The Public Contractors Association (PCA) and the GMB general union are worried about laws protecting contracting companies who supply services to local authorities.
It had been thought that the EU Acquired Rights Directive applied to these companies and protected them from liability for redundancy payments if they lost contracts.
But a court decision on a case in Germany has led to uncertainty as to whether this directive applies and auditors are now insisting that contracting companies make provision for redundancy costs.
The association estimates that in the UK local government contracts with an annual value of£1.5bn will come up for renewal in the next 18 months.
It says government delay in responding to the confusion over the directive (incorporated into UK law under the Transfer of Undertakings (Protection of Employment) regualtions) has already led to some councils and contractors arguing that the directive did not apply.