Last week Carillion, which was part of the other remaining bid consortium IMCD, suddenly announced it was pulling out of the race, just three months before a winner was to be unveiled.
For several days it was unclear whether its bid partners, Sir Robert McAlpine and Spansih firm Iridium, were still planning to submit final tenders.
But IMCD is understood to have told the Scottish Government’s Transport Scotland agency that it is abandoning the race to build the 30-mile railway line from Edinburgh to the Borders.
First Minister Alex Salmond attempted to reassure MSPs about the project saying the line would go ahead. He also pointed out that there had been only one bid for the £445m M74 extension in Glasgow, which is due to open in one week, under budget and ahead of programme.
The funding model for the Borders railway is presenting the main challenge. The route due to be reopened in 2014 after a gap of 45 years, will be built using a novel “non-profit distributing” approach, untried on the railways.
The winning bidder is expected to fund and maintain the line, receiving access charges from train operators and government repayments over 30 years. But profits will be capped under the plans.
This is the second body blow for the project, after the third shortlisted consortium, made up of US engineer Fluor, Miller Construction, Uberior Infrastructure Investments, quit the bid race in November.
The Scottish Government now finds itself in a predicament far removed from the excitement at the start of last year when more than 55 UK and European companies attended a Transport Scotland briefing on the job.
Five consortia, comprising a total of 12 construction and financial companies, submitted pre-qualification questionnaires last March, before the three shortlisted consortia were announced in June.