Minister of Works and Engineering Alex Scott has labelled the Auditor General "prejudiced" in his stand over the building of the new $70 million secondary school.

The Minister released a lengthy statement yesterday afternoon after The Royal Gazette revealed that Auditor Larry Dennis had handed the file on the audit of the new Berkeley Institute to Police.

Police Commissioner Jonathan Smith refused to comment yesterday, but it is understood that the investigation will focus on a $700,000 payment made to general contractors Pro-Active Management Systems Ltd. by Government.

However, Minister Scott, in his response, said he believed nothing would come from the Police inquiry other than further damage to the reputation of the construction companies involved.

And he accused Ms. Dennis of acknowledging that he could not win the case in a court of law, so instead had decided to take his "controversial stand" to the court of public opinion, instead.

"This most recent development must send a ripple of concern throughout the construction industry and the Chamber of Commerce," said Mr. Scott.

"Now, the stance taken by the Auditor General challenges the entire methodology of the construction industry and its well-established practice of negotiating the best possible price from their suppliers/service providers for materials and services rendered to the industry."

Mr. Dennis raised serious concerns about the payment when he carried out a detailed audit of the whole public school project.

The money was supposed to be a reimbursement of cash already paid out by Pro-Active to Union Asset Holdings Ltd. (UAH), a new company which had been set up by the Bermuda Industrial Union (BIU) to provide the project with a performance bond (guarantee).

The $6.8 million bond, which was ten percent of the overall project cost, would provide some financial security to Government, which owns the school site, should Pro-Active fail to deliver on its contract.

In theory, once the bond was in place and Pro-Active had paid the $700,000 as a premium to UAH, then the Ministry of Works and Engineering was to reimburse the contractor.

However, in his report, the Auditor said that both he and technical officers within the Ministry had questioned why the $700,000 had been reimbursed to Pro-Active when Government had received no evidence that the money had been paid out in the first place.

Immediately following his report Mr. Dennis asked the Ministry for the receipt to show that Pro-Active had paid the cash, along with the original copy of the bond agreement.

And he also asked the Attorney General's Chambers for a copy of the assessment supposedly carried out on UAH before the bond was put in place.

The assessment was to ascertain that the bond company had the financial capability to meet a demand of up to $6.8 million, if called on to do so.

Following the release of his report three weeks ago, Mr. Dennis wrote to both departments asking for the information, but none has been forthcoming.

As a result, he wrote again to Works and Engineering Minister permanent secretary Russell Wade last week saying that as the documents and receipt had not turned up, he assumed they did not exist.

On Friday, Mr. Wade replied to the Auditor General and said his assumptions were wrong.

However, Mr. Dennis also said the Permanent Secretary had claimed that he had no right to the receipt, and said that his requests were unreasonable.

In his report, Mr. Dennis questioned the ability of the bond company to meet an immediate demand for cash should the project be delayed or go way over budget.

He also questioned whether or not a bond was actually in place if the $700,000 premium had not been paid by Pro-Active.

And he raised concerns over the fact that the bond was agreed 11 days before UAH had been officially created.

But yesterday, Mr. Scott predicted that nothing would come out of the Police investigation, but said he feared the exercise could do an injury to the financial reputation of the Bermudian companies.

The Minister said, contrary to the impressions Mr. Dennis was trying to generate, he had "failed to indicate that he has proof of payment by Pro-Active to UAH (in the form of the bond agreement). Consequently, the entire thrust of his case has been removed."

And he accused the auditor of having "misled the public" in his report by stating that a technical officer had requested a receipt of the $700,000 transaction. But he said, in fact, the Ministry had informed the auditor that the officer was seeking sight of the performance bond, or proof of payment.

But Mr. Scott also revealed how president of the BIU Derrick Burgess had recently written to the auditor confirming that Pro-Active did pay the money to UAH.

But he said, for some reason, this had not been taken into account by Mr. Dennis.

He added: "The Auditor General seems to dismiss the very evidence he alleges he needed to satisfy himself that, indeed, a bona fide agreement did and does exist between the two corporate entities.

"The auditor is requiring that payment is withheld until the contractor reveals the actual details of the arrangement between themselves and their suppliers.

"It follows that the expectation is that the owner would only pay the amount agreed upon between those two parties and not as hitherto fore has been the case of payment being based on the sum identified on the Bill of Quantities."

And the Minister said he concluded by observing that, in view of the "unreasonable stance" taken by the auditor, the focus must switch from the Ministry, Pro-Active and UAH to the "now obvious prejudicial manner in which the Auditor General has chosen to handle this matter."

And he added: "I have been reliably informed, that in regard to major projects, such as CedarBridge and Tynes Bay Incinerator, the Auditor General had never required, to the knowledge of technical staff, a receipt of payment which had been made according to the Bill of Quantities as set out in the project documents."