But the NCS Trust, which runs the government’s National Citizen Service programme, denied claims that it owed money to The Challenge, which was the largest provider of places on the scheme. A spokeswoman for the NCS Trust said the claims were "categorically untrue".
The Challenge went into administration last week, almost four months after the loss of a £60m contract to deliver NCS services and despite talks with the trust and the Department for Digital, Culture, Media and Sport.
In an internal email seen by Third Sector, Oliver Lee, chief executive of The Challenge, said the charity was owed £7m by the NCS Trust in core payments due under its contract, and a further £3m was withheld at the end of October.
Lee wrote that the charity had been in "rude health" at the beginning of 2019 until problems emerged with the NCS Trust’s new IT system.
"This has been compounded by the NCS Trust unilaterally and without warning withholding significant core payments that are due to The Challenge and that we have always received previously," the email said.
"These payments are the lifeblood of our organisation. This element of our claim against the trust now exceeds £7m.
"The latest development on this awful landscape occurred on 31 October, when the trust unilaterally withheld a further £3m of core money. The Challenge cannot withstand this systematic assault on it."
Lee said in the email that the latest developments had "bled us dry" and resulted in the charity being placed into administration.
Third Sector understands that The Challenge has argued that the money was withheld after the NCS Trust decided to pay according to results, rather than regular core payments of 50 per cent, and it believes that The Challenge is the only organisation affected by this change.
The Challenge therefore believes it is owed both the £7m and £3m as part of its contract.
The charity, which employs 210 people, is in the midst of suing the NCS Trust for £22m, including claims that the trust’s software system was "inadequate and/or not fit for purpose".