The European Commission has called upon Dublin City Council to terminate a contract for client services and public relations at the Poolbeg incinerator in which spending over-ran by more than €20m.
The contract was originally estimated at €8.3m but ended up costing around €30m.
In a letter written by the EU Commission in April of this year, and seen by RTÉ, the commission described the contractual arrangement as an "illegal situation".
Neither Dublin City Council nor the main beneficiaries of the contract - consultancy firm RPS - have replied to questions from RTÉ about whether the contract was still in force.
However, the contract continued to be in full force as recently as July of this year, according to a reply given by the city manager to a question asked in the council chamber by Fine Gael councillor Paddy McCartan.
Spending by the council on so-called client services and public relations accounts for around one third of the €90m spent on the stalled Poolbeg project to date.
Wide-ranging complaint to the Commission
The incinerator remains unbuilt despite being granted planning permission back in 2007.
The letter calling for the termination of the contract was written by a lawyer at the EU Commission for two Sandymount residents, Joe McCarthy and Valerie Jennings.
Mr McCarthy and Ms Jennings have made a wide-ranging complaint to the Commission about procurement aspects of the Poolbeg incineration project.
The letter details the view of the EU Commission's internal market and services directorate that the contract appeared to have been modified in a manner which did not conform with EU law.
The Commission's letter states it raised the matter with the council but that the local authority "did not address all the concerns of the Commission services".
It continues: "Therefore, the Commission services called upon the Irish authorities to terminate the contract", according to the letter, dated 2 April of this year.
Later in the letter, the Commission described the contract as an "illegal situation" but it said that this alleged illegality would cease once the contract was terminated.
The Commission does not have the legal power to force a local authority to terminate any contract.
The EU Commission declined to specify their concerns, when asked by RTÉ last week to elaborate on the content of the letter.
According to the letter, the Commission has largely dismissed other complaints made by the local Sandymount residents, who also complained about alleged changes to the size and scale of the 600,000 tonne incinerator and the involvement of US waste giant Covanta as the local authority's joint partner in the project.
A spokesman for the Commission said that they could not comment on matters that were the subject of on-going investigation.
The Commission said they continue to be in dialogue with the council.
The client representative and public relations contract between RPS and Dublin City Council was also examined last year by the Local Government Audit Service, which found that the contract was not re-advertised even though it exceeded 50% of its original 2005 tender value.
"The continued appointment of the client representative should have been reviewed as far back as 2005 in accordance with procurement guidelines," the LGAS report found.
It concluded that financial management of the entire Poolbeg incinerator project was "weak".
In July, Fine Gael councillor Paddy McCartan asked the city manager for an update on the status of the contract and the payments made to RPS and COWI, its Danish partner.
City Manager Owen Keegan said the council was in a contractual position for client services with RPS/COWI.
"I raised it and I first of all asked how much had been paid for each month in 2013, to the client representative. And I got the figure back of €388,000.
“That was for the first two months. There was no further information on what was paid for the following months. The second question I asked was what was the status of this contract, and the answer I got was, the council was in a contractual position with RPS-COWI," Mr McCartan said.
"But in the light of the letter, from the EC Commission, that was supposed to have been terminated. And this is where I have a major problem ... if €400,000 was spent in the first two months, how much has been spent since then?" he said.
Eoghan Murphy, local Fine Gael TD and member of the Dáil's Public Accounts Committee, said the letter was "very significant for Dublin City Council".
"What we're seeing now from the (European) Commission is them referring to an illegal situation with regard to the current contract in place for that project which the Irish authorities, being Dublin City Council, have failed to address".