A waste company could claim hundreds of thousands of pounds in compensation after its bid to empty Brighton and Hove's bins was rejected at the 11th hour.

Serviceteam is almost certain to demand Brighton and Hove City Council pays for work it did.

The spurned contractor's marketing director Philip Walker said the work, carried out at the council's request, had cost "tens of thousands of pounds".

But the company could make a second, much larger claim to recover all or part of the profits it had expected to make. Mr Walker said it had anticipated making more than £2 million.

Mr Walker said the firm had negotiated properly and it was considering all its options, among them a compensation claim.

He said: "I think the options for the company range from a loss of profit claim for a five-year contract in excess of £2 million, to an amicable recognition of the true cost incurred by the company in assisting the council to ascertain the full operational cost of the contract."

Serviceteam had been the only firm in talks about taking on refuse collection and street cleaning since August, when the council named it the preferred bidder.

The company was told it would not be awarded the contract last week, four days before it expected to take over from departing contractor Sita.

A council spokesman said the authority was in talks with Serviceteam about paying some costs, but added: "We know nothing about a claim against future profits and we think such a claim unlikely."

Serviceteam eventually agreed it would run refuse collection and street cleaning for under £13 million a year, down from its original offer of more than £15 million.

The council expects it will cost £11 million a year to run the service itself.

The council has warned the cost of the fiasco is likely to translate into higher council tax and cuts in services.

Paul Elgood, leader of the Lib Dems, said: "If Serviceteam has a case the council have put themselves in a very tricky position and have indeed put the finances of the authority at risk.

"It was an absolute mistake to agree a preferred contractor back in August as it removed any possible competitiveness from the process."