• SERVICE: City chiefs argued charities could provide better support for the homeless
The city council argued it could cut costs and provide a better service by asking charities to bid for contracts to give housing support.
But when one of the winning charities pulled out at the last minute, the council took the work back in-house.
Now figures released under freedom of information show the Intensive Support Service, which helps people with complex needs such as addictions and mental health problems to set up home, is costing the council 31.20 per hour, compared with the 24.90 per hour paid before the transfer.
Andy McAleavy, a board member of the Edinburgh Home Link Partnership (EHLP), which provided the service previously, said the higher costs worked out at an extra 7805 per week, or more than 1100 per day.
He said: "If the council is serious about saving money in these austere times, give us back the job and we will save 50,000 between now and the end of March, and 400,000 by the end of next year.
"It's not the workers being paid more; when the service was transferred over, the salaries were the same. The added costs are the council bureaucracy."
Labour's voluntary sector spokesman Ewan Aitken said the Lib Dem-SNP administration was wrong just to put services out to the market.
"What happens in the tendering process is the voluntary sector is forced to bid low and then have to cut services, while the council is costing more for fewer hours," he said.
Mental health charity SAMH walked away just a week before it was due to take over the service.
The council expected to bank 3.5 million over three years in efficiency savings.
Mr McAleavy said the service by EHLP cost 30,851 for the seven days before the transfer and the same service for the same number of people cost 38,656 for the seven days after the transfer.
Over a year, that works out at 405,860 and over three years the bill would be 1.2m.
A council spokesman said the tender had achieved "considerable" savings.
He said: "Our current Intensive Support Service reflects a number of high employee costs which came about as a result of a high proportion of managers transferring to the council from a previous service provider.
The service model we now use has changed considerably to support early intervention and a structured move on to independence so it is not directly comparable to the previous service."