The struggling firm will take over operation of the council’s human resources, organisational development and finance departments after the council’s cabinet agreed to ratify despite its financial problems.

Around 100 staff will transfer over under TUPE rules at the start of February. Mouchel aims to make the council savings of £2.2m over the life of the contract.

Cabinet considered a detailed independent risk assessment based on Mouchel’s latest audited financial statements, along with an impartial review of the risk management and contract governance arrangements that are already in place.

Council Deputy Leader John Beesley said: “We are extending this contract having undertaken a great deal of background work.

“The independent reviews acknowledge that all the relevant issues have been fully faced and dealt with by the council, and that robust measures have been put in place to plan for a variety of risks, including a strong exit strategy in the event of needing to bring services back in house.

“It is this comprehensive approach that has led to the council retaining £135,000 to cover the potential cost of bringing HR and finance back in house, should Mouchel fail, together with other significantly improved contractual measures which are commercially sensitive, to safeguard the council’s position.”

Beesley added: “Obviously, we do not believe that this will become necessary, as we have confidence in Mouchel’s ability going forward.”

“I should highlight that service levels already being achieved by Mouchel in the services currently provided – IT, Facilities Management, and Revenues & Benefits – are in line with contractual obligations.”

In November 2010, Bournemouth signed a £150m “incremental partnership” deal with Mouchel to deliver 40% cost savings.

The contract has three key features: a transformation programme, the delivery of ICT, revenues, benefits and facilities management, and up to 650 new private sector jobs in the borough, with 350 guaranteed under the contract.