GOVERNMENT has no plans to claim against the performance bond ? a type of insurance policy ? on the Berkeley project despite announcing yesterday that the project is both late and over budget.

When asked yesterday whether Government had any plans to claim against the bond, Premier Alex Scott said: "If the contractor is unable to deliver, then the bond sits there for that purpose."

The performance bond, which covers the Government for $6.8 million, one-tenth of the original Berkeley contract value, has been the subject of great controversy as well as an on-going police investigation.

The surety of the bond is Union Asset Holdings Ltd., an insurance company owned by the Bermuda Industrial Union (BIU) and founded for the purpose of supplying the bond.

Pro-Active was reimbursed $700,000 by the Ministry of Works & Engineering to cover the cost of the bond.

But when Auditor General Larry Dennis asked to see a receipt to prove that that was how the money was spent, the Ministry was unable to supply one.

The matter is now in the hands of the police. Yesterday Mr. Scott addressed the issue of the $700,000.

"The bond cost $700,000 and the Auditor is asking: Where did it go?" Mr. Scott said.

"The $700,000 was a factor in the Bill of Quantities. When the contractor demonstrated he had a bond, he was paid the $700,000.

"The Auditor asked why there was no receipt for the $700,000. The Works & Engineering Minister said we didn't ask for a receipt. The Auditor, in his wisdom, stipulated that he wanted to know, did they (the contractor) pay the company (Union Asset Holdings)?

"There is no receipt because it is not our (the Ministry of Works & Engineering) practice to get one and I think my officers would confirm that."

He added that any payment arrangements made between Pro-Active and Union Asset Holdings was a matter for them and not for the Government.

"(BIU leader) Derrick Burgess said he was satisfied they (Union Asset Holdings) had received payment to their satisfaction so, end of story. The $700,000 is not in anyone's pocket," Mr. Scott added.

"Did Union Asset Holdings and Pro-Active come to an arrangement on terms of payment? It is just a case of how these funds were managed between these two. It's not a case of 'Alex Scott has $700,000'.

"Union Asset Holdings demonstrated to our satisfaction that they, being Union Asset Holdings and the BIU, had assets way and above the $6.8 million."

Auditor General Larry Dennis had no comment yesterday.

This week the confirmed through a project insider that the BIU was the "mystery benefactor" never named by Government who bailed out contractor Pro-Active a year ago, when the company was struggling to pay hundreds of thousands of dollars owed to several sub-contractors.

Failing to pay sub-contractors is one of the clauses under which this contract can be terminated.

By paying off the sub-contractors, the BIU helped Pro-Active to keep the contract and protected its own insurance company from claims on the $6.8-million performance bond.

Works & Engineering officials believe there are sufficient grounds for terminating the contract with Pro-Active, the source said.

Failure to provide enough skilled workers or proper materials was one breach of contract that could cause termination. Another was failure to make payments to sub-contractors for labour or materials.

Pro-Active stood to be charged $2,000 for every day it went beyond the stipulated completion date on the contract, of September 2003.

But with the year-long extension to the contract announced yesterday, that penalty will not kick in unless it fails to get a Certificate of Substantial Completion by September 30, 2004.

The legitimacy of the bond ? and the insurance company's ability to meet the surety ? was questioned last year by Auditor General Larry Dennis in his special audit report on the Berkeley project.

The Union has flouted the law by failing to submit audited accounts to the Registry General for the past four-and-a-half years and therefore up-to-date figures on the Union's assets are not in the public domain.

But the latest audited balance sheet available, as at September 30, 1999, the BIU's assets amounted to $8.89 million, of which $1.44 million was cash in the bank and the largest part was in fixed assets such as buildings.

Under the terms of the Trade Union Act 1965, registered trade unions are obliged to provide the Registrar with a set of audited accounts every year.

Section 18 (1) of the Trade Union Act 1965 states: "A general audited statement of the receipts, funds, effects and expenditure of every trade union registered under this Act shall be submitted to the Registrar before the first day of June in every year, and shall show fully the assets and liabilities at that date, and the receipts and expenditure during the year preceding the date to which it is made out, of the trade union . . ."

The Act goes on to state that every officer of a trade union that fails to comply with this section commits an offence, punishable by a fine. The Registrar is entitled to institute proceedings against offenders.

In his report last year, 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," the Auditor wrote.

"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."

Mr. Dennis also pointed out that the bond was issued on June 4, 2001, before Union Asset Holdings Ltd. was incorporated.