The Southern District Health Board has cancelled a tender process after a union complained staff who might be out of a job were not consulted properly.
The board wants to contract out mental health needs assessment, which is carried out by a mix of DHB and non-government organisations.
Needs assessors specify care for mental health service users.
Eleven full-time equivalent staff work in the sector in Otago and Southland, in the DHB and NGO services.
The Public Service Association had complained DHB staff were not properly consulted.
PSA Dunedin organiser Julie Morton was pleased the DHB listened and stopped the process.
The board had accepted it had not followed correct procedure and was prepared to go back to the start to get things right.
SDHB finance and funding general manager Robert Mackway-Jones said that while the board did not necessarily agree with the union's concerns, it decided to cancel the process to maintain "good faith".
The new tender process would start in about a month.
The contract was to have been in place this month.
Needs assessor Miramare, which hopes to win the contract, was in a state of uncertainty until the outcome was known, manager Kerry Hand said.
Mr Hand said the delay was unsettling for his staff.
Miramare has about 590 service users and employs 4.5 full-time equivalent staff.
It would be frustrating to start the process all over again, Mr Hand said.
Mr Hand believed the DHB-run service ought to have been amalgamated with the NGO sector to avoid a "destructive" process.
