Birmingham City Council chiefs are understood to have agreed a proposal with the highways maintenance contractor, which will be formally ratified next month.

It is understood that Amey could pay £130m in cash up front, with a further £85m in staged payments over five years.

Also Birmingham City Council would hold £85m of deductions and penalties imposed on Amey, which have been subject to legal disputes between the two.

Together this would amount to a £300m divorce settlement for the council from Amey’s Spanish parent Ferrovial.

Amey has been locked in a five-year legal battle with the council over performance on its £2.7bn PFI deal. This has already seen Amey Highways suffer serious losses.

The Spanish infrastructure group is aiming to sell-off its UK support services business Amey but the 25-year PFI contract has proved a major obstacle.

A council spokesman would not confirm leaks to Sky News of the proposed deal but said:  “It is now generally accepted by all parties to the contract that in order to move forward Amey must be replaced with a new subcontractor.

“This will require a managed release and handover to a new provider along with an appropriate settlement to rectify the liabilities Amey proposes to leave behind.

“While the terms of this settlement are yet to be agreed and would be subject to further agreement by the Council’s Cabinet, talks in recent days have established how an acceptable settlement could be reached and we will continue to work with all those involved to achieve an acceptable solution.”

An Amey spokesman said: “We are encouraged by recent progress and appear to be arriving at a deliverable solution guaranteed by Amey.

“The next few days are critical to finally concluding this issue.”