Southend-on-Sea City Council confirmed Willmott Dixon as its chosen construction partner last July.
The contractor signed a a pre-construction agreement with the council ahead of negotiating an agreed cost and works plan for the scheme with the deal priced at £5.8m
But the job is now being re-tendered after both sides failed to reach agreement on price.
It is the second job Willmott Dixon has walked away from in recent weeks after failing to agree a final price with a client.
Earlier this month West Sussex County Council opted to retender its £57m Bedelands Academy secondary school project after negotiations broke down between the client and contractor.
The Cliffs Pavillion job has shone a spotlight on a growing issue for contractors with people applauding Willmott Dixon’s stance.
One industry expert said: “They are doing exactly the right thing in circumstances like this – walking away from jobs which won’t make them money.
“The contractor obviously thinks it’s worth £X but the council and their team have a budget or think it can be built for £Y.
“It’s a real issue across the industry because as the market changes with prices of materials and labour increasing have customer expectations and budgets kept pace?
“Also, what are all their advisers and cost experts telling them? It’s not as if inflation on build costs is a secret.
“Contractors will, and are, stepping back from taking risks if they can’t see a clear route to making a profit on projects.”
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