The council has been in a 15-year partnership with BT called Transform Sandwell, in which the company manages services such as finance, and customer contact and communication, under a contract signed in 2007.
The current deal sees the council paying BT around £15m a year.
However, due to Government cuts, the council has axed hundreds of workers, meaning less work for BT. The council wanted to pay BT less to reflect the reduced volume of work. It has also been unhappy with BT's service and began dispute proceedings last September.
It can today be revealed the authority's ruling cabinet has signed off on moves to bring the contract to an end early, unless BT addresses issues raised by the authority in the next 30 days.
Legal constraints have meant that council chiefs have been tight-lipped in explaining the reasons prompting the move. Whether the council will face any costs to end the contract is not yet clear.
Union bosses have however dubbed it a victory for the borough, as they claim the jobs of council workers who had been seconded to BT will be protected as they transfer back to the council.
A report had revealed that the council issued a written notice on BT last September stating that it believed there was a dispute based on two matters – service delivery and volumes of service.
At the time both organisations said they had made arrangements to resolve the dispute and were preparing for mediation in February.
Council leader, Councillor Darren Cooper, said: "If we have to, I am confident we will be able to bring the services BT currently supplies to us back to the council and run them in the most effective way in future."
Emma Tennant, spokeswoman for BT, said it had not yet received a notice from Sandwell Council to terminate the partnership.