A local Age Concern has threatened to sue a south London primary care trust over the "catastrophic" loss of a contract to a private company.
Age Concern Lewisham and Southwark lost to Allied Healthcare in the bidding to deliver a £750,000 palliative care contract on behalf of Southwark PCT.
The charity, which employs 140 staff, claimed the procurement process was flawed because the PCT used criteria that were not disclosed to the bidders. The charity was also unhappy that the bidding process did not take into account the value of voluntary organisations to the community.
Leon Kreitzman, chair of ACLS, said: "The PCT has awarded the contract for the care of the sick and dying in Southwark to a for-profit provider with a listing on the American stock exchange. We are faced with having to completely restructure our organisation and reduce costs dramatically, and we can't do that overnight."
The charity had delivered palliative care for the PCT and domiciliary care for Southwark Council until last year, when the two public bodies jointly put their care services out to tender.
ACLS protested when it was informed in December that it had not been selected to provide either service. In March, Southwark Council leader Nick Stanton admitted in a letter to Kreitzman that "the criteria given to bidders were not sufficiently detailed".
The council, which is believed to be offering four contracts worth £2m each, agreed to re-run its tendering process, which is still under way, but the PCT did not. ACLS solicitors subsequently sent a letter to the PCT claiming damages.
Kreitzman said many other charities were losing tenders because of the pressure on councils to cut costs. "We have been trying to improve our quality of care because we know we will never be as cheap as private companies," he said. "But what councils call 'best value' often means cheapest."
The PCT and Southwark Council issued a joint statement saying they commissioned "on the basis of value for money and good quality for residents". The statement added: "Both the council and the PCT are unable to comment on specific aspects of commissioning."