Trams may be in limbo … but drivers are still on track for weeks of chaos

The news emerged as the capital's council leader admitted a crunch decision on whether to go ahead with major tramworks in Princes Street this year would have to be taken within the next few weeks.

Jenny Dawe conceded the entire timetable for the tram project would have to be put back by at least 12 months unless a crisis over the funding of the project can be resolved.

Her warning came as the council declared the opening weekend of the traffic shake-up had gone smoothly. Its next major test was expected with the morning rush-hour today.

A mock-up of a tram carriage has arrived in Princes Street and will open to the public this morning. The full-size replica carriage has been positioned outside Jenners and will remain in place until the middle of next month.

Roadworks and diversions are likely to remain in place until at least the middle of March in a bid to avoid the timetable slipping by several months. Insiders say the best hope of keeping the project on track is to persuade the German firm at the centre of the cash dispute to back down.

However, The Scotsman understands that a maximum of 15 million, a fraction of the amount being asked for by a contractor to accommodate delays, is available as a negotiating tool. It is thought Princes Street will remain closed for the foreseeable future to allow the row to be settled.

But Councillor Dawe admitted there was a "race against the clock" because of the tight timetable that had been drawn up. The council was already considering lifting an embargo on tramworks during the summer festivals, amid fears work would not be finished by Christmas.

The council's tram firm, TIE, has been hit with a series of demands of up to 80 million with the leading contractor, Bilfinger Berger, blaming delays elsewhere in the tram projects.

Despite being accused by senior councillors of trying to "plunder the public purse", the company has insisted it is within its rights to demand more money, as TIE has failed to meet "contractually agreed conditions".

The plug was pulled just hours before work was due to start in Princes Street on Saturday. It had been due to finish at the end of November to avoid disrupting the festive shopping period.

It emerged yesterday that the council was hoping to keep the vast majority of Princes Street closed to traffic for the next few weeks to avoid any delays if the contract dispute is resolved.

However, retailers and business owners are demanding the removal of the measures by the end of this week.

Jane Wood, chair of Essential Edinburgh, the main retail group in the city, said: "We'll be looking for an update on the situation first thing on Monday."

Ms Dawe said: "It's a very difficult situation, and there's no doubt the ideal scenario is that these differences are resolved within the next few days. TIE's position is that we feel unacceptable demands are being made by the consortium."

Transport industry insiders yesterday described as "nonsense" reports that claimed the council could easily ditch Bilfinger Berger. One source said: "The idea that you can bin them and bring in another company at the drop of a hat is a non-starter."

However, Ms Dawe said: "Bilfinger's job is essentially to project-manage the infrastructure works. I would have thought it would have been fairly easy to get another company in to do that in the current climate."

A spokesman for Bilfinger Berger confirmed the company would be re-entering negotiations with TIE today.