Transport For The North bosses have conceded that they "cannot justify spending public money" on their current strategy for the project allowing passengers to use contactless bank cards to travel on buses, trams and trains on the same journey with a fixed maximum price.
The success of the scheme, seen as integral to TfN's 30-year plan to boost connectivity across the region, relies on a back-office ticketing scheme known as ABBOT which processes and caps payments on journeys on a variety of different transport operators.
First West Yorkshire says it has already spent millions developing its own contactless systems and that its approach "will deliver benefits to customers more quickly, having already delivered much of what TfN is seeking to procure without cost to the public purse”.
TfN, which is getting up to £150m in funding from Chris Grayling's Department for Transport to introduce 'integrated and smart travel' across the North, has now been forced to look at alternatives ways of making the project work.
A message to the North's political leaders from TfN chief executive Barry White, seen by the Post, says: "We therefore cannot justify spending public money continuing to pursue the current delivery strategy.
"We remain committed to delivering a truly multi-modal experience for passengers in the North and firmly believe in making public transport easier to use and pay for, delivering a seamless experience for our passengers.
"We’re now considering alternative options to take the programme forward, maintaining the same vision but with different delivery strategies."
A separate confidential report warned: "This situation means this continues to be a significant element of risk to the successful delivery of ABBOT."
The stand-off has prompted the director of the influential Northern Powerhouse Partnership to call for the introduction of bus franchising - where routes and fares are decided by local authorities - "if the unregulated bus companies won’t play ball with pay-as-you-go".
Henri Murison said: "If the unregulated bus companies won’t play ball with pay-as-you-go, it simply strengthens the case for bus franchising, which would also ensure that routes and fares are decided by the local transport authorities rather than private companies.
"Our train companies are, however, fully supportive, and we should push ahead on trains to enable people to touch in at Harrogate with their payment card or phone and touch out in Leeds or Liverpool, and deal with buses once the companies concerned change their mind - or devolve powers to allow franchising.”