iraq and all that had happened with it was somehow 'just a dream.'

Paul Bremer, whose ability to make a bad situation worse is pretty friggin' nonpareil, did in fact make things worse by further declaring that contractors were not subject to Iraqi law either, creating a virtual petri dish for abuse.  Singer notes that we will no doubt be subject to a mewling chorus of profiteer CEOs crying about their loss of rights, but he rightly sums the situation up thusly:

In many ways, the new law is the 21st century business version of the rights contract: If a private individual wants to travel to a warzone and do military jobs for profit, on behalf of the US government, then that individual agrees to fall under the same codes of law and consequence that American soldiers, in the same zones, doing the same sorts of jobs, have to live and work by. If a contractor doesn't agree to these regulations, that's fine, don't contract. 

The military justice system is set up to deal with war time situations in a way that their civilian counterparts in the states just aren't. Those who want to make a profit off war should be ready to face that reality, and those who aren't, as Singer notes, should just find another line of business.