The general contractors of the new senior school development could face a $2,000 penalty for every day the mammoth site is behind its completion deadline, The Royal Gazette has learned.

Auditor General Larry Dennis said he was trying to ascertain who would be culpable to pay the penalty if and when Pro-Active Management Systems Ltd. was not ready to hand over the site to the Education Ministry on the agreed date of September 4 next year.

He said as part of the contract, Pro-Active agreed to pay the penalty, should the site fall behind. And if the project falls as far behind as is expected, it could lead to a significant bill.

The auditor revealed in his recently published report on the progress of the new $68 million Berkeley secondary school that Pro-Active had already put forward a new completion date of January 2004, although he said it was not estimated to be ready much later than that.

That January date, as of the end of October, had not been accepted by the Ministry of Works.

Mr. Dennis, in an interview at the end of last week, said: “The penalty for this contract is $2,000 a day. Without seeing the performance bond (guarantee), we don't know who would pick up a bill like that. We don't know if the bond company, Union Asset Holdings, would pay for it or Pro-Active.”

Mr. Dennis said that was all part of what he was trying to ascertain now as he awaited a number of documents and information from the Ministry of Works and Engineering and the Attorney General's Chambers, which he was unable to obtain during his audit.

Allegations and counter-claims were made last week after Mr. Dennis released his controversial report on the Berkeley site, and raised questions over a number of issues, not least the slow progress of the development.

However, one of his major concerns related to the performance bond.

The bond is a guarantee or form of insurance to safeguard the site owners, in this case the Education Ministry, should the development go awry.

Normally, all major developments have a bond in place.

The bond, which is normally ten percent of the overall cost, is put up by a surety company and guarantees that the contractor will perform his or her duties under the contract, normally with specific reference to time and value.

Should the contractor fail, the owner can call on the bond company to perform the remaining work, all at the sole expense of the bond company.

Mr. Dennis disclosed in his report that the bond agreement for Berkeley was put up by a brand new insurance company, Union Asset Holdings (UAH), which is solely owned by the Bermuda Industrial Union.

However, he questioned why the bond had been signed 11 days before UAH had even been officially formed, and said, as a result, he was waiting to hear from the Attorney General's Chambers whether or not the bond was enforceable.

If it is not, then it could be presumed that UAH will be unable to meet the $2,000-a-day penalty.

And in the normal course of things, the general contractor would first pay a premium to the bond agent in order to get the agreement in place.

In this case, the payment due to UAH was $700,000, and Pro-Active was set to be reimbursed by the Ministry of Works and Engineering once the bond was in place.

Government did, in fact, reimburse Pro-Active the cash, leading to more concerns from the auditor.

He said senior Ministry technical officers had raised concerns that they had no evidence that the $700,000 had actually been paid by Pro-Active to UAH in the first place, yet Government went along and paid out the money, anyway.

As a result, Mr. Dennis has questioned whether or not the bond was active, and said if Pro-Active had not paid the premium up front, at best, he could describe the reimbursement from Government as an “interest-free cash advance”.

The auditor is still waiting to see the evidence from the Ministry of Works that Pro-Active had paid UAH before receiving the $700,000 from Government. As of last night, it had not materialised.

But when The Royal Gazette spoke to Minister of Works and Engineering Alex Scott last week about the $2,000-a-day penalty, he had a different view.

Firstly, he said the completion date had not officially changed from September next year, as yet.

But he said if a new date was agreed between Pro-Active, his ministry and the Education Ministry, then the penalty was no longer an issue.

He said: “If the contractor and owner agree to review the completion date, that can be done.

“If you mutually change it then the original question about penalty becomes mute.”

When asked by The Royal Gazette what the point of a penalty clause and deadline were, in that case, Mr. Scott inferred that those were silly questions.

But the Auditor General disagreed. Mr. Dennis said: “Part of the agreement could be that you agree there is a later deadline, but you still have to honour the penalty clause.”

The Royal Gazette asked President of the BIU Derrick Burgess whether or not Pro-Active paid the union's subsidiary UAH the $700,000 and he said it was no-one's business.

And he said the BIU was rich in assets and so could amply meet a claim of up to $6.89 million as covered in the bond. However, Mr. Dennis has questioned whether or not the BIU could legally be culpable for UAH (the bond company).

If the bond is called upon, the cash would have to be available very soon. Mr. Dennis said: “They (UAH) would have to have cash available for it, or liquidate its assets. I imagine that cannot be done quickly.”