Cameron says G4S will be penalised for its failings

Whistleblower claims security firm knew in January that contract could not be fulfilled

David Cameron insisted there would be "consequences" for the security company G4S in light of its failure to provide enough security personnel to guard Olympic Games venues.

The Prime Minister spoke out amid growing concern that the firm would not be penalised severely enough for failing to honour its £284m contract. "I'm absolutely clear that if companies don't deliver on their contract then they should be pursued for that money," Mr Cameron said.

Last night the firm responded by saying it would pick up the cost of the extra 3,500 military personnel drafted in to guard the games. The company will lose between £35m and £50m on the contract as a result, a statement added.

It was further claimed last night that G4S's management knew as long ago as January that it would have difficulty recruiting enough staff. "There were some concerns – you could tell there was a bit of panic, but they didn't want to give too much away," a whistleblower told Channel 4 News.

Yesterday, The Independent revealed that the London Organising Committee's contract with G4S is pro rata, meaning that, although it will be not be paid for the guards it has failed to provide, it will not pay extra penalties. This is despite many soldiers having to cancel their holidays after the armed forces were called in to make up a 3,500 shortfall in numbers.

Dame Tessa Jowell, the former Labour Olympics minister, said: "If this is true, it is an appalling mismanagement of a contract of this nature. I do not believe anyone would think that G4S should be paid as if it had completed the contract successfully."

Chief Executive Nick Buckles has been summoned to face questions from the Home Affairs Select Committee next week, amid calls for his resignation. "Parliament and the public are very concerned by the failure of G4S to provide sufficient guards and the Government's decision to replace them with military personnel," said the committee's chairman, Keith Vaz.

"I am sure the committee will want to explore with G4S the circumstances of their contractual agreement with Locog and the problems they experienced that led them to ask for help from the Government."

Boris Johnson, the Mayor of London, tried to put a positive spin on the crisis yesterday, insisting the Army would add "tone" to the Olympics.

The revelations have prompted scores of G4S whistle-blowers to reveal serious lapses in its recruitment and training practices, leading to concerns that those staff it has managed to employ may not be up to the task of protecting the public.

The drop-out rate among G4S's 4,000 temporary guards already working at Olympic venues is thought to have reached 40 per cent. The company is offering incentives to staff who work all the way through the Games.

One person who applied for a G4S job told The Independent he had to take a five-minute "smell test" to identify vodka. The test was "almost impossible to fail unless you were blind or lacked a sense of smell," he said.

Students were applying for jobs with G4S last year while they were only 17, since they would have reached the minimum age of 18 by the start of July. One message posted on the Student Room web forum said: "I passed the interview. No experience in security or anything and they signed me up for X-ray scanner."

A G4S spokesman said: "We have encountered some delays in progressing applicants through the final stages but we are working extremely hard to process these as swiftly as possible."

Last year, Mr Buckles was paid £5.3m in salary and other benefits.