The deal means that Howden, which supplied the tunnelling equipment, will write off up to pounds 2.5m against profits for the year to March, bringing total provisions against the contract to pounds 12.9m.
MT Group, the consortium building the tunnel, is to pay Howden 70m Danish kroner ( pounds 7.3m) over the next six months. Howden will also participate in a bonus scheme that could produce a further 10m kroner.
It had a debt of pounds 10.3m in its balance sheet for claims under the contract, so the balance will be written off. A spokesman for Howden said the contract produced a small profit in 1991.
The contract has been dogged by problems, with the machines arriving late and needing modification. The tunnel is over a year behind schedule. MT has dropped a pounds 70m claim against Howden.