Somerset County Council and their own joint shared services venture Southwest One are to face each other in court.
Southwest One is launching legal action against Somerset , saying it is in dispute with the council over the amount of money it is entitled to as a result of cost cutting.
Southwest One was set up by Somerset and Taunton Deane borough councils, Avon and Somerset Police and international technology and business experts IBM which owns 75 per cent of the company.
The county council said the dispute was over procurement quality and what payments Southwest One was entitled to.
Southwest One says it has complied with its contractual obligations.
In 2007, Southwest One won the administration and back office task contract, with the aim of saving the authority about £180m over 10 years.
In February this year the then leader of the county council Ken Maddock said the firm was failing to deliver promised savings.
Southwest One said later it was on target with its long-term savings plan.
For the financial year January to December 2011 Southwest One made a pre-tax loss of £3 million, the fourth year running that the company has lost money.
A spokesman for Southwest One said: "The amount reflects continued public sector austerity measures and their current and future impact on service expansion.
"The 2011 accounts include an additional loss provision of £6.2 million which ensures cost savings continue being made without impacting service levels. The provision also reflects anticipated future impacts on the business.
The venture's accounts record that IBM is keeping Southwest One afloat, saying: "SWO is dependent on the financial support of IBM to continue trading."
In March, it was announced that the county council was to bring back 160 staff who had been outsourced to Southwest One.
In a statement, Somerset County Council said: "We are in disagreement with Southwest One about the quality of the procurement service and what payments Southwest One is entitled to as a result of savings made by getting better deals through the joint venture.
"As set out in the terms of the contract, we had hoped we would be able to settle this issue through mediation and negotiation.
"It is now apparent that this will not be possible and it is disappointing that we are in the position of going to court.
"It is paramount that we look after the best interests of tax payers and take action when standards of performance and quality are not being met.
"We will therefore robustly defend our position and make counter-claims where we believe we have suffered losses.
"Somerset County Council will not be commenting any further on this issue at this stage."
Southwest One said it had taken court action because an agreement could not be made with Somerset County Council.
The spokesman said: "Southwest One complies with its contractual obligations, providing a robust service to all partners which includes the identification of substantial procurement savings.
"Throughout the course of the contract, Southwest One has secured procurement savings that amount to £22 million which have been approved by all partners, with contracts in place to deliver a further £71 million of savings.
"Southwest One has also successfully achieved external recognition from the Cabinet Office for Customer Service Excellence and operates an award-winning Customer Contact Centre."