The council says it is local business-friendly and still has many contracts with local suppliers and service providers.
Balclutha Motors Nissan car dealership owner Jared McPhee aired his concerns at a public forum before last week's council meeting.
He said by agreeing to an "All of Government'' (AOG) contract system, the council had denied local businesses the opportunity to bid for contracts.
The decision to use AOG contracts was approved in April.
Under the Government procurement reform programme, AOG contracts have been established with approved suppliers for selected goods and services to local governments nationwide.
The Government said it is a way to standardise supply and procurement and improve the overall service quality.
It covers the supply of vehicles, hardware and advertising as well as road and consultancy services.
Mr McPhee said because of the AOG contracts, the council was spending money on goods and services from outside the district, leaving local suppliers to simply deliver them.
The AOG contracts had had a negative impact on his own car dealership, he said.
Even though vehicles for council use were delivered to his dealership, the administration fee was charged to the AOG agency.
He had made some staff redundant due to the decreased income from the council.
Mr McPhee said this contradicted the council's promoted "live, work and invest'' policy.
"If it's OK for council to shop out of town, you are setting the benchmark for the ratepayer.''
Mr McPhee said his business was not the only one affected by the AOG contracts and other business people supported him.
Clutha District Council chief executive Steve Hill denied the AOG contracts meant the council was not business-friendly.
The council employed and used many local suppliers for goods and services, such as SouthRoads and Fulton Hogan, which both had local offices, he said.
The list of local contracts could "go on and on''.
"Even our purchase of services from Clutha Development is a significant contract.''
The supply of vehicles and fuel through the AOG contracts was in accordance with council policy, which required the council to consider the best value to the ratepayer.
"This [decision] is not directly related to council's plan to promote growth. There are many actions in place or planned to promote growth.''
While a few local businesses would be negatively affected by the AOG contracts, others would be positively affected as they provided brands that were part of the contracts arrangements.
Vehicle suppliers approved under AOG contracts are Ford, Holden, Hyundai, Mazda, Mitsubishi, Suzuki and Toyota, but not Nissan, which Mr McPhee's dealership sells.
Mr Hill said the council had bought some vehicles from the Balclutha Motors Nissan car dealership in the past.
The council was reviewing its procurement policy to support the local economy.
"That review is considering the question of local supply, which may be more expensive, with best value to the ratepayer.''
Mr Hill hoped the review would be completed by Christmas.
