The Annapolis Housing Authority, the state and the developer of the $8.4 million New Bloomsbury Square development have reached an agreement allowing the state-funded, waterfront public housing project to go forward.

The housing authority signed the contract with A&R; Development Corp. yesterday, after its board of commissioners approved it Monday night. The contract ends what had become a heated dispute, with A&R; threatening to walk off the job and pursue payment in court if a contract was not reached by Dec. 1.

"A&R;'s position is that as long as we have a contract and more protection under the law, we are comfortable to move forward with construction," said Anthony Rodgers, vice president of A&R;, yesterday.

Rodgers had written a three-page letter to the state Department of General Service on Nov. 18 complaining about a lack of payment or contract on the project, which has been under construction since this summer and on which his firm has spent $3.2 million without reimbursement.

In the letter obtained by The Sun, Rodgers wrote that his company was being held "a financial hostage to the unhurried process of a select few at the Housing Authority."

Trudy McFall, chairwoman of the housing authority's board of commissioners, said that several issues needed to be resolved before the board could approve a contract. The last remaining issue was whether the developer would account for expenses on the project - something A&R; had resisted but which McFall said was required by the federal Department of Housing and Urban Development.

On Friday, the parties agreed on a less burdensome cost certification format to be completed by the state, said the housing authority's attorney, Alan J. Hyatt. He said other issues that had held up the contract included whether the housing authority would get a say in changes - the parties agreed it would - and liability issues.

"I think we have protected all of the concerns of the Housing Authority," McFall said yesterday. "We were all mighty relieved to be through the negotiations."

Rodgers said that his concerns were addressed in the contract. But, he said, it might have been a mistake to begin work before the details were fleshed out.

The development is being built by the state so it can demolish the 61-year-old Bloomsbury Square project, which abuts state offices. The space is needed for an expansion of the Lowe House Office Building. Rodgers said the project had been put on a fast track by the state - and begun before a contract was signed - so that the $30 million office project could get under way.

Rodgers said the first phase of the project, about half of the 51 units, is expected to be completed by mid-March. The development is about 40 percent complete so far, he said, with masonry started on all the buildings and drywall beginning to be installed.

"We are expeditiously moving forward in the completion of the development," Rodgers said.