Cliff Harrison was held solely responsible by Worthing Borough Council for failing to spot issues with a 2009 contract with parking firm NCP, which led to a settlement believed to have cost around £800,000, including legal fees.
But an employment tribunal judge found he had briefed three senior officers when he realised his mistake, who left him to negotiate with NCP.
Taxpayers now face a further bill, in compensation to Mr Harrison.
Former leader Paul Yallop said: “I am very concerned to learn that this disgraceful episode will be costing Worthing taxpayers even more money.
“When this NCP contract dispute was first notified to me, in early 2013, some 20 months after the dispute had come to light, I asked officers to call the police to investigate.
“As this judgement demonstrates, instead of listening to elected members, senior officers closed ranks and failed to properly investigate the conduct of all of those involved.”
The dispute began over the council’s agreement with NCP to trial reduced prices in town centre multi-storey car parks, following complaints from motorists.
The trial was successful but it soon transpired errors were made in the four-page contract, exposing the council to significant losses.
Mr Harrison had led the negotiations but argued several senior officers had also failed to notice the mistakes.
Judge Max Craft wrote: “The claimant (Harrison) had failed to introduce the trial period of reduced parking charges in 2009 on the terms the cabinet had authorised.
“He had not done so deliberately and had been negligent. However, he had not acted alone and had sought advice from others and the investigation lacked rigour.”
Mr Harrison met with senior officers; his manager Andrew Gardiner, executive head of financial services Sarah Gobey and executive head of legal and democratic services Jeremy Cook in May, 2011, to discuss the problems with the contract.
Believing it was an honest mistake, they left Mr Harrison to talk to NCP. He kept Mr Gardiner ‘fully informed’ in the following months and his actions were not criticised at the time.
Councillors were not briefed until January 31, 2013, by which point NCP had launched formal legal proceedings.
An internal investigation was launched, with Mr Harrison the only one charged with wrongdoing.
But in a process which ‘lacked rigour’, Mr Gardiner only interviewed Mr Harrison in his investigation.
A separate investigation into the legal team was carried out.
Criticising this, judge Craft said: “Mr Gardiner’s suitability to conduct such an investigation was compromised by the fact that to do so he had to investigate his own actions during that period. A reasonable employer, acting reasonably, would not have appointed Mr Gardiner to investigate these matters and it is surprising he did not recognise how potentially conflicted he was in doing so.”
After he was dismissed in November 2013, Mr Harrison took his case to a tribunal at Southampton Magistrates’ Court last year.
The judgement, released on Friday, ruled he had been unfairly dismissed but any compensation will be reduced by half, in light of his negligence.
He continued to work for the council for four years, without issue, before his dismissal.
Mr Gardiner and Mr Cook have since left the council having taken voluntary redundancy.