The company brought in to deliver a hi-tech solution for the council to communicate with its customers has been scrapped from the project's second phase.
IT firm Capgemini which helped deliver the first phase of the project has been told its services for phase two are no longer required.
The massive project was designed to replace outdated computer systems and give residents a state-of-the art call centre.
The first phase to replace IT equipment was signed 12 months ago and is worth £86 million to Swansea-based IT firm Capgemini.
However, spiralling costs for the project have put the customer service element in doubt. An out of hours call-centre has been put on hold.
Council Leader Chris Holley said: "Continuing reviews of our option to sign up to a Capgemini-managed phase two have shown there is not a solution that is acceptable to the council.
"That is why it is being recommended we don't proceed with this specific deal."
That is a complete U-turn on comments made two years ago, when the councillor in charge of the project, Mary Jones, described the decision to use the firm as "probably the most significant and exciting decision this council will take for many years".
The scheme has been mired in controversy. Council IT staff walked out in one of the longest-running public sector strikes to hit Wales over plans to transfer jobs to Capgemini.
The cost of the scheme has ballooned, from around £100 million to £170 million for phases one and two.
Estimated savings from the project have also been scaled back from between £30 and £50 million to £26 million. So far only £7.4 million of those savings have been identified as achievable.
Former chief executive Tim Thorogood, who helped push through the project, left Swansea Council before any deal could be signed because of a planning row at his Rhossili home.
The second phase, known as Service @ Swansea was designed to bring massive improvements to services.
Residents were told they would get an out-of-hours call centre and a one-stop shop where they could get all their council inquiries answered in one go.
The customer contact centre will open in County Hall later this year, but plans for the call centre are on hold in what Councillor Holley has described as "a sensible and prudent decision".
When the scheme was being sold to residents Councillor Jones said: "It will mean they can call a corporate call centre and speak to a highly trained member of staff. They'll be able to resolve any number of inquiries on the spot - from housing benefit to booking a sports facility, or paying council tax."
They'll do this by using a new world-class computer system that links all relevant customer information, helping to resolve 80 per cent of all inquiries during the first call."
Labour group leader David Phillips said the scheme had grown out of hand.
"This has been on the cards for ages. From the time the eGovernment was split into phases it has been unworkable.
"This is something that should have been done a lot earlier - how much time and money has been spent on trying to make the unworkable work?
"This also raises a very big question mark about phase two."We have spent millions of pounds of council taxpayers' money, ostensibly to improve the service they get when dealing with the council, but have not improved one thing. It also raises serious questions about the Civic Centre project and whether a one-stop shop will work if we do not have the software in place."
