A nurse and therapist-run social enterprise praised by the Cabinet Office for cutting costs has lost out to a private provider for a £450m contract.

Assura Medical was last week named by NHS Surrey as the preferred bidder in a five year deal to provide community services in the south west and north west parts of the county, beating the not-for-profit mutual Central Surrey Health.

The deal, which will see Assura take on community services in the two areas at the end of the year, as well as some countywide services such as sexual health and prison healthcare, is set to be the largest NHS contract awarded to an independent provider through a competitive tendering process. A due diligence exercise will now take place.

The other bidders were Southern Health Foundation Trust and Surrey and Borders Partnership Foundation Trust, although the former pulled out of the race in May.

Ralph Michell, head of policy at the Association of Chief Executives of Voluntary Organisations, said the awarding of the contract would be “seen as a bad sign” by people working in the third sector, despite the government’s “clear commitment to ensuring mutuals should succeed”.

He said many third sector bodies found it difficult to access finance. He added contracts were being awarded before initiatives such as social impact bonds and the “Big Society bank” got fully off the ground to help them compete with the private sector.

Central Surrey Health has employed 770 staff since 2006. Last year it was praised by Cabinet Office minister Francis Maude, who described its staff as being able to “show that more can be done for less”.

“They are the experts who know what their patients want and they’ve shown that they can do a better job if they have the power to drive changes,” he added.

A Cabinet Office spokesman said work was ongoing to ensure all organisations could bid for contracts on a level playing field.

The tender to provide community services in west Surrey was the second from a primary care trust attempting to discharge its community services, following a £99m deal by NHS Nottinghamshire County, which resulted in services being split between several providers.

Assura’s usual operating model is to provide primary care services via partnerships with local doctors in “GP provider companies”, of which it currently has 25 across the country. Each provider company is half-owned by local GPs, with the remaining half owned by Assura.

NHS Surrey chair David Clayton-Smith said the due diligence process would “ensure the recommendation is robust for the benefit of patients and staff”.