Attorney-General Christian Porter says there was a full and independent process in place for a contentious $423 million contract awarded to a security contractor on Manus Island.
But Labor frontbencher Penny Wong says the government has questions to answer over the "deeply concerning" contract.
A company called Paladin, which won the contract through a closed tender process, is reportedly registered to a beach shack at the end of a dirt road on Kangaroo Island.
Paladin was given the tender despite not having enough money to start the contract and its founder having a history of bad debts.
"This was the subject of a full independent Commonwealth procurement process and I'm sure that the claims will be investigated," Mr Porter told the ABC's Insiders program on Sunday.
Home Affairs Minister Peter Dutton has said he had no line-of-sight over the tender process.
"Standard procurement processes are often at arms-length from the minister," Mr Porter said.
"The reality is that doing these types of things offshore in Papua New Guinea and in Nauru is a very costly exercise."
Senator Wong will grill Home Affairs officials about the contract during Senate estimates hearings this week.
She is urging government officials to explain why the contract was awarded through a closed tender, rather than an open and competitive process, to a company with a director "under a cloud".
"It's deeply concerning that we've had $423 million of your (taxpayer) money going to a company which has got such a poor track record," she told reporters in Adelaide.
"I love Kangaroo Island, but it doesn't fill you with confidence in terms of their capacity.
"What fills you with even less confidence is their track record and the fact we've got one of their directors, at least, under a cloud."
The Australian Financial Review reported Paladin's head office was relocated to a serviced office in Canberra last Wednesday.
Australian Associated Press