Auditor General Larry Dennis has raised major concerns over the authenticity of the performance bond put in place to financially safeguard Government in the building of the new senior school.

He said even before bids were officially submitted for the new Berkeley Institute, technical officers at the Ministry of Works and Engineering had raised concerns about Pro-Active's ability to secure an insurance policy.

But, during his audit, he discovered that Cabinet awarded the contract to Pro-Active before a bond had been secured, despite the fact that it was a prerequisite of the job.

And he said when the bond was eventually put up by a new insurance company, Union Asset Holdings, it was issued 11 days before the company had even been incorporated, raising doubt about its authenticity.

He said: "In view of this apparent anomaly between the two dates, I have asked the Attorney General for advice as to the legitimacy and enforceability of the bond.

"The bond, however, does appear to conform to normal performance bond requirements."

Mr. Dennis said while doing his audit on the project, he found it very difficult to obtain a copy of the performance bond and discovered that senior Ministry staff had not even seen it until 16 months after the contract had been awarded.

That, he said, was highly unusual.

And he questioned Union Asset Holdings' ability to meet the $6.8 million insurance cover of the site, which is ten percent of the overall cost, and said there was no document on file to assess its ability to pay, as there should be.

He highlighted many anomalies and irregularities about the issuing of the performance bond.

And he said a report prepared by the Ministry for Cabinet dated April 17, 2001, stated that Pro-Active had still not been able to obtain a satisfactory bond.

The Ministry report read: "It appears to us that the mandatory requirements for a performance bond and its importance to this project are not fully appreciated."

Mr. Dennis said when he tried to investigate the bond, he found a copy of the policy was not in the Ministry's project files, and furthermore, he discovered that by September this year, the Ministry's chief architect, project architect and quantity surveyor had not seen the bond.

He said: "Senior Ministry officials normally review performance bonds before major contracts are issued in order to ensure that the Government is adequately protected.

"This was not done for Pro-Active's contract. Ministry staff did not see Pro-Active's performance bond until I discussed it with them after I received a copy of it on October 24, 2002."

The Auditor General said he was finally provided with a copy of the bond, but only after many times of asking.

But Mr. Dennis said the Ministry had refused to reimburse Pro-Active for the money it paid for the bond until after all parties were satisfied with the documentation.

He said: "The Ministry's acting permanent secretary approved a payment of $700,000 to Pro-Active on December 11, 2001, to reimburse Pro-Active for the fee it had allegedly paid for the bond.

"This was despite the Ministry having received no evidence that Pro-Active had paid the surety fee of $700,000 or any other amount, and concerns expressed by Ministry staff in this regard.

"The Ministry paid the $700,000 more than six months after the bond was issued."

But Mr. Dennis said a bond provided protection, only if the institution that issued it was financially capable of paying its full value.

And he doubted whether the Union Asset Holdings could do that.

"The question here is whether the surety, Union Asset Holdings Ltd, has the financial resources to meet claims of up to $6.8 million under the bond if called upon to do so," he added.

"Furthermore, while Union Asset Holdings is wholly owned by the Bermuda Industrial Union (BIU), it is unclear whether the BIU's assets are available to its subsidiary to satisfy bond claims. In my view, it is unlikely."

But the auditor said there was also concern over whether the BIU, as part of its constitution, could have a bonding company.

As a result, that matter had been referred to the Registrar General, who, as of October 24 this year was unaware of the existence of Union Asset Holdings because the BIU had not filed financial statements since 1999.

The Auditor General added: "My inquiries concerning the adequacy and propriety of the performance bond are still ongoing."

BIUpresident Derrick Burgess said he would not comment on the report until Monday.