In a reversal of its Budget announcement, the Government now says a $4.8 million allocation to the Pacific Economic Development Agency could be opened to other groups.

The private company, known as PEDA, was awarded the money to improve the economic wellbeing of Pacific people in Auckland over the next four years.

But on Thursday afternoon the Government changed tack, saying that if the terms of a contract with PEDA to provide various services could not be agreed upon, the funding would be opened up to other organistions.

Earlier it emerged that PEDA was given the contract despite the Ministry of Pacific Island Affairs warning Pacific Island Affairs Minister Georgina te Heuheu that the two-year-old company had an unproven record and the allocation was therefore a significant risk.

Earlier, Mrs te Heuheu said ministry officials would play a central role in managing the contract. She had said the agency's application was successful because it had business connections and networks that could help Pacific Islanders.

Radio New Zealand obtained a six-page proposal by the agency to Finance Minister Bill English that contained only a few paragraphs about each of five projects and no detailed budget. PEDA requested the money to fund five projects centred on employment, leadership, manufacturing, community development and performing arts.

Ministry of Pacific Island Affairs chief executive Colin Tukuitonga says he is aware the decision to allocate the money to PEDA is very unpopular. But he says there is a risk the community could end up losing the money altogether.

Opposition MPs have criticised the Budget allocation process, saying it should have been put up for tender.

The Labour Party says it may ask the Auditor-General to investigate how PEDA came to be awarded the funding.

'Robust' proposal, says agency

PEDA has defended its funding proposal as robust.

Chief executive Anthony Pereira says he is currently working with the ministry to finalise a purchase agreement on the contract.

He says he will not speak publicly until that process is concluded.

Mr Pereira said his funding submission was backed by earlier work and submissions provided by the last government at a Pacific Development Conference in 2008.