BT says it is seeking “substantial damages” after its contract to run computer services for Essex County Council was cancelled.

Union chiefs claimed the authority stood to lose millions of pounds after ditching the deal.

But County Hall bosses insisted they were right to bring systems back in-house as the arrangement with BT was “not delivering value for money”.

A BT spokesman said: “We are disappointed Essex County Council has unlawfully terminated our contract.

“Having discussed the position with our lawyers, we can confirm we will be seeking substantial damages.”

The county council brought in BT in a bid to save cash by increasing efficiency. Unison estimated the contract signed four years ago had three and a half years to run.

Kumar Sandy, Unison regional officer, said the cancellation showed why current moves to find a multibillion-pound contractor to run a wide range of council services were doomed to disaster.

He said: “A medium-sized pilot outsourcing adventure has now ended in tears.

“It is utterly incredible the county council continues to push through other potential privatisation disasters.

“The council is behaving like a reckless gambler, chasing losses with bigger and bigger bets, but with council taxpayers’ money."

The council said it wanted to improve services and keep down costs.

Leader Lord Hanningfield said: “Our aim is deliver £200million of savings to enable us to keep council tax at an absolute minimum as we have done this year.

“We also will act decisively when we judge any contract is not delivering value for money and will take appropriate action.

“This is not something we will shy away from nor avoid. Unison should join the 21st century, stop using scaremongering language and join us in delivering on what is really important, value for money.”