Bouygues UK had previously provided consultancy services to Bristol City Council after being selected as a preferred tenderer for the construction of the 12,000-seat Bristol Arena.
However, a new contractor must now be sought as the two sides were unable to reach an agreement on price and will not be progressing to a full contract.
Marvin Rees, mayor of Bristol, said: “I am disappointed that although so much work has been put in for so long, and despite recent constructive and detailed talks with Bouygues, we have simply been unable to agree on the price for the arena.
“We’ve tried to close the gap and have reluctantly accepted that we will not reach agreement.
“I firmly believe that we can and will build the arena Bristol deserves, but this has to be for the right price.”
Work on Bristol Arena is expected to begin in spring 2018 and this latest setback means the project should be completed by autumn 2020.
The development comes as part of an expanding Temple Quarter Enterprise Zone, which has the potential to add 17,000 jobs and £100m a year to Bristol’s economy.
“I am committed to getting the arena built and despite this setback it remains closer than it has ever been,” the mayor added.
“We also have a much better understanding of the complexities involved in bringing the building to life.
“We have made a lot of progress and are now seeking an alternative contractor to build the arena as soon as possible.”