A dispute between the local housing authority and a developer is again threatening the fate of an unusual state plan to build waterfront public housing in Annapolis.

A&R; Development Corp. of Baltimore has threatened to stop work on the $8.4 million new Bloomsbury Square project along College Creek, accusing the Annapolis Housing Authority and its board chairwoman of intentionally delaying approval of a final contract.

"It almost appears that the process is deliberately being delayed for surreptitious reasons," wrote development manager Anthony Rogers in a Nov. 18 letter to the state Department of General Services that was obtained by The Sun. "A&R; is being held as a financial hostage to the unhurried process of a select few at the Housing Authority."

The developer began construction on the 51-unit project this summer, working without a contract and fronting $3.2 million so far without reimbursement, according to the letter. A&R;, which temporarily halted work Monday, said it would "formally terminate the construction" Dec. 1 if a contract is not finalized, and pursue payment in court.

Rogers declined to comment when contacted at his office yesterday.

But Housing Authority representatives and a state spokeswoman say negotiations are continuing, and they hope to resolve the conflict soon and finalize a contract for the project. The development is being funded by the state so that the old Bloomsbury Square can be demolished for the $30 million expansion of the Lowe House Office Building.

As of yesterday, the primary dispute was whether the developer needs to complete cost certification on the project to show actual expenses even though the state has negotiated a lump sum payment for the project. Trudy McFall, chairwoman of the Housing Authority's Board of Commissioners, said cost certification is required by the federal Department of Housing and Urban Development.

But Rogers has accused McFall of having a conflict of interest in the project and has requested that she recuse herself from further discussions.

McFall is also chairwoman of the nonprofit Homes for America, which was a losing bidder on the Bloomsbury project before she joined the board. She was appointed to the Housing Authority board this summer and elected as its chairwoman in September.

Alan J. Hyatt, the Housing Authority's attorney, said he determined that McFall's role with Homes for America is not a conflict because the project was out of contention once A&R; was selected.

McFall contends that the contract - which received initial HUD approval last month - has been further delayed because the finalized agreement the Housing Authority received last month had problems that needed to be resolved.

"When we started to look at the documentation we were getting, there were many ways in which the interests of the Housing Authority had not been attended to," she said. "The end product has to in every way comply with all of HUD's rules and regulations."

McFall said other disagreements in recent weeks have included who decides when the project is ready for residents to move in, and whether the Housing Authority would approve changes during construction. She said the parties have agreed to allow the Housing Authority to have a say in both matters.

Hyatt said the "animosity" in Rogers' letter was surprising. He said the project and the agreement are complex, and that it was the state - not the Housing Authority - that chose to go forward with construction without a finalized agreement.

"If this was the Housing Authority itself hiring a contractor, it wouldn't be under construction until the i's were dotted and the t's were crossed," he said.

The project was nearly derailed in August when A&R; told the state it would need more money than it originally agreed to complete the project as negotiated with residents and the city. Last month, the state's Board of Public Works authorized an additional $800,000 for the project.