North Birmingham's refusal came as relatives of residents at the homes detailed some of the health authority's criticisms of Mencap's operation - but said they backed the charity retaining the contract.
Chris Stone, whose brother John, 39, a schizophrenic with Down's syndrome, is resident at one of the homes, said the care Mencap provided had been "wonderful".
"John is quite severely disabled. If he could speak, I'm sure he would say what I am saying. The staff have a marvellous relationship with the residents. John has improved since he has been there and is treated like an individual. As much as possible, given his disabilities, he is given choices," she said.
She had been told that when the health authority made unannounced visits officials had seen one woman incontinent with her blouse undone and in another case medication being forced on a resident.
Mencap had told her that the health authority had then refused to allow the charity's staff to talk to the person who made the report, making it difficult for the charity to challenge the charges.
She suspected there was "a hidden agenda". But Les Clarke, the authority's director of quality, denied any ulterior motive. "We had a number of concerns which were sufficiently serious for us to take the action we have," he said.