Orange City Council planned to double the size of the gallery's exhibition and storage space to keep more of the collection visible at once and accept extra work.

A triangular wing connecting the building to Peisley Street and a 77-seat theatrette was also included in the design.

The project was to be fully funded by the state government under the Regional Cultural Fund with council support.

The lecture theatre was expected to host gallery-related events and act as a stand-alone venue for corporate and community use.

Councillors resolved to decline tenders for the construction and not to call fresh tenders "as it may delay the project and impact upon the funding milestones, possibly putting funding at risk".

Watch the walk through the design...

The council will instead enter negotiations with two of the tenderers, Renaissant Regional and North Construction and Building to identify cost savings to deliver the project.

It will also seek additional funding to address any shortfall.

After the meeting, mayor Reg Kidd said tenders were "substantially over' budget and he was concerned the estimate from the quantitative surveyor based on the concept plans and the quotes were so different.

"We can't keep having large overruns on projects because we've got to try and plan," he said.

Cr Kidd said councillors took time to decide $1000 community grants and had a financial responsibility to the ratepayers.

"Should we have gone for a $6 million grant or a $5 million grant?" he said.

He said the issue was particularly prudent given the council was also considering a new Orange Regional Conservatorium north of the gallery.

"We've got $10 million from the federal government, we estimate the old conservatorium [which will be sold] is worth about $5 million and we're trying to get $5 million from the state government to build it," he said.

"It concerns me if we get the $5 million and the whole lot costs $30 million, we're going to look pretty silly."

But with low interest rates, Cr Kidd said there was scope for getting more projects done, particularly those capable of earning an income.