What they do is not uncommon throughout the business world.
Instead of hiring employees and paying benefits and matching payroll taxes, they hire Independent Contractors who are supposed to be responsible for their own taxes and benefits, as well as tools and equipment.
In construction its the difference between hiring painters/drywallers/etc yourself and keeping them on payroll or subbing it out sometimes to IC tradesmen.
Yes, it certainly can get abused, but done properly it has legit uses and benefits to all.
From what I’m being told, the system is being taken advantage of, with Blackwater getting preferential treatment.