In its response to the DWP's consultation on its plans to achieve full employment, the Commission says charities' ability to play a role in creating jobs has been compromised by the speed of change to competitive tendering as well as "tensions between competitive commissioning approaches and Compact principles".
The Commission said it wants to work with the DWP to ensure Compact principles are embedded in commissioning processes.
Many charities missed out on recent contracts awarded as part of the DWP's Pathways to Work programme, which is designed to help get people on incapacity benefits back into work.
Acevo chief executive Stephen Bubb said the sector had been "comprehensively stuffed" and launched an inquiry chaired by Dame Mavis McDonald, the former permanent secretary at the Office of the Deputy Prime Minister.
The Commission, which spoke to McDonald as part of its response, said the DWP's commitment to competitive commissioning for services did not take into account Compact principles, such as full cost recovery.
Richard Corden, interim chief executive at the Commission, called on the DWP to issue "clear statements on full cost recovery and Tupe" at the start of the commissioning process.
He said: "There is still a gap between the requirement of commissioning processes and the working capacity of most third sector organisations." But he added; "The third sector needs a greater understanding of the culture of commissioning."
The Acevo report on the Pathways to Work tendering process is expected to be released on 20 November.