The cancellation of a deal which would have privatised the UK's search and rescue helicopters raises "serious questions" about the future of the service in Scotland, the SNP has said.
Private consortium Soteria had been named as preferred bidder for the £6bn contract, which was due to run by 2012.
But that has been abandoned because of irregularities in the bidding process.
There are two military SAR helicopter bases in Scotland: HMS Gannet at Prestwick and RAF Lossiemouth in Moray.
The contract involved the replacement of the Sea King helicopters currently used by the military, which are coming close to the end of their working lives.
Soteria was formed to take part in the competitive process to create a single helicopter search and rescue (SAR) entity in the UK.
The consortium had planned to use Sikorsky S-92 helicopters to replace the Sikorsky S-61 Sea Kings, as part of a new single service.
Search and rescue work is currently provided from 12 bases around the UK - four operated by Soteria's CHC on behalf of the Maritime and Coastguard Agency, and eight by the Royal Navy and Royal Air Force.
A spokesman for Soteria said it was "disappointed" to learn that the UK government had cancelled the contract.
The Ministry of Defence said Soteria had admitted gaining access to commercially sensitive information and a police investigation is now under way.
The SNP's defence spokesman Angus Robertson, who has campaigned against the proposals, said urgent questions now needed to be answered.
"There have always been serious questions about privatisation of search and rescue services, including the loss of the military training and excellence of our RAF crews who make the fleet so effective," he said.
"The abandonment of this process now raises serious questions for the UK government.
"How much this failed process has cost the taxpayer, and what will now happen to search and rescue services given the road the Ministry of Defence is going down with base closures?"
The future of Lossiemouth RAF base is already in doubt as a decision on Tornado bases in the UK is awaited later this year, following last year's defence review.
Figures released on Monday showed that the Royal Navy's search and rescue unit in Prestwick, Ayrshire, was the busiest in the UK last year.
Labour MP for Central Ayrshire, Brian Donohoe, said: "Although the announcement today has given me real encouragement that HMS Gannet, in my constituency, has a future, the problems surrounding this bid have become a serious issue of national importance.
"It has profound consequences for Ayrshire and beyond.
"It is about time the government gave some answers as to what on earth is going on."
Scottish Liberal Democrat leader Tavish Scott said: "Search and rescue helicopters provide an essential life saving facility around the coast of Scotland and the UK.
"The crews that run these life saving missions must have helicopters at their disposal that are fit for purpose.
"It is vital that the helicopters are equipped for the job at hand and this is the point that the UK government should sort out as a matter of urgency."
John Stevenson, leader of Lochaber Mountain Rescue Team, welcomed the cancellation of the bidding process.
He said: "I think it is very good news as far as we are concerned because we have been working with the military and their machines since mountain rescue began.
"To have to go and change everything would be a big step backwards.
"We would have to retrain with different machines and that would probably cost an awful lot of money."