Muni’s Central Subway project is on the verge of taking a giant step toward wrapping up its $942 million grant agreement with the federal government.

Mayor Ed Lee met with Department of Transportation officials in Washington D.C. on Tuesday to discuss the $1.6 billion undertaking. He relayed word back to Muni that the feds have indicated they will issue a “Letter of No Prejudice” for a new tunneling contract, a procedural move that will greenlight construction of a new phase of the project.

If the DOT issues the letter, which Mayor Lee has indicated it will, then Muni can begin on its $55 million plan to dig a hole at Fourth and Bryant streets, where the tunnel boring machine for the Central Subway will enter, said agency director Ed Reiskin. The approval of that contract would seem to bode well on the agency’s chances of securing an essential $942 million grant application for the project, which will be announced in a few months.

“If they’re going to allows us to spend another $50 million to dig a big hole in the ground, you’d think they’d be confident in our ability to secure funding to finish the project,” said Reiskin.

wreisman@sfexaminer.com