The Scottish Government will pay a further £65m to the company that built the Aberdeen Western Peripheral Route (AWPR).
Transport secretary Michael Matheson said the additional payment would prevent a potentially lengthy and expensive court case with the contractors over the costs of the road.
The road was built under a £745m fixed-price contract, but in December 2018 contractors told MSPs delays had resulted in hundreds of millions of pounds in additional costs, taking the overall cost to more than £1bn.
Mr Matheson confirmed the additional £65m will be paid to Aberdeen Roads Limited (ARL) – a consortium that includes Galliford Try and Balfour Beatty – in a letter to MSPs on Holyrood’s Rural Economy and Connectivity Committee.
Liberal Democrat transport spokesman and North East Scotland MSP Mike Rumbles said: “The Scottish Government’s handling of this project has been nothing short of a shambles.
“This confirms my view that the original contract for this so-called fixed price contract was botched from the very beginning.”
But Mr Matheson said the settlement payment was “considerably less than some of the figures reported in media speculation around this dispute”.
He added: “It should also be noted that, if this settlement had not been reached, ARL would have pressed its claims through the courts.
“Whilst the Scottish ministers were prepared to mount a robust defence, it was recognised that proceedings could have run for years and led to significant and prolonged exposure to risk, expense and uncertainty as a result.
“Ultimately, all parties appreciated that an early commercial settlement was desirable in all the circumstances.”
The transport secretary also stressed the “transformational” impact of the bypass, which fully opened to traffic in February 2019.
While the AWPR had originally been due to completed by spring 2018, its construction was delayed by factors such as the weather and the collapse of construction firm Carillion.
In his letter to MSPs, Mr Matheson said the project has improved quality of life, reduced journey times, provided greater journey time reliability and supported the wider economy across the north-east.