The contract cited in a High Court action by CIE's chief executive Mr Michael McDonnell against the group raised his salary to £181,052 from £100,000 (to €229,889 from €126,974).
This rise was within the limits authorised last year in the Buckley report on salaries for executives in the semi-state sector.
The increase was agreed early this year by CIE's then chairman Mr Brian Joyce in the weeks before his unexpected resignation in March. But it was never sanctioned by the Department of Public Enterprise or the Department of Finance. This was because the new contract was not submitted for approval before Mr Joyce left the company.
It is understood Mr McDonnell has indicated his willingness to take early retirement - on the terms of the disputed contract. The contract has been the subject of correspondence between the transport group and the Department of Public Enterprise in recent weeks.
The view of one person familiar with the situation was that Mr McDonnell had no responsibility to notify the Minister for Public Enterprise, Ms O'Rourke, or the Minister for Finance, Mr McCreevy, of the rise.
Another person said the Attorney General had advised the Government it could have reasonably expected Mr McDonnell to inform it of the rise because of his familiarity with such procedures when he worked as a civil servant.
Some insiders view the dispute over Mr McDonnell's contract as a means of pressurising Mr McDonnell. His working relationship with Ms O'Rourke is not close. CIE is charged with implementing a £2.2 billion investment in public transport in the National Development Plan. It has failed in the recent years to deliver fully on other smaller investments, for example in rail safety and signalling. The group has acknowledged a "huge quality deficit" in its services.
When citing Mr McDonnell's difficulties with Ms O'Rourke, insiders point out that he reached the end of his previous term on CIE's board on November 27th, 1999, but was not re-appointed until February 1st.
While Mr Joyce worked as part-time chairman, his replacement Dr John Lynch works full time. This is unusual; the norm for companies with a full-time chief executive is to appoint a part-time chairman.
When Dr Lynch was appointed, Ms O'Rourke's spokesman said there was no suggestion this was because of a lack of confidence in Mr McDonnell.
