A council chief and the leader of the Conservatives on Lancashire County Council (LCC) have been arrested as part of a long-running fraud investigation, the BBC understands.
Police said four men, aged 72, 58, 56 and 55, were being held in the probe into financial irregularities at LCC.
Liverpool City Council’s chief executive Ged Fitzgerald and leader of the Tories at LCC Geoff Driver are among those arrested.
The probe is into a council contract.
Lancashire Police said the arrests at addresses in Preston and Merseyside were made on suspicion of conspiracy to pervert the course of justice and witness intimidation, but not on suspicion of fraud.
The investigation, which was launched in 2013, relates to allegations of financial irregularities over the tendering of a 5m contract with One Connect Ltd, a joint venture between the council and BT to run some services.
The deal included running the council’s fleet of vehicles which was agreed by LCC’s Conservative administration, which was then led by Mr Driver.
The contract was revoked later that year by the new Labour administration.
The Conservatives regained control of LCC in the elections earlier this month, and Mr Driver, 72, is expected to be named as leader of the council at a meeting on Thursday.
Mr Fitzgerald was the chief executive at LCC before he left to take up the same post at Liverpool City Council.
In January Lancashire’s police and crime and commissioner Clive Grunshaw said the investigation into the allegations had cost 2m and 22 police officers were working on it.
LCC said it was not making any comment although it was aware of the police statement.
A spokesman for Liverpool City Council said: “We do not comment on personnel matters relating to individual employees.”