Education leaders have left taxpayers millions of pounds out of pocket by gambling over the future of a failed secondary school.

Brighton and Hove City Council is being asked to pay £4.5 million to engineering firm Jarvis after deciding to close East Brighton College of Media Arts (Comart) and cancel the company's maintenance contract with the school.

But it has emerged council managers were already aware that there was a 50 per cent chance of Comart closing when they signed the 25-year Private Finance Initiative (PFI) deal in 2002 - meaning they would not be able to honour the contract.

A highly-critical scrutiny committee report into the £105 million privatisation of repair and maintenance services in four Brighton and Hove schools has revealed managers could have avoided taking on responsibility for the Comart contract collapsing and having to pay millions of pounds to Jarvis.

Instead they opted for a cheaper contract which gave them liability because they wrongly believed Comart would turn itself around.

Alex Knutsen, branch secretary of Unison, the public sector union, said: "The council gambled with taxpayers' money and lost. It was ridiculous for them to include Comart in the contract knowing what it did."

The report, by a cross-party group of city councillors, says decisions concerning the PFI deal were taken by an elite group of councillors and directors, with no input from members of the children, families and schools committee.

To write any risk of closure into the contract would have meant paying much higher monthly fees to Jarvis.

The scrutiny panel, set up last July, interviewed council officers, headteachers and governors of the PFI schools, Varndean, Dorothy Stringer, Patcham High and Comart.

Green councillor Georgia Wrighton, who chaired the investigation, said: "It was agreed any financial risk entailed in falling pupil numbers or the school potentially closing would be borne by the council, not by Jarvis.

"People felt this had to be done to save the school. The contract had to work and this was the only way of turning the school around."

But once the contract was signed, things went badly wrong, the investigation found. Comart was particularly hard hit.

Ms Wrighton said: "People working at the school at the time told us it became a kind of war zone.

"Stability was paramount but they didn't get support from the council or understanding from Jarvis site managers."

In March 2004, the council announced Comart would close at the end of the next academic year.

The scrutiny panel recommended that a senior position be created within the council to supervise school PFI contracts from start to finish.

Also, teachers, parents and councillors must be fully informed and involved with any decision-making.

A council spokesman said: "Negotiations with our PFI contractor are ongoing but we are likely to be making a one-off payment of about £4.5 million to take Comart out of the remaining 22 years of the PFI contract.

"We expect, however, that over the remaining 22 years of the contract the up-front cost of termination will be largely covered by the payments that will no longer have to be made to the contractor for services and maintenance."

Last year Jarvis was forced to sell its PFI contracts across the country following interim losses of more than £283 million.

It pulled out of the Brighton and Hove contract last January and handed over to SMIF, which promised to transform the way the schools were run.