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t is thanks to one man that the company remains afloat. Duncan Saville, a funds manager who often banks on turning around distressed companies, provided loans in 2003 in return for the opportunity to become ERG's largest shareholder.

If ERG succeeds in bringing large projects to fruition in Sydney, San Francisco, Seattle and other cities, Saville's companies, which are now ERG's biggest lender, will recoup their loans and possibly see a big rise in the value of their shareholding, currently 30 per cent.

It has been a tense wait for Saville. His companies lent ERG $26 million in 2003, $20 million in 2004, $13 million in 2006, and $8 million last month.

The company has also attracted the support of BT Funds Management, a Westpac subsidiary. In August 2006, BT began buying shares and now owns 10 per cent.

While these investors and ERG's 17,000 shareholders wait for progress to trigger the payment of the working capital ERG has invested in the Sydney project, the delays are reducing the amount payable.

Similar to many home renovation contracts, ERG is obliged to accept a discounted fee if it delivers late. The maximum of these so-called liquidated damages specified in the contract was $10 million. By June 30, they had reached $9.84 million.

In a 2006 report, Auditor-General Peter Achterstraat said his office was not aware of any other remedy for delays available to the Government once the $10 million cap was reached. The Government has become increasingly concerned about this reduction in its leverage.

It could terminate the contract, but a key issue is whether the Government was complicit in the delays, either by varying the contract for School Tcard or by failing to register its discontent with ERG's performance.

In mid-2006, Watkins ordered a review of Tcard. He approached Bill North, the former head of Consolidated Gaming Corporation, now Betcorp.

His report, handed in late last year, told the Government to get tough. "It said, don't give an inch," says one who has read the report. "Exercise the contract to the hilt."

Not long afterwards, former Supreme Court judge Barry O'Keefe, QC, was asked for advice on the Government's legal options. He reported between January and March this year, saying the Government could safely terminate the contract at any time. But the Herald believes O'Keefe warned that any accommodation shown to ERG could weaken the Government's position.

About this time, ERG proposed changes to speed up the project by running a parallel trial of bus and rail instead of the formal requirement for sequential trials. Larger teams would roll out the technology more