As votes of no-confidence go, it was pretty emphatic. In a survey of headteachers in the London borough of Islington last year, 60% rated Scolarest, the private company which delivers school meals, as a poor provider.

The council and the firm that runs its education service, CEA@Islington, were trapped. Angry parents and heads were demanding change. But if they walked away in the middle of the £12m, five-year contract with Scolarest, they would have had to pay a lot of compensation. The contract was written in such a way that it proved almost impossible to enforce higher standards. "I think there were levers to apply in the contract, but they were very difficult to use," says Kirit Modi, assistant director of the CEA.

The council didn't want to use those levers either: 56% of pupils are on free school meals and many depend on the schools to provide their only hot meal of the day. "There is no way we wanted to end up providing sandwiches as our free school meals service," says James Kempton, deputy leader of the council.

"One of the most frustrating things," Kempton explains, "is that there is very little competition, very few companies who can take on a contract as large as this, which means that competition to drive up quality is not there in this market as it is in other markets. Which is why we are more actively managing the market and using our role as an intelligent client."

The council has spent the past six months working with Scolarest to turn the situation round. It has had some success, though there are still problems. In the latest survey, 67% of heads rate the provision as satisfactory or good. But a separate survey of 800 students revealed complaints that the food is often cold, badly cooked or greasy. Modi is concerned, but remains convinced that his strategy of negotiating with Scolarest rather than banging his fist on the table was right.

Islington negotiated a 17-point improvement plan and spent £100,000 on piloting better school meals in around half its schools. Canonbury school was one of the pilots. Its headteacher, Jay Henderson, has noticed improvements but was disappointed when Scolarest provided sausages, baked beans and waffles on the first day of the healthier menus. "I said to Scolarest, what is healthy about this? They said that the waffles and sausages were oven-baked. But they are still high in fat."

Uptake rose during the school's Healthy Eating week, but has now fallen back to the pre-pilot level. "We have 440 children in the school and around 100 take the hot meal. But most of those are on free school meals. Parents are intelligent people and they want a guarantee that the stuff that is being served is nutritious, and they don't believe this at present." He adds: "I want a Hovis family in my school: all the children eating a hot meal. But I don't think that will happen any time soon."

Other problems have come to light. The contract linked catering with maintenance, yet Scolarest was failing to maintain equipment satisfactorily. An internal audit obtained by the Guardian under the Freedom of Information Act showed that some schools had been waiting more than a year for fridges, freezers and ovens to be repaired. Many schools were inspected by environmental health officers and found to be in breach of food safety legislation. Scolarest says in a statement that it "takes issues of health and food safety very seriously ... With this in mind, Scolarest, working with schools and Islington council, moved to address any such issues."

Paul Jarman is head of Hanover school. While he thinks food has improved, he is dubious about private sector involvement. "I personally feel local authorities should run school meals and we should fight the contract culture. At some stage, private companies are in there for profit, unlike local authority services."

Contract culture is deeply engrained in New Labour. Shortly before the election, a senior Downing Street official told me we should expect further dismantling of public sector management of schools and hospitals over the next 10 to 15 years. The mantra is that the job of the public sector is to enable, not to provide.

Education secretary Ruth Kelly's promise to ban junk food in school meals and enforce 35 recommendations on nutritional standards will make a difference only if companies and local authorities do not cut corners on ingredient spend, equipment, refurbishment, health and safety and training.

Islington parents plan to unite as the contract with Scolarest comes up for renewal. Zozi Gallus, whose child goes to Yerbury primary school, says: "Parents in one school on their own can't do much. But the council will have to take notice if we go borough-wide."

The council has not ruled out allowing Scolarest to bid when the contract comes up for renewal. But Kempton warns: "We are still looking for more improvements from them. We would like them to be bidding on the basis that they can deliver up to the standards we want to see. Satisfactory is not good enough."