The company currently has a five-year deal to provide personal protection for diplomats, which is re-authorised each year.
The state department uses Blackwater to provide bodyguards and armed drivers for diplomats whenever they leave the so-called "Green Zone", where the US embassy is based.
Starr, who is head of diplomatic security, said that he would not "prejudge" the outcome of the FBI's investigation into the incident, although the government had the right to terminate any contract as it saw fit.
"Essentially I think [Blackwater] do a very good job. The September 16 incident was a tragedy. It has to be investigated carefully," the Reuters news agency quoted him as saying.
The FBI began an investigation last November to examine whether the firm's contractors had used excessive force or violated any laws during September's shooting in west Baghdad's al-Nisoor square.
In December, government prosecutors reportedly narrowed the focus of the inquiry to three Blackwater bodyguards and gave others immunity for co-operating in the case.
The company has said that the convoy was under attack before it opened fire.
However, the killings sparked fury in Iraq. An Iraqi investigation into the incident found that Blackwater's actions were unprovoked.
A measure issued by the US-led Coalition Provisional Authority in 2004 prevented foreign security contractors from being prosecuted in local courts and it remains unclear whether they could be prosecuted under US law.
After the incident, the state department altered the contract to tighten rules of engagement, put cameras on all convoys and added a diplomatic security officer to ride along with each detail.
After the deaths, US commanders in Iraq said they were often unaware that security firms were moving through their areas of responsibility until after such an incident has taken place.
North Carolina-based Blackwater has about 1,000 employees in Iraq. It is the largest of three private security firms protecting US diplomats in the country.