Southampton City Council’s cabinet has confirmed Capita as preferred bidder in a £290 million outsourcing deal, but the contract is set to become an election issue as it emerged that the IT services firm was the only bidder.

The vulnerability of contentious contracts to political change was highlighted earlier this year when the Conservative Party said it would axe Labour's ID card scheme if it came to power. Now Labour is threatening to derail Southampton's outsourcing contract if it wins control of the council – currently split three ways – in the May local government elections.

The 10-year strategic services partnership contract will cover the provision of IT, customer services, human resources, payroll, revenues and benefits, procurement and property services. Capita is also seeking to develop a new regional business centre as part of the partnership deal.

The contract value is now nearly double the £150 million price tag when the tendering process began more than two years ago, with an initial scope covering only IT and customer contact service.

In September last year, the council invited both BT and Capita to take part in competitive negotiations. A third proposal from Serco was rejected. But BT pulled out on 27 November, leaving Capita as the only bidder.

A report by the European Services Strategy Unit at Northumbria University, commissioned by the council workers' Unison union branch and presented to councillors, warned: "It was clear from the original bids that the scope of the project is being dictated by Capita."

Capita has "imposed several conditions on the council", linking provision off some facilities to the inclusion of extra services in the contract, it said. The inclusion of variant bids, including services outside the original scope of the initial tender notice "has effectively undermines the cabinet decision in January 2006 to proceed with an incremental approach to transformation," the report said.

It added: "This simply opened the door to Capita to make proposals conditional on including all services in scope."

Capita declined to comment on the report or the political row, which has engulfed the council chamber.

The award of preferred bidder status to Capita was opposed by Labour, which will make the contract part of its election campaign in May, two months before the planned July date for finalising the deal.

The party is unhappy that preferred bidder status was awarded when there was no competition for the contract. It was a "staggering way to operate", Bridle said. "It's hardly a commercial way to look at it. You have a duty to apply all the competition and best value criteria -- and how the hell can that have happened?"

The council workers' union, Unison, is also opposed to the outsourcing scheme, which will mean the transfer of 600 staff to Capita. Union members have already staged a one-day strike and are set to begin further industrial action today, with an overtime ban, non-attendance at meetings where Capita representatives are present and non-cooperation with other aspects of the tendering process.

A council spokesperson said: "Both parties have yet to agree the mechanics for providing appropriate financial visibility through the life of the partnership. Capita have suggested a different approach to that initially suggested by the Council and this issue remains to be discussed and agreed at the next stage of the process."