North East Lincolnshire council has ditched a planned 12-year IT and business services outsourcing deal with Capita after the two parties failed to agree on costs.
The council selected Capita as its preferred bidder for the programme, which was estimated to be worth £175m, in September.
A deal would have seen the two parties set up a joint venture company with 350 staff seconded from the council to provide business transformation, improved customer services and regeneration
But a council cabinet meeting voted to call an end to negotiations after the two parties failed to agree commercial terms.
Council leader Andrew De Freitas said: “We had said the contract had to be delivered without adding a penny to council tax. In the end, this could not be guaranteed.”
He added: "We are disappointed about the outcome but we have maintained throughout we would only sign a deal if it was right for the council and the people of North East Lincolnshire."
The council is now drawing up alternative plans to improve its services.
North East Lincolnshire is not alone in pulling out of an outsourcing partnership on cost grounds. Earlier this year, Swansea council axed the planned second phase of an e-government contract with Capgemini, saying the proposals were too expensive. Swansea later agreed a shared services IT tie-up with Cardiff council.