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It meant 10 fulltime bus drivers employed by Ritchies lost their jobs before they even began.
The Otago Regional Council announced yesterday it had dropped four new bus contracts due to start on July 1.
Government legislation, which recently went through Parliament, rendered the new contracts illegal and they would not have been subsidised by the New Zealand Transport Agency (NZTA).
The council chose to reinstate old contracts rather than fully fund new ones incompatible with national policy.
Ritchies director Andrew Ritchie, of Auckland, said it was disappointing and he felt bad for the company's 10 new Dunedin staff who had been trained.
''Unfortunately, it was out of our hands. They got caught up in the whole situation with the legislation changing, but they accepted the outcome, which is a credit to them.''
Two of the drivers were from Citibus and when their move to Ritchies backfired, they were re-hired by Citibus.
Ritchies also put extra vehicles in Dunedin for the new contracts, but had to move them elsewhere.
Mr Ritchie did not blame the council and said all parties worked together to make the best of a bad situation.
''It cost us a few dollars and I'm not overly impressed with it, but we can't do anything about it. The council did their very best in an embarrassing situation.''
He was keen to tender for new contracts in the future.
''We'll be in there, boots and all, no question.''
Citibus director Kayne Baas said the company would continue to work with the council to ensure a smooth continuation of public transport, as it had done during the legislative change.
There would be no negative impact on customers, he said.
ORC chief executive Peter Bodeker said the old contracts were not as cost-effective as the new ones and the process of changing, only to change again, was frustrating.
When the council announced the new contracts earlier this year it predicted they would save the council about $1 million over their three-year lifespan.
But the cost of fully subsidising the contracts was expected to be about $1.5 million.
Mr Bodeker said reverting to old contracts would not cost the council $1 million, as it meant the NZTA would subsidise services.
But staff time, and some money, had been lost in the process of awarding the new contracts, he said.
''It has been a lot of work to try and actually get what we thought was a more cost-effective service for Dunedin, and we did that with a contracted saving of around $1 million, but the NZTA wouldn't accept that.
''As a result, we are spending some more money on the service, which is the same as what we originally contracted in terms of bus routes and timetables, but there will be no impact on ratepayers.''
A new bus schedule, delivered to Dunedin residents this week, was printed after the council's decision to revert to old contracts, he said.