Several of the charities that were not awarded contracts had run similar services under the scheme's predecessor, the New Deal for Disabled People. Contract losses have left them with more staff than posts to fill. The problem could result in scores of job losses.
More than 70 jobs are vulnerable at employment charity Scout Enterprises, which did not win any Pathways to Work contracts. Alan Pepler, the charity's south west regional business manager, said the organisation was considering its next move.
"We have 270 staff at the moment," he said. "We certainly expect that to be down to less than 200."
The Shaw Trust won two contracts in the first round of contracts, but missed out in several areas where it currently runs New Deal for Disabled People services, including London. Catherine A'Bear, chief corporate affairs officer at the trust, said redundancies at the charity could be significant. "I don't think it will go into three figures but it will be a hefty figure," she said.
Charities are also facing a fight over whether current New Deal for Disabled People staff will be able to transfer to organisations awarded contracts.
WorkDirections UK, which won six of the 16 contracts awarded in the first contracting phase, argued that Tupe rules, which govern transfers of staff between organisations, should not apply. If this were the case, staff would not be able to transfer.
A'Bear said she was disappointed that the DWP had not provided more direction on the Tupe position.
A DWP spokesman said: "It was made clear throughout the procurement process that providers needed to seek their own independent legal advice on Tupe."
The first round of contracts was announced last month (Third Sector Online, 25 September). The second round is still under negotiation, but only two charities - the Shaw Trust and Royal British Legion Industries - have been awarded 'preferred bidder' status.