Stuart Gallacher, director of education for the West Midlands authority, has already announced his resignation.
The education committee of the Labour-controlled council has accepted that it should appoint education consultants. Bill Thomas, chair of the education committee, said: "We view this as a positive step towards raising standards." The DFEE has asked for an action plan to be submitted by the end of July.
The criticism from the Office for Standards in Education makes Sandwell the second education authority to have failed its re-inspection. The director of education in the London borough of Southwark, Gordon Mott, resigned recently in the wake of an OFSTED report that said services had deteriorated.
Two years ago inspectors were optimistic that Sandwell had begun to help schools do better, but on the latest visit they found that senior managers had lost the confidence and trust of heads.
OFSTED's latest report, schools are anxious about the funding available to schools when special regeneration grants run out this month. While Sandwell's education budget is closeto that of comparable authorities, a large majority of schools are experiencing significant funding problems. At the end of last year, half of the secondaries and more than 10 per cent of primaries had substantial deficits.
The report says: "The schools are not clear where the local education authority is going....they are rightly concerned about the impact of some strategic management decisions in relation to the support for schools and pupils."
Standards in English, maths and science in primary schools are improving, but overall attainment is below national averages throughout primary and secondary education. The rate of exclusions in secondaries is well above average.
Schools said that they found the local authority's policy on special needs confusing and they were angry about the prospect of reduced support for pupils from ethnic-minority backgrounds.
In announcing his resignation, Mr Gallacher told heads he accepted the blame for the breakdown in communication. He is expected to stay with the authority for another 12 months.
Plymouth city, which became an education authority in 1998, is expected to be heavily criticised in its inspection report due to be published in the next few days.