ProActive Management Systems breached its contract for building the Senior Secondary School, according to the Ministry of Works and Engineering.

And Premier Alex Scott has defended the decision to terminate the contract saying it was necessary to protect public money. In its formal contract termination letter, which was obtained by this newspaper yesterday, the Ministry says that the contractor did not provide enough workers to meet its completion deadline and that it did not handle its subcontractors as agreed.

ProActive?s ?persistent and repeated failure to provide an adequate workforce sufficient to meet the Substantial Completion date established by the Claim Settlement Agreement of the 20th February 2004? was one reason for termination, according to the letter.

The other reason involved ?substantial breaches? of both the original contract and the February Agreement. The letter refers to the contract sections and headings ? most of the clauses concern subcontractors.

?You have been notified in the past of serious problems in these areas and the failure to pay subcontractors in accordance with subcontractor agreements which is a further ground for termination for cause,? it continues.

?PAMS has failed to correct problems and has failed to take necessary steps to construct the work in accordance with the contract documents and contract deadlines.?

The effective date of the termination is September 2 ? seven days? notice. The Bermuda Industrial Union owned Union Assets Holdings, which provided the completion bond for the project, was also given notice of the contract termination.

As the project?s surety, Union Assets Holdings could eventually be approached to provide the funds to complete the project, should Government prevail in the dispute with ProActive ? raising the spectre of a legal battle fraught with political risk for the Progressive Labour Party.

?PAMS has failed to correct problems and has failed to take necessary steps to construct the work in accordance with the contract documents and contract deadlines,? the Ministry told Union Assets Holdings.

A spokesman for ProActive said that allegations against the company have all been fully rebutted in correspondence. ?The details of our response will be published shortly when the company makes its first full statement.?

Talks have been taking place between Ministry officials and ProActive since the announcement on Tuesday that the contract had been terminated.

And understands that Government has agreed to meet the severance pay agreements for the company?s workers. ProActive is gearing up for what is expected to be complicated arbitration hearings in which it will be seeking resolution of outstanding payment claims as well as compensation for the contract termination.

Works Minister Ashfield DeVent is yet to provide information on his decision to end the contract. It is generally known that the project, which has been shrouded in controversy since inception, has suffered serious cash flow problems.

ProActive blames that on difficulties obtaining credit from traditional sources and says that it was being short changed by Government when it submitted payment claims.

Asked yesterday whether he was aware of ProActive?s difficulty with getting bank credit, Premier Alex Scott said that he was aware that that happened in the early stages of the project.

?We were aware that at the early stages that they didn?t get the credit they anticipated. If that can be described as a problem, yes,? the Premier said.

Mr. Scott added: ?We wanted to give them every opportunity to complete the project. It appears it was not to be but we also have a responsibility to the public, to the public purse.?

He defended the decision to terminate as a ?timely? decision. ?I have heard a lot of misinformation out there ? the project is not as costly as it has been made out to be. We still hope to do it in a timely fashion given all the circumstances surrounding it and I think the Minister will speak to that.?

But he said he did not think the decision to terminate will result in the project costing the taxpayer much more, when asked. ?It just might not. There is a possibility it could but I wouldn?t use the word much more. But I leave that to the Minister.?

The Opposition party would beg to differ on that point ? former shadow Works Minister Erwin Adderley has predicted that the final bill could come in at $150 million. Mr. Scott said he did not expect a major protracted battle with ProActive over compensation. ?ProActive will tell you ? the Government has been very tightly in control of the project. We are well documented in how we have expended funds and not a penny that hasn?t been earned has been paid,? he said.

?And therefore for a middle size firm with limited credit they found it difficult because Government ran it very tightly and therefore I can say the public purse has been well protected.?

He said Government had learned a lot from the experience - one lesson being that Government contractors should have access to credit which reflects the value of the contract.

Government had approached the Island?s banks to ensure that they provide lines of credit to small businesses when it became clear that ProActive had limited credit facilities.

?That now is in place, but I even said at the moment that it was not probably going to be done in a way that would help ProActive ? it would help others.

?They had their credit challenges and they were well within their credit challenges to the extent that I don?t know whether the bank was able to help or not. But what we negotiated with the bank was for the future, for other firms.?