The review - which may lead to the council bringing a legal action - follows reports in the Independent that Frank McGrath, the former deputy leader of the council and member of the sub-committee responsible for redeveloping the docks, struck a deal with Balfour Beatty to build a block of flats in nearby Blackpool. The docks contract went to a consortium led by Balfour Beatty, in spite of detailed groundwork by a rival firm, John Mowlem.
Under the scheme, Balfour Beatty agreed to install roads and other facilities in return for development rights over the docks site.
After he had left the council, Mr McGrath set up a joint venture with Balfour Beatty to develop the flats in Clifton Drive, Blackpool. The construction giant has admitted paying pounds 125,000 to Mr McGrath's project. The flats were not completed and, the company has confirmed, repayment has not been sought.
A three-year Lancashire police inquiry into alleged corruption, called Operation Angel, has led to charges being brought against Mr McGrath, council officials and businessmen in Preston. The Crown Prosecution Service, advised by Sir Nicholas Lyell, the Attorney-General, decided not to bring charges over the Balfour Beatty payment.
The council, however, has decided to launch its own inquiry. Geoff Driver, the new Preston town clerk, has told members of the council's policy and resources committee that legal steps would be taken if anything other than 'proper commercial considerations' had been brought to bear on the awarding of the docks contract.
Mr Driver informed the committee that a thorough review of the contract was under way to determine whether the council had obtained the best deal possible.
'We will clearly need to ensure that the terms of the contract and their application have not been influenced by other than proper commercial considerations,' Mr Driver said.
He added that, because of the complexity of the contract, the review would take some time.