Both parties argue the DoE has failed to recognise the full extent of the problems caused to the operation of compulsory competitive tendering by the current legal confusion over the Transfer of Undertakings (Protection of Employment) Regulations 1981.
Local government representatives saw evidence of a bias in favour of contractors in the guidance.
The DoE says it is anti competitive for councils not to provide information about their workforce to contractors to allow them to submit TUPE bids.
He said councils should take an early view about whether or not TUPE applied and it would not be viable for councils to evaluate tenders for a contract based on different assumptions.
'The advice does not hold any surprises but is quite controversial in its interpretations', said Local Government Management Board Principal Employment Adviser Jane Woodwark.
'It takes a pro contractor line and throughout ignores the real conflicting legal advice that exists. It also misses value for money points'.
The Association of Direct Labour Organisations said the government could have ended the confusion with a simple statement that the TUPE regulations apply to most areas affected by CCT.
Instead its proposals would complicate the tendering process introducing potential for delay and qualified tenders. 'The DoE continues to tie itself in knots which means the open season for confusion and increased consultants' and lawyers' fees will go on', said ADLO Director John Roberts.
Ms Woodwark described as 'a chink of light' the DoE view that councils could disregard tenders based on an assumption about TUPE which they believe to be incorrect, providing they have supporting legal advice and gave the contractors the opportunity to revise their bids.
The contractors' association Clause 26 is deeply unhappy with this apparent concession from the DoE.
The current guidance on TUPE says councils should not be allowed to take a view on whether TUPE applies to a particular contract before receiving tenders. But Clause 26 says this DoE advice is being widely ignored by councils.
This week it published a list of 42 councils which it said had told companies expressing an interest in tendering for a contract that TUPE applies. Of these councils, 36% are Conservative controlled and 26% Labour controlled.
'It is a misrepresentation to say TUPE is being used just by a few ideologically driven local authorities to undermine CCT', said Clause 26 Group Co-ordinator Cliff Davis-Coleman.
The group's survey of 50 contractors also uncovered evidence that the tendering process in many councils is not confidential.