Two councils in Somerset who want to merge services to save money have said they are "disappointed" after their bid for government funding was rejected.
West Somerset and Taunton Deane councils voted to share a chief executive after West Somerset was warned it was "not financially viable".
The councils had applied for the Transformation Challenge Award given to "cutting-edge shared service projects".
However, they said their sharing plans were "not dependent on the bid".
The councils said work on the project for joint management and shared services had started before they applied for the government funding.
Councillor Tim Taylor, leader of West Somerset, and Councillor John Williams, leader of Taunton Deane, issued a joint statement.
They said: "Naturally we are disappointed our bid has not succeeded but we are committed to moving forward with proposals for joint management and shared services.
"Had we received funding it would have been the icing on the cake that would have helped deliver efficiency savings in a much shorter time span."
From the end of the month, both councils will be led by Penny James, who has been chief executive at Taunton Deane for 10 years.
West Somerset's chief executive Adrian Dyer has already agreed to take redundancy.
The two councils could see staff and offices merged from 2015 as part of other cost-saving measures to be looked at in the autumn.
The government awarded £7m to be shared among 18 local authorities from across the country that made Transformation Challenge Award bids.
Local government minister Brandon Lewis said the money would help the successful bidders to "get shared service projects up and running".