PLANS for a £300 million railway linking the Borders to Edinburgh have had a major boost after a deal was struck with a contractor to build the line.

Civil engineers BAM Nuttall have won a deal to carry out initial design works for the 35-mile route from the capital to Tweedbank.

The company has an option to go on to construct the railway, bringing trains to the Borders for the first time since 1969.

The move by Network Rail, which took over the troubled Borders Rail project four months ago, is the first sign of real progress since two of three bidders pulled out of the Scottish Government's procurement process, causing it to collapse in September.

It is hoped the railway will re-establish passenger services to the region for the first time since the old Waverley line fell victim to the Beeching cuts in 1969, with train journeys between Edinburgh and Tweedbank of around 55 minutes. Seven new stations will be constructed between Midlothian and the Borders.

Sources said there were still significant doubts over whether a target of completing the route by December 2014 was achievable. But they said there was now greater confidence that the project was on track for delivery within the budget of £235m to £295m.

One insider said there was new confidence in the project following due diligence undertaken by Network Rail. "There's going to have to be some trade-off between how quickly you can deliver Borders and how much it is going to cost. It is possible to hit the 2014 deadline but to do that you'd have to chuck more money at it," the source said.

Ministers are said to have claimed privately they are now more confident the project will not now face major delays or budget overruns.

David Simpson, route managing director for Network Rail Scotland, said: "This contract to deliver the design phase takes us and the Scottish Government one step closer to re-establishing a railway to the Scottish Borders."

Transport Minister Keith Brown said: "This is an important project for the region and will help secure jobs and provide opportunities for communities along the route."

BAM, the sole bidder left in the earlier tendering exercise overseen by government agency Transport Scotland, won out in the latest bidding round against two companies, understood to be Carillion, which pulled out of the first competition in June, and Balfour Beatty.

It will now draw up designs for the railway route, including bridges, tunnels and stations. If a cost for the route is not agreed, Network Rail is expected to re-tender the project, which would almost certainly lead to significant further delays, sources said.

Construction industry sources said the firms competing in the latest bidding exercise were given greater confidence by the fact that, once complete, the route would be handed over to Network Rail to maintain and operate.

Transport Scotland had hoped the railway would be operated and maintained separately from the rest of the rail network but faced criticism that this would create uncertainty for firms who would not be able to draw upon the economies of scale of Network Rail.