The out of court settlement means Cambridgeshire County Council will have paid BAM Nuttall £84.7m to build the busway, against an original contract price of £83.9m.

BAM was two years late in handing over the project and claimed the council owed them around £70m more than the contract price, triggering a protracted legal dispute.

The contractor said the busway had cost them £152m to build and claimed the council should pay an extra £43m on top of the £118m the authority had already paid them.

During the legal wrangle the council had to find extra cash to retrieve money it was owed and fund legal costs.

BAM approached the council with the proposed cash settlement to resolve the dispute and cover legal costs, which has just been accepted by the council cabinet today.

Around £126m had been budgeted to pay for the whole Busway scheme – including construction and other costs such as land acquisitions.

Due to the legal process, the cost of the scheme has risen to £152m. Already the Council has found and paid £18m of that gap with £8m to find. This payment will be spread over 25 years through the capital budget.

The final settlement represents a move of £76m in the council’s favour.

Cambridgeshire County Council Leader Martin Curtis said: “We have always been very sure of our case and would have been willing to go to court to fight that case.

“However, following discussions with all group leaders, we felt that we would rather have certainty and settle the matter than risk mounting legal costs.

“It is clear from the analysis of our professional and legal teams that, were it not for the strong contract we had in place, BAM would never have settled.

“We are, therefore, now going to review and learn from our experience to see how we can help to stop this happening locally and nationally in the future.”

A statement from Royal BAM Group said: “BAM Nuttall has taken a pragmatic decision as a mature, responsive contractor to minimise further legal costs to the benefit of both parties and to solve the dispute through engagement rather than through legal means.

“This settlement has already been incorporated by the group in the half year figures, which have been presented on 22 August.

“The repayment has therefore no impact on BAM’s profit forecast for the year 2013.”