Somerset County Council's troubled outsourcing contract with Southwest One has stalled the authority's programme of cost cuts, according to a Conservative member of its cabinet.
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Southwest One, a shared services venture with IBM in which Somerset owns a 17.5% share, has meanwhile begun actively working against Somerset's interests, said the Councillor.
But after a dramatic cut in council payments predicated a succession of financial losses at the outsourcing venture, Southwest One is now suing the council for non-payment of fees.
Councillor David Huxtable said Southwest One was stopping the council making cuts or privatising services because it refused to give up its claim for fees on services the council discontinued.
"Every part of our organisation has a part of Southwest One appended to it, whether it is buying financial services, property advice or whatever. But local authorities can't afford to do all this stuff they used to do. So if we, for instance, shut down a department, or if we privatised school meals - the Southwest One overhead cannot be removed, so we are still paying a Southwest One overhead on something we haven't done for almost two years," said Huxtable.
"Pretty much everything we want to change now, we are almost precluded from doing because we will be carrying this overhead forever - unless we can renegotiate parts of this contract."
Huxtable said the Conservative-led council had been trying to change its contract ever since it won power from the Liberal Democrats in the local election on 4 June 2009.
The Conservatives cut payments to Southwest One by 31% in 2010, their first year in power. Somerset had accounted for 75% of the outsource venture's income, according to its published accounts. But by 2011, the council had cut payments to supplier by over 50%, or £27m, accounting for the majority of its lost income.
Taunton Deane District Council, the only other council that joined the Southwest One partnership, cut its annual payments by just £1m since 2008. Avon and Somerset Police, the only other public body to join the venture, increased its payments by 70%, or £8m. Between them, the three authorities account for 90% of Southwest One's revenue.
"In the harsh political world it was a contract set up by the Liberal Democrats and we've spent the last three years trying to renegotiate it to get more flexibility in the contract," said Huxtable.
"Obviously, they lost quite a lot of money over the last two or three years, and I suspect their current business plan is to try and charge all their clients more money to get it back. That's where we are.," he said.
"If you looked at any of their board minutes you will find their recovery plan is pretty much predicated on trying to screw the people who are in partnership with them - on charging more for the services they provide or providing the services at a lower level at the same cost. There's only so many ways you can cut it if you are constantly losing millions of pounds."
Southwest One said in its annual accounts last week that it had successfully completed the installation of an SAP system that would, it has been anticipated, help it operate more efficiently.
Neither Southwest One nor Somerset council would confirm how much money the former was claiming in its legal action. They said a writ had been filed early this week but the High Court had no record of any action.
Southwest One said in a statement that its legal action seeks the recovery of sums due under contract.
"Despite extensive efforts, Southwest One has been unable to resolve the matter satisfactorily," it said, referring to procurement savings it still hopes to make on behalf of Somerset. It declined to comment further and is yet to comment on Huxtable's criticisms.
The outsource venture promised to save £190m for its partners over 10 years. By the half-way point last year it had saved just £13.5m.
Somerset council said in a statement the disagreement was over the quality of Southwest One's procurement service and whether the outsourcer had made enough savings to warrant charging a bonus fee. Southwest One's accounts last week said it had saved £7.6m for Somerset to date.
IBM, which owns 75% of Southwest One, declined to comment.