Patersons of Greenoakhill, a division of Coatbridge-based Patersons Quarries, said the decision to overlook its submission will cost taxpayers up to £4.5 million over the life of the two-to-three-year contract.
It insists its bid came in significantly below the council's price expectation, and is disputing the authority's decision to rule it out on "quality" grounds.
But the council has hit back, and declared it has full confidence in its procurement procedures.
Along with Viridor and Levenseat, Patersons was one of three firms bidding for a two-to-three-year contract to handle domestic waste for the authority.
If its bid had been successful, it planned to process the waste at its landfill site, and generate electricity from the gas given off by the decomposing materials at its power plant.
The power would then be sold to generators on the spot market.
The council stipulated in the tender document that bidders would have to meet its expectations on price and quality.
Price would ultimately account for 60% of the decision, but if bids were ruled out on quality terms then they were not allowed to proceed.
Patersons was told by the authority that its bid had fallen short in its quality assessment, a decision which barred it from further participation.
But chairman William Paterson has disputed that assessment, claiming his company runs "one of the best landfill sites in Scotland".
He criticised the council for not visiting the site during the tender process and for declining to expand on the reasons for its decision - in spite of a request under Freedom of Information (FOI) legislation.
The company asked for details of the bids which were lodged by Viridor and Levenseat, but said by yesterday it had only received a synopsis of its own submission to the council.
A further request for the information was lodged.
Mr Paterson has the sent tender document and Patersons' submission to an independent expert to ensure it is "fit for purpose".
On cost, Mr Paterson noted his company's bid had come in well below the council's expectation on price, and claimed the council failed to realise the level of saving it could offer.
By his calculation the council would have saved about £1.5m a year if it had contracted Patersons, which could rise to as much as £4.5m over the period of the contract.
He said: "This is a huge sum of money which the taxpayer should not have to pay."
The businessman said he has written to South Lanarkshire's 64 councillors and local MSP Margaret Mitchell urging them to question its ruling executive's procurement decision, but has received no response.
His company secured an interim suspension on the awarding of the contract, which the council is seeking to have lifted at the Court of Session tomorrow.
The cost of taking the issue to court is expected to come in at £25,000 for the firm.
Mr Paterson said: "The point is if I hadn't taken the action they would have awarded the tenders already.
"It would have given me no time to do anything.By taking the action, it at least gave me a week to try and get the councillors and try and do something and cause something to happen.
"We are not particularly hopeful of winning the action because the rules are written by them in the tender, and they have applied it. They have just said this is what we think. It is absolute nonsense."
Paul Manning, South Lanarkshire council's executive director of finance and corporate resources, said in a statement: "Patersons have challenged the process used by the council during the issue of a competitive tender last year.
"The council has clear and robust procurement procedures, in line with other public sector bodies, which are designed to get the best possible value for money for every tender.
"We have confidence in these procedures, which are designed to secure quality work at the right price, and will argue strongly in court that this was the case in the outcome of the tender disputed by Patersons."