Birmingham City Council has told its largest contractor to cut its spending by a third.
The Labour-run leadership commissioned an independent report into the council's £60m-a-year contract with its IT and call centre provider Capita.
Council leader Sir Albert Bore said the report showed "unequivocally" it had already delivered significant savings.
But he said the partnership had seen a "loss of impetus" and must now reflect the council's financial difficulties.
City council bosses said in October £600m of savings must be made by 2017, £200m more than originally thought.
The local authority asked Service Birmingham (SB), the name used for the partnership between themselves and Capita, to make savings of £20m a year.
Stewart Wren is chief executive of SB which is made up of 1,100 workers, including 300 council staff.
He accepted they needed to "rekindle the partnership" but said the report found it had been a long and successful one.
Mr Wren and the council said they had not gone into detail of how savings would be made, so it was not known if job cuts would be involved.
But Mr Wren added Capita would first look to redeploy its staff elsewhere in their organisation if this happened.
'Deteriorating financial position'
The contract, signed in 2006, aimed to deliver £1bn savings over 10 years by transforming how the council was run with an efficient call centre, website and new IT system.
But in opposition, Labour raised concerns about whether SB offered value for money.
The Labour-run administration, which came to power in May, commissioned Best Practice Group to carry out the "health check" on the partnership. The report cost the council £46,000.
The partnership with Capita had "driven significant value in a number of core services since its inception," the report found.
However, it said there needed to be "clearer understanding" of what the contract included because there was some confusion among council members and staff.
Sir Albert said the partnership needed new momentum and faced financial challenges.
"Service Birmingham needs to understand the council is in a significantly deteriorating financial position due to government cut backs," he said.
The council said it was discussing how the savings would be made with SB, but saw the call centre and a review of its website among "priority areas".