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London-based architect Levitt Bernstein Associates has won £1.25m for outstanding design fees as a result of an arbitration award against Stoke-on-Trent council.

Earlier this month, the council capitulated on the 15-month arbitration case, which will cost it a total of £8m, including both parties' legal costs.

The dispute relates to the design of two lottery-funded performing arts buildings in Stoke – Victoria Hall and the Regent Theatre – for which Levitt Bernstein was appointed lead consultant in 1994. The buildings were completed in 1998 and 1999 respectively and have since won Civic Trust awards.

Hugh Geddes, director of Levitt Bernstein, said the problem arose out of the management contract form of procurement, which did not fix a maximum price.

"There was a period when we were asking the client to pay us more money, and they responded by paying us less. We were obliged to suspend work, which we were entitled to do under the contract, and there was then a counterclaim by the council."

He added: "We entered into the appointment, so it would be wrong to whinge about it. However, the quality of the client is a different issue. And then there is the question of the procurement by management contracting, which was chosen by the council's in-house project managers. We advised against it because we thought it was fraught with danger."

James Bessey, partner in solicitor Hammond Suddards Edge in Birmingham, commented: "It is likely that where the council ran up big costs was in allegations of overspend, rather than in dealing directly with the issue of the architect's original fee claim. It shows that councils need to have a clear warranty that the original budget is accurate in order to made a counterclaim against their consultants."

Stoke council's £8m loss includes fees due to five other consultants, including structural engineer Cameron Taylor Bedford, services engineer Max Fordham & Partners and quantity surveyor Citex.

In addition, the council last summer settled claims amounting to £7.5m from management contractor Norwest Holst and some 70 trade contractors. The original construction budget agreed by the council's property services department in 1994 was just £4.7m, less than one quarter of the total final cost of more than £20m.

Stoke council has been hit by this overspend at a time when it is cutting its budget by £16m over two years. The case parallels that of Hackney council in London, whose £27m Clissold Leisure Centre is also four times over budget.

Last week, Stoke council leader Barry Stockley admitted: "We recognise that lessons must be learned from this."

Councillors agreed to set up a full independent investigation of the overspend, and appointed John Renaudon, partner of local quantity surveyor Townsend and Renaudon, to draw up terms of reference for the investigation.