BT is to refund £1.35m to Edinburgh Council for delays in the council's Smart City e-government project.
The 10-year project was launched 18 months ago, but a BT Scotland spokesman said: "The planned timing of the migration from the council's old mainframes has slipped, and we don't want the council to be out of pocket, so we will pay for costs and retraining."
The refund will be made up of £550,000 in cash and £800,000 in service credits. The council said it was now happy with the way BT has responded to the delays, and it believes the project is now back on track.
The Smart City project includes the establishment of a central call centre for all Edinburgh citizens to contact the council, improved web access to all council departments - including the electronic submission of planning applications - and free web access in all of the council's libraries.
The project is being managed by Syntegra, a wholly owned subsidiary of BT. "This is one of the biggest IT projects in the UK and, like any big project, some bits fall behind," the BT spokesman said.