In a follow-up report, published on Tuesday, inspectors slate councillors for ditching an pound;80 million public private partnership (PPP) scheme with nothing to replace it.
They revisited the authority in September, two years after issuing a glowing verdict on the education department but only four months after the change of political administration.
Their major criticism in 2001 was reserved for Labour councillors who had failed to act on reducing surplus places in both primary and secondary sectors. But plans drawn up by Bernard McLeary, education director, to tackle overcapacity and the appalling state of many buildings were immediately dismissed by the Lib Dem administration that took over in last May's elections.
Labour's PPP plans were a critical factor in producing the shock election result.
Now HMI accuses the Lib Dems of failing to offer an alternative and has described the situation as "unsatisfactory", the strongest possible criticism it can offer. It is therefore not "signing off" the authority until it can see firm evidence that the buildings crisis is being tackled.
Inspectors will return in a year.
"There remained some uncertainty over the feasibility of the council's preferred funding options for any large-scale improvement plan," HMI states.
Jim Mitchell, the controversial Lib Dem education convener, hit back strongly. Inspectors were basing their findings on a position in September when the administration was in the middle of drawing up revised plans that were only put out to consultation in November, Mr Mitchell said.
Next week councillors are likely to accept a revised plan submitted by Mr McLeary which will involve a mix of PPP, traditional council borrowing and the new prudential borrowing system that allows authorities to borrow within their financial limits. The PPP element, now reduced to around pound;40 million, will be confined to building new schools. Refurbishment of others over 10 years will be by non-PPP methods.
However, Duncan McNeil, Labour MSP for Inverclyde, continues to accuse the new regime of maladministration. "You couldn't make this up. A council which has decaying, damp and frankly disgraceful school buildings, scraps an pound;80 million modernisation and rebuilding programme without having the first idea about what to put in its place. If it wasn't in an independent report from HM Inspectorate, you wouldn't believe it," Mr McNeil said.
Mr Mitchell replied that successive Labour administrations had "failed to grasp the nettle" of overcapacity, stretching to some 4,000 places in primary and 2,000 in secondary. His party had rejected the initial PPP option because it would have committed the authority to payments of around pound;9 million a year to the private sector for 30 years when school rolls are continuing to fall by 200 pupils a year.
"Our PPP elements are only for schools we are confident we need for the next 30 years," he said.
The now more contrite convener said the authority had to accept that there was no alternative to PPP as part of the funding package. But non-teaching aspects of any deal could be kept in-house. "In drawing up an election campaign you are a political party and in administration you have got to abide by the laws," Mr Mitchell said.
He wanted to follow traditional public borrowing methods but was "given no choice" by the Scottish Executive. He was proud that within eight months of taking over there was a comprehensive upgrading plan in place.
Revised plans will see the closure of 14 primaries and the building of five replacements. Two secondaries (Greenock High and Wellington Academy) are likely to close to make way for one new school. Mr Mitchell said one Roman Catholic secondary might go in the longer term.
In their scathing verdict on Lib Dem councillors, inspectors state: "In contrast to the positive and successful initiatives (of the education department), and despite the best endeavours of the director of education services and his staff, there had been major weaknesses in the council's attempts to improve the school buildings infrastructure for pupils'
"At the time of the inspection the council was taking further steps to address these problems. However, the lack of progress continued to impact on pupils' experiences and prevented effective use of the resources available to improve them."
ON THE UP IN INVERCLYDE
Good and getting even better is the inspectors' summary of the progress made by schools and the education department in Inverclyde since their previous visit in 2001.
Strong leadership in the face of high social and economic deprivation is continuing to push the council's rating ahead of comparable authorities.
Attainment is rising in reading, writing and maths, with a significant improvement in writing. "Performance in all three areas of 5-14 in secondary schools continued to be significantly above that of comparator authorities and the national average," HMI states.
Similarly, attainment has risen from Standard grade upwards. "At almost all levels, performance continued to be well above the average for comparator authorities and the national average," inspectors report.
"This was most marked at level 4. In S5 and S6, levels of attainment were uniformly above the averages for comparator authorities and in some cases above the national average."