Private military and security contractor supporters often assert that they are more cost effective than their government counterparts. It is true there is some, though not an overwhelming amount, of evidence to support that view. The same supporters also say they welcome government oversight and regulation, as long as it is not burdensome or intrusive, though at what point such things become so is never specified.
It is true that oversight and regulation is not without costs to contractors. And therein lies the rub, to borrow from Hamlet.
The less oversight and regulation there is the more likely it is a PMSC can validly assert cost effectiveness. But the less oversight and regulation the less a nation's citizens can trust that they are, in fact, doing what they claim.
Markus Wagner, an associate law professor at the University of Miami put it this way in a paper he wrote, published this past April. In "The Second Largest Force: Private Military Contractors & State Responsibility" he noted:
The economic costs of outsourcing are not well known. The available evidence appears to suggest that governments have radically underestimated the primary economic costs arising from reliance on PMCs (through e.g. no-bid contracts) as well as the secondary economic costs, including personnel and contractor replacement costs, workers' compensation, increased insurance premiums, evacuation and rescue costs, and increased reconstruction costs. The non-availability or inconsistency of this type of information is deeply troublesome and has been the source for considerable criticism. The low economic costs are partially due to non-existing oversight: it is clear that a state is responsible for violations of international humanitarian law its soldiers have committed abroad. It may turn out that the costs for instituting an oversight mechanism over PMF personnel are either impossible to enumerate or even so high as to be prohibitive. If anything, this would constitute an argument against the use of PMFs. The regular military functions with innate command-and-control structures, which - albeit not perfect - provide a limiting effect on military misconduct. The lack of such control mechanisms in the case of PMFs is a financial advantage for private companies. If those costs were taken into account the purported advantages of PMFs might not be as obvious any longer and at the very least would level the playing field between PMFs and the regular military.
Wagner also notes that, to a degree, the state, through its taxpayers subsidizes PMSC when they don't adhere to the same rules that regular military forces, which they often support, have to play by:
If there were a genuinely level playing field between regular military forces and PMFs, one would also have to envision the incorporation of penalties for violations of international legal obligations. This would create incentives for PMFs to adhere to legal obligations of the employing state as it would otherwise incur a financial penalty. The downside of this approach is an increase in price for the employing state, as PMFs would most likely price such penalties into their cost structure. States may not have an incentive to take such action as it would make PMF deployment less attractive. It would however level the playing field between traditional military units and PMFs vis-à-vis their deployment costs. None of these mechanisms have been used to this point and the only "penalty" for "misbehaving PMFs" currently in operation is the termination of contracts. Other approaches might be financially more burdensome - decreasing the attractiveness of PMFs for states, but they should certainly be more closely explored.