COUNCIL officials have had to pay out penalty fines of more than £200,000 to services group Jarvis.
And they may have to double that amount because of a clause in a contract with the troubled firm.
A bitter political row has now broken out over the payments from Kirklees Council's coffers.
Delays in building a new school are being blamed for the situation.
The council has doled out more than £200,000 as it struggles to find a new site for Whitcliffe Road First and Nursery School in Cleckheaton - and the final total could be £400,000.
The punitive payments were agreed in a contract drawn up in case a new school was not built for Jarvis to maintain.
But the council's Lib-Dem and Labour groups are arguing over who agreed penalty clauses in the contract.
Jarvis was awarded a massive contract to rebuild and refurbish 20 schools around the district. There were delays in some of the schemes.
Clr John Smithson, deputy leader of Kirklees Council, said the contract with penalty clauses had been drawn up under a Labour administration.
"We have no argument with the clause that the Labour group had negotiated. We'd have done the same. The problem was Labour wanted the school to be refurbished and we said `no' for a number of educational reasons."
Clr Smithson said his party deemed the Victorian building unsuitable by present-day educational standards.
Opposition parties reacted with outrage to news of the payments.
Labour group leader Clr Mehboob Khan said: "The draft contract that was being negotiated by Labour councillors in 1999 did not contain any such penalty clauses.
"The final contract signed by the Liberal Democrats in 2000 was changed."
He added: "A full explanation is needed as to why the Liberal Democrats changed the contract clauses in favour of Jarvis. This decision has cost a great deal of money which could have been invested in schools and books for pupils."
Conservative group leader Clr Robert Light blasted the penalty clause as ludicrous.
"I am at my wits' end at the thought we are paying this company compensation, when this council has been plagued by poor standards of workmanship, and failure to meet deadlines throughout the council's contract with them."
He demanded urgent action.
"Questions need to be asked as to how and why such a ludicrous penalty clause came to be in the contract, when this company has constantly failed to meet the council's own deadlines and standards - apparently without penalty."