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At an emergency joint meeting early yesterday, the Martha's Vineyard Regional High School (MVRHS) and the Up-Island Regional School District (UIRSD) committees narrowly averted a paralyzing contract impasse with Island Transport Inc. that would have left hundreds of students across the Island without bus transportation for the remainder of the academic year.

The dispute, which appears to have surfaced only recently, arises from the terms of a three-year-old unwritten modification to the contract between the regional school district and privately owned bus company.

Vineyard school superintendent Kriner Cash told committee members yesterday that the schools had agreed to an annual contract increase of $100,000 to cover transportation costs for special education (SPED) students. Before the deal was made three years ago, the school had provided that transportation itself.

"SPED transportation has been done by the school district. However, Island Transport will now be doing the SPED transportation for us, [and] an additional $100,000 will be added to the contract for those two runs each year for the next (five) years," according to minutes of an Aug. 16, 2000, meeting of the MVRHS and UIRSD.

As a result of what Mr. Cash now says was a three-year overpayment, he proposed recently that the school district withhold a June payment of $112,000.

Island Transport demanded the overdue payment and threatened to terminate bus services immediately. Vice president Scott Dario said the company needs the money and cannot afford to operate without it.

"We're not doing it on principle," Mr. Dario told school committee members. "We can't afford it."

Since the contract was modified three years ago, Mr. Dario said, the school system has made 29 payments without protest. Then, without notice, he said he found out only Monday that the 30th payment would be withheld. Island Transport provides transportation services to the schools using buses owned by the school system and leased to the private operator.

Island Transport attorney Robert Parks argued to the school committees that the increase was to cover additional operating costs and had nothing to do with SPED transportation.

Mr. Cash said he would not have agreed to an automatic increase in Island Transport charges without some additional benefit to the school.

Mr. Parks said that under Massachusetts law, Island Transport could increase a public contract up to 25 percent to cover expenses without repeating the bidding process. Mr. Parks also argued that the many payments the school has made already would be interpreted to mean that there had been "a meeting of the minds" as far as the legality of the oral modification was concerned. He added that Island Transport intended to enforce the contract if the matter is not settled.

James Dario, the president of Island Transport who negotiated that modification, according to Mr. Cash, was off-Island and unable to attend yesterday's meeting.

Mr. Cash said the increase had not come to the attention of school managers earlier because until this year the additional charges were for one "SPED run," a sum that had fallen within their budget without raising a red flag.

This year, because an additional bus run was needed, the transportation budget is in the red.

Mr. Cash proposed that the school system provide the bus service for the remaining 14 school days and reevaluate its future relationship with Island Transport. But Mr. Dario countered that his company would remove the registration plates from its buses because Island Transport is paying the insurance premiums on the fleet and could be held liable.

"Our haste has held our kids hostage," MVRHS school committee member Gail Palacios of Edgartown said at one point.

Leslie Baynes, MVRHS member from Edgartown, said he would leave this meeting, like Island Transport members, "with a bad taste in my mouth."

"I'm very, very upset," said Oak Bluffs member Tim Dobel, who along with up-Island district committee member Skip Manter from West Tisbury suggested making the payment but placing the disputed sum in an escrow account.

Eventually, both school committees separately voted to keep the buses running for another two weeks by "swapping checks."

That involved making the $112,000 payment to Island Transport with an offset of $36,000 the company pays to the school each month for a bus lease.

School committee members emphasized that they were making the payment "under protest."

"I don't consider this a victory at all," Mr. Dario said at the end of the meeting. "We're both losers in this situation."

In later comments, Mr. Cash said he was incredulous and outraged when confronted with the letter from Island Transport which essentially "held the kids hostage."

In a letter dated June 2 to Mr. Cash, Steve Dario wrote, "Unless the monthly payments are received in full on or before 12 pm Wednesday, June 4, 2003, I will have no choice but to suspend service due to breach of contract by the district."

Elsewhere in the letter, Mr. Dario says, "I believe it is not my place, at this time, to point to what, why or who may have caused this situation, but I do feel it will come to light in the future."

Mr. Cash said, "For me, it was an outrage that Island Transport would be willing to leverage the children and the school system because of the questions I was asking and for which I was unable to get a direct response from the president of Island Transport."

He described yesterday's meeting as constructive in that the committees arrived at a resolution that will enable bus service to continue until the school year ends on June 20.

Committee members formed a subcommittee to work with Island Transport to resolve the differences. The company's contract ends in June 2005.

What happens next year if the dispute is unresolved?

"That is what we have to decide quickly, and we believe we can run the operation ourselves," Mr. Cash said. The school does not want to be in the bus business, he said, but a department could be created capable of effectively running the operation "and at considerably less now than we are being charged."

Mr. Dario said he hoped there would be a resolution, but if not, "A court of law will shed some light on all this."

Reached on his mobile phone Wednesday afternoon, Steve Dario called the situation "a conspiracy to get us out. It all comes down to one thing," he said. "This guy [Superintendent Cash] does not have control over the outside vendors so ... Island Transport is not under his control like all the other people who work for him. But since we've butted heads from day one, this is his way out."