Former Connaught workers today spoke of their dismay after hopes for a deal which would have handed them a jobs lifeline were dashed because Norwich City Council feared it would face a legal challenge.

City Hall was locked in talks with an unnamed contractor which had agreed in principle to take over the maintenance and repairs contract, responsible for 17,000 council homes in the city.

But yesterday the council said its lawyers had advised them that transferring that contract, even for the same price and on the same terms and conditions, could lead to a legal challenge – so the plug was pulled on a deal with the unnamed firm, known only as company B.

It came as a massive blow for more than 300 Norwich workers who were made redundant when Connaught Partnerships went into administration as they had hoped the deal would see their jobs rescued.

Chris Mann, 45, who lives in Dereham with his 15-year-old daughter and has worked for the city council and its contractors for 20 years, said: 'Nothing the council does surprises me any more. I am very bitter about it and so are all the other workers – they are messing around with our lives.'

And Justin Cutler, 39, of Thorpe St Andrew, who worked for Connaught Compliance for two-and-a-half years and then transferred to the Norwich City Council contract on September 1, said: 'I can't believe the situation has got so political – they seem to have forgotten about the people whose jobs they are talking about.'

The council had said the deal, if it had been signed, would have got the vast majority of former Connaught workers back to work and ensured a long-term solution for the provision of these services for tenants and families.

Instead, temporary deals for housing repairs and maintenance, plus other services previously provided by Connaught will have to be put out to tender on interim nine and 12-month contracts and the process of finding permanent contractors will then have to begin.

Alan Waters, cabinet member for corporate resources and governance and chair of the contracts working party, said: 'We always knew we would need to be cautious, but the risk escalated and we are aware of at least two companies that may have launched a legal challenge had this transfer gone ahead.'

Emergency contracts had already been awarded to companies such as Lovells, Ward and Rooney and Ashfords and those will continue until the interim deals are let.