Mancunians nicknamed it Kerplunk after the well-known 1970s children’s game — an apt description for a £1.42 million sculpture of giant spikes that began to fall off soon after it was completed.

Now, the creator of B of the Bang has agreed with subcontractors to pay £1.7 million in damages to Manchester City Council over the failure of what was supposed to be one of the country’s most exciting pieces of public art.

Thomas Heatherwick’s 180-tonne starburst of metal spikes, which was designed to reflect the explosion of energy at the starter’s pistol, was built three years ago to dominate Manchester’s eastern gateway.

It was hailed at the time as confirmation of the city’s growing status. Yet two weeks after the Olympic medallist Linford Christie unveiled it in January 2005 parts began to drop off as it swayed alarmingly in the wind. Further spikes exhibited defects and had to be removed, including nine that were lopped off and taken down for testing in April this year.

The sculpture, which stands outside Eastlands, formerly the City of Manchester Stadium, the venue of the 2002 Commonwealth Games and now the home of Manchester City Football Club, has presented a forlorn sight, fenced off and with discarded spikes left on the ground. For a time the road next to it had to be closed because it was thought to be so dangerous.

The council said that it began legal proceedings for negligence against the artist and his engineers “with reluctance” when repeated pleas met with little response. Costs began to spiral from £750,000 to £1.42 million early on and work is still required to ensure its safety. The claim, for £2 million, was brought against Thomas Heatherwick Studio and its subcontractors, Packman Lucas, Flint and Neill Partnership and Westbury Structures in October 2007. The parties have reached an out-of-court settlement before a scheduled hearing in the High Court next week.

Susan Orrell, the council’s solicitor, said: “The settlement allows the council to recover substantial damages and avoid further cost and the risks that are always associated with legal proceedings. I am pleased that we have reached a settlement that is, in my view, in the best interests of the council. Now that this has been achieved, it means the council can move on and consider options for the future of the structure in conjunction with the project’s funders. When this work is completed a report will go to the council’s executive in the new year.”

It is a humiliation for Heatherwick, 37, who until the middle of last year was describing B of the Bang as “close to his heart”. He was assuring critics that the problems would be ironed out because it is a “beautiful and important project for Manchester”. Meanwhile, the artist has been fêted by the art world, receiving an honorary doctorate from Manchester Metropolitan University. A spokesman for the defendants said: “The B of the Bang sculpture was an ambitious and groundbreaking design. It is a matter of considerable regret to all of us that the sculpture that was intended to symbolise the outstanding success of the Manchester Commonwealth Games has suffered the problems that have come to light.

“We are pleased that a settlement has been reached to the proceedings.”

The sculpture is still lauded on the company’s website, which suggests that the design “reacts against the convention for passive-looking monuments to sporting events that celebrate peace and harmony, rather than the dynamism and explosiveness of physical competition”.

About £700,000 of the sculpture’s £1.42 million cost came from the European Regional Fund; £500,000 was from the North West Development Agency.

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