It may be worth having the damage inspected by an independent third party and getting a formal report of the nature and extent of the damage and the appropriate form of repair. This will cost you - but should go into the general pot of expenses that you will be looking to recover from the council or their contractor. You need to act quickly if there is damage that is going to deteriorate - so that you can show that you are acting to mitigate your loss and trying to get the right repair.
I would suggest writing a nice friendly letter to the chief executive of the council (his name official address will be on the council web site) setting out your problem (as you stated above) and including a comment noting that you have a third party witness to the work being carried out without regard or care to your vehicle. If you do report it to plod then include the crime reference number (it may help to focus their attention). You can end the letter telling them that you will wait 14 days for their response, giving them an opportunity to inspect the damage, before you make arrangements to repair the damage before it deteriorates further. You need to tell them that you expect them to cover the cost of the repairs and all other reasonable consequential costs and losses.
If they fail to answer in 14 days the chief executive another polite letter informing him that you are going ahead with the repair work and that you expect their response to your initial letter within say 28 days of the original letter. At this point you will need the 3rd party damage assessment and recommendation for repair. Don't just let the mate try to polish it out, it may not work and that may make things worse. As you are expecting the council to pay for this you need to do what the expert recommends. Make sure you keep photos of the damage (before and after), close up (with a ruler for scale) and at a distance.
All along you should be talking with your local councillor.
Send all letters by recorded delivery and print out the post office web page when they are delivered, not strictly necessary but can't hurt your case (and you will be looking to recover the cost).
If you get to the month mark then it's probably time to think about making a complaint to your MP about the council's inaction and think about the ombudsman route.
You are going to need to be in for the long haul. I think I mentioned that I am not a lawyer (IANAL) and getting proper advice may be a good thing [especially if you have legal cover].
Chris