Contractors are planning to take Edinburgh City Council to court over tendering breaches when the department was hiring non-vetted companies to carry out statutory, or emergency, repairs to homes.
The case could also be referred to the Court of Justice of the European Union, where further sanctions could be imposed.
The moves come after a police report, which found no evidence of criminality, identified the breaches that opened up the council to legal action and it is understood the authority's lawyers have been preparing for such litigation.
The legal minefield would heap more financial misery on council taxpayers and take years to resolve.
The Herald revealed last month that £33 million worth of work already done by contractors and paid for by the council is still to be settled by householders and businesses and much of it could be challenged as unnecessary or over-priced.
About 800 residents are in the process of challenging work and claiming back what could amount to many millions of pounds. Underestimated bad debt provision is also being put in place to cover £7m officials do not expect to get back.
Public procurement and legal experts said the cost from the court actions could run into millions of pounds, given the number of individual claimants and the period of time involved.
Possible sanctions include the payment of damages by the public body to the challenger, being fined by the court, shortening of the contract duration by the court, and "any other order that the court considers appropriate to address the consequences of the breach".
Surveyor Gordon Murdie, who is acting on behalf of firms and residents who are fighting the council under the banner Edinburgh Residents for Statutory Reform, said there were plans to lodge complaints in Europe.
He said both contractors and residents were looking at how to raise such actions.
He said: "Some contractors want to see the council in [a Scottish] court. I know of another one who is looking at the European route with a European procurement expert."
He said residents were in the early stages of putting together a test case that could be tried in both Scotland and Europe.
Patrick McGuire of Thompsons Solicitors said: "You are talking about a legal wrangle that will go on for years and involve huge sums of money. Millions is not an overestimate."
Practices uncovered by police included allegations of workers receiving hospitality and even a trip to a strip club.
Lothian and Borders Police said in their findings that rules were regularly breached by allocating hundreds of jobs to non-vetted companies between 2006 to 2009.
Michel Barnier, a member of the European Commission who is responsible for regulating procurement services, could review the case and refer it to the Court of Justice of the European Union.
The commission may instigate proceedings itself or can be invited by any person to do so.
A Scottish Government spokesman said: "The regulations allow those who had an interest in being awarded a contract to challenge decisions of public bodies – in this case it would be the council – in a sheriff court or the Court of Session. In both instances [including EU action], any sanctions imposed will be a matter for the courts."
He added that penalties should be "proportionate and dissuasive and reflect the seriousness of the breach.
A council spokesman declined to comment.