David Cameron signalled yesterday that the Government would attempt to claw back a £57m management fee that G4S is charging despite the security firm's failure to provide thousands of guards for the Olympic Games.
Pressure grew on the company after its chief executive, Nick Buckles, astonished MPs by insisting it still intended to claim the money.
Speaking on a visit to Afghanistan, the Prime Minister said: "Let's be clear – if G4S don't fulfil their contract we will go after them for the money to make sure they help pay for the military personnel that have been brought in."
G4S argues it is still entitled to the cash because of the work it has done over the last two years on its £284m Olympics contract. Some 3,500 soldiers have been deployed to help cover the G4S security shortfall, with a decision expected as early as today on whether to draft in another 2,000.
Hugh Robertson, the Olympics minister, said lawyers were examining the G4S contract's penalty clauses. He said they applied to the "whole contract, including the management fee".
Labour has accused the Government of being too "hands off" about the contract and has challenged it to step in and enforce "proper penalties".
G4S won a £200m deal to run Lincolnshire Police's control room in February and, until the Olympics fiasco, had been preparing to bid for similar contracts across the country.
The security giant is also competing for four of the six contracts being offered by the Ministry of Justice to manage jails. The department has put off a decision on the successful bids.