Capita could be stripped of its contract to recruit soldiers for the Army unless its performance improves, Defence Secretary Gavin Williamson has told MPs.
Mr Williamson's warning came as the House of Commons Select Committee was told that the Army was on track to receive just 5,600 new recruits in this financial year - less than 60% of the target.
The Defence Secretary was accused of responding "like a rabbit in the headlights" over the issue, after Capita failed to meet targets in any year since the 10-year £495 million contract was signed in 2012.
Conservative MP Mark Francois told Mr Williamson during a committee hearing in Westminster: "We know the Army needs about 10,000 recruits a year to maintain a frontline strength of 82,500.
"This year, they will get 5,600. Their performance is markedly weakening.
"They will be at barely 60% of their target, having barely hit 70% for the last three years. They are deteriorating. They were atrocious and now they are worse.
"At what point will you, as Secretary of State, intervene and sack these people, who are clearly hopeless?"
Mr Francois noted that the Royal Navy and RAF were able to meet their recruitment needs, and told Mr Williamson: "What the committee can't understand is why, on this particular issue, you are like a rabbit in the headlights.
"It keeps getting worse and worse and worse and worse, you keep threatening to do something about it, but you don't."
Mr Williamson said that improvements had been made to a computer system that had been causing problems and that 200 service personnel had been deployed to encourage recruitment.
"We are growing increasingly confident that in the next financial year, we will be hitting the recruitment targets for the Army," he told the committee.
"We have given Capita time and met the Chief Executive and got commitments from them to invest extra money, but we will have to see if that bears fruit."
Mr Williamson said that the Ministry of Defence had undertaken work to look at the possibility of taking the contract back in-house.
He added: "If it becomes apparent in the next financial year that Capita are continuing to fail in what they do, we are going to have to look at different options in terms of the contract.
"We have started to see a turnaround in the number of recruits and that is starting to head in the right direction.
"If it doesn't continue in the right direction, they will have to be relieved of their contract and we will have to look at different ways to deliver it."
A Capita spokesperson said: “The Army recruitment partnership between the British Army and Capita was re-set last year to ensure a closer working relationship that will deliver significant improvements in performance.
"Indications of improved performance are good: applications are at a five-year high and the length of time it takes from application to starting basic training has reduced by 20%, with the quickest candidate receiving a job offer just 22 days after applying.
"We have been clear that we are confident about hitting the partnership’s targets before the end of the contract.”