Chartwells, the education arm of Compass, has won County Durham's four-year school meals contract worth almost £10m a year.
Chartwells won the contract against stiff competition from the council's direct service organisation (DSO), which came second, and contract caterers BET, Gardner Merchant and CCG.
The company will provide meals for a total of 110,000 pupils at 370 schools, and will take on all existing 1,800 staff.
The loss of the contract will have a major impact on the current turnover of around £45m of Durham County Contract Services, the multi-function DSO which previously operated it.
Indeed, the DSO's director Brian Tennant expressed anger about the way it lost the contract. "Chartwells is able to effectively offer a loss leader initially, on the basis that it will make it up later in the contract - whether by shedding staff or otherwise," he said.
"We put in the lowest bid we possibly could, but a DSO has to make a profit every year. It does not have the flexibility to operate at a loss initially."
But Kieran Mallon, marketing manager for Chartwells, said he "totally refuted" the idea that the company would run the service at a loss.
Chartwells had faced the same claim when it failed to win the school meals contract in Bedfordshire (Caterer, 28 April), and Mr Mallon reiterated the response he made at that time. "We are part of a commercial organisation which intends to offer a high-quality service. Our plan is to raise meal uptake and employ more staff, not the opposite," he told Caterer.
Chartwells now operates school meals contracts for three local authorities, having gained the whole of Sandwell last month and part of Essex in February. It is still awaiting a response from the Department of the Environment over its appeal against losing the tender in Bedfordshire, despite putting in the lowest bid.