A new credit initiative is about to be launched to give financial assistance to small contracting firms doing Government jobs, Works Minister Alex Scott announced last night.

Government has met with one of the banks on the Island to set up the Small Business Enterprise Finance Scheme which will enable small companies to receive a greater amount of credit when starting and completing Government work.

Mr. Scott told Parliament that the scheme had come about because of the cash flow crisis that general contractor Pro-Active Management Systems hit while working on the $68 million new secondary school development.

He said despite winning the large contract, and having the support of Government, Pro-Active could not get sufficient credit from the bank to enable it to get the project up and running.

And although he said the scheme would not be retroactive andPro-Active would not benefit, he hoped it would smooth the way for other small businesses in the future.

Mr. Scott said when Pro-Active won the contract for the new school almost two years' ago, it believed the $68 million deal would have secured about $4 million worth of credit in the private sector.

However, he said, in actual fact, Pro-Active was only given about a third of that in bank credit.

The Minister said: "I and the Progressive Labour Party Government have learned from the Pro-Active experience."

And he said after the debate: "It's a lesson learned from Pro-Active. The banks said they would only give Pro-Active credit equal to the equity in the company.

"But the practice is normally that if you win a large contract, then the equity in the contract affords the credit; it's normally something like ten percent."

Mr. Scott said after Pro-Active ran into severe difficulties, he took his concern about the bank credit to Cabinet, and the Ministry of Finance became involved.

As a result, several meetings have been held between Government and the bank during the last six weeks, and, after much debate over the pros and cons, the scheme is to be officially launched soon.

He said Government will introduce small businesses that are likely to win public contracts to the bank, and they should receive a greater amount of credit.

However, he said, in return the bank will also play a more pro-active role in managing the finances, and the Small Business Association will also have a significant role - arranging seminars and giving advice to the small businesses along the way.

Mr. Scott said he did not understand why banks had not offered greater credit before to small businesses, but he said it made perfect sense for banks to give support to new and small companies.

"Pro-Active was the catalyst," he added. "It demonstrated that the marketplace was not working for the small businessman in Bermuda.

"Banks are in the business of lending funds.

"They lend it to clients to get clients. The bank has not been offered any inducement (by Government) to do this. The equity comes from any contract that the contractor wins."

And he said Government had not promised to act as a guarantor. He added: "The only role Government will play is identifying the tender. We will bring banker and tender together.

"This has not just happened - there has been considerable discussion and there are still some details to be worked out."

The building site of the new second senior school almost came to a standstill last month after Pro-Active became strapped for cash.

The pay cheques of Pro-Active workers bounced, and sub-contractors refused to return to the site because they had not been paid for service and supplies for months.

In the end, a mystery benefactor, believed to be the Bermuda Industrial Union, stepped in and started to pay off the debts, so work could resume.

Neither Pro-Active or Mr. Scott would say how much debt had been accrued at the site, but at least two contractors were said to be owed more than $200,000.

Shadow Works Minister Erwin Adderley said last night that, while he was glad to see something in the works to help small businesses, he believed Pro-Active's problem had been lack of construction management skills, and lack of management by the Minister.

"We look at it as a fiasco," he said. "We lay the blame firmly at the feet of the Minister of Works and Engineering and the Smith Government.

"Government ignored the advice of technical officers (who advised that Pro-Active was a risk because of its lack of experience), and when the problems first arose, they buried their heads in the sand."

But he said what was tragic was that no plan had been announced as to how the project, which is believed to be up to a year behind schedule, was to be moved forward.

"I would have expected by now that there would have been some proposals as to how we are going to get out of this mess going forward," added Mr. Adderley.

Mr. Scott replied: "Stay tuned".

But Mr. Adderley likened the whole issue to the Young and the Restless soap opera, and said every week there was a new episode and a new story.

The Shadow Minister said he told Parliament last summer that in order for the school to be completed by its September 2003 deadline, it would have to be watertight by August or September last year.

But he said the Minister was in denial, and he accused the Minister of still failing to brief the public on what the plans were.

And he labelled the Minister "Alex in Wonderland."

Mr. Scott has brought in the Lubben Group from the US to carry out a review of the huge project to find out what has so far been completed and what still needed to be done, so a new timetable and deadline can be realistically set.

Pro-Active's initial bid for the job was in conjunction with the Lubben Group two years' ago.

But yesterday, Mr. Adderley said by bringing in a team of people from overseas to review the site led him to believe that Pro-Active had no credibility.

He said if Government thought Pro-Active was credible, there would have been no need for the Lubben Group to be brought in to do the review.

And during the debate yesterday, both Mr. Adderley and United Bermuda Party MP Jamahl Simmons challenged Government backbench MP and president of the the BIU Derrick Burgess to either confirm or deny the rumour that the union had bailed Pro-Active out.

Mr. Burgess remained in his seat.