Construction and engineering group Jarvis has been stripped of a lucrative school building project.
Jarvis said the decision was taken by "mutual agreement"
The troubled firm, which made a loss of £255m last year, was preferred bidder for the £174m contract to build and maintain nine Fife schools.
However, Jarvis said it had been unable to reach an agreement on some "key issues" with the local authority.
Fife Council is now reopening talks with the other two short-listed firms, Canmore and Emblem.
Jarvis secured preferred bidder status for the Expanding Horizons project in April and was due to start work this month.
The company said talks with the council in recent weeks had led to a "mutual agreement" that the negotiations should be reopened with the other two companies.
"The final decision is disappointing because Jarvis was competitively selected as the best bid in terms of value for money and was ready to proceed with the contract to deliver the outstanding schools that Fife pupils and staff so deserve," said a Jarvis spokesperson.
"However, it became clear that although good, positive working relationships have been maintained throughout, we could not finally reach agreement on remaining key issues.
"Our imperative now for Fife is to do what we can to help them move the project forward and assist in terms of designs and project plans."
Neither Jarvis nor the council would comment on the reason for the collapse of the deal.
Fife Council's strategic manager, David Martin, said: "Irrespective of the change of partner, the council remains committed to building these new schools.
"We want to reassure parents that we will move the project forward as quickly as possible."
Jarvis has preferred bidder status on a number of other school projects in the UK.
However, in June a 25-year contract to refurbish 37 schools in Norfolk was delayed.
Earlier this year work on a £105m contract to redevelop and manage four schools in Brighton was branded "unacceptable" by the council.
Last year four schools in the Wirral were unable to open on time.