After nearly five months of inactivity, the Lower Manhattan Development Corporation is close to restarting the demolition of the former Deutsche Bank building, where work halted in August after two firefighters died fighting a blaze in the contaminated tower.

A long-simmering dispute between the redevelopment corporation and its construction manager, Bovis Lend Lease, has been resolved, less than two weeks after the development corporation threatened to fire Bovis, according to government officials.

As part of the resolution, the development corporation announced on Tuesday that it had approved the hiring of a new subcontractor, LVI Services Inc., to strip the building at 130 Liberty Street of asbestos and other hazardous substances and then demolish the remaining structure.

LVI will replace the John Galt Corporation, the subcontractor that was removed after evidence indicated that smoking by its workers may have caused the fire.

Since the fire, the demolition project has become the subject of a wide-ranging criminal investigation by the Manhattan district attorney’s office.

Among the matters being reviewed is the question of who authorized the dismantling of a standpipe that was supposed to provide water to firefighters.

State officials and the redevelopment corporation have also moved to patch up their relationship with the Environmental Protection Agency, which they said had imposed overly stringent cleanup procedures at the site.

Neighborhood residents, however, contend that the tower presents a severe health risk.

Even with a new agreement, the decontamination and demolition of what is now a 26-story structure could take another year. Any further delays could jeopardize other work at the World Trade Center site and a deal to turn over the former Deutsche Bank property to JPMorgan Chase. The bank has an agreement with the Port Authority of New York and New Jersey, which controls the land, to build a 42-story trading headquarters on the site.

The development corporation has been criticized by local residents and elected officials for the lack of progress at 130 Liberty Street since the Aug. 18 fire. Other work at ground zero has fallen behind schedule as well. The Port Authority, for instance, recently announced that the Sept. 11 memorial would not be fully open until 2011, two years after the original completion date.

Avi Schick, chairman of the development corporation, and David Emil, its president, were still working on Tuesday afternoon to finalize the details of the new arrangements with Bovis, LVI and the Environmental Protection Agency.

A press release issued by the agency did not give any details about the arrangement with LVI, including the cost of the contract, the date on which LVI would start work or how long the job would take. Officials said they hoped work would begin by the end of this month. The cost of the demolition project has been swelling since 2005, when it was first estimated at $75 million. It later rose to $81 million, and a year ago, the development corporation agreed to provide an additional $40 million. But government officials expect the total cost to exceed $150 million. Two insurers are responsible for 75 percent of the costs over $50 million, but all sides anticipate a barrage of lawsuits at the end of the project.

Councilman Alan Gerson, who represents Lower Manhattan, has scheduled a Jan. 23 public hearing to assess progress at the building, which has been shrouded in black netting, a grim reminder of the attacks on Sept. 11.

“There’s been more than enough time,” Mr. Gerson said on Tuesday. “We need to go forward as quickly and safely as possible.”

The new agreement comes just two weeks after relations between the development corporation and Bovis became so frayed that the corporation notified Bovis of default on its contract, the first step in a possible termination, according to one executive who was briefed on the dispute.

But in the last week, Mr. Schick and Mr. Emil scrambled to resolve their differences with Bovis and to bring in the LVI Group, a demolition and remediation firm, to complete the work.

As part of the new arrangement, the development corporation, Bovis and LVI have altered the deconstruction plan. As workers removed asbestos from each floor, crews demolished the clean floors. Under a new two-stage process, LVI will first remove the asbestos throughout the building and then take down the tower. Work could take another year, construction executives say.

Mary Mears, a spokeswoman for the Environmental Protection Agency in New York, said her agency was aware that the development corporation was considering a slower, though perhaps safer, two-step process. But so far, she said, no new plan has been submitted to the federal agency or other regulators, including the Occupational Safety and Health Administration, the State Department of Labor and the city’s Department of Environmental Protection and Buildings Department.

Disputes between the contractors and regulators have slowed the project since its inception, and it is unclear how long an E.P.A. review might take. The proposed deconstruction plan for Fiterman Hall, a City University building on the fringes of the World Trade Center site, has been under review by the E.P.A. for more than a year.

But Ms. Mears said that the review would be expeditious and that unlike Fiterman, the building at 130 Liberty already had an approved plan in place.
Bankers from JPMorgan Chase told the Port Authority recently that they were alarmed over the standstill at the site. The bank reached a nonbinding agreement with the Port Authority last June to build a new headquarters on the Deutsche Bank site. Under the terms of the deal, the Port Authority was to deliver the land to the bank by September 2008.

Anthony Shorris, executive director of the Port Authority, said that the authority still planned to deliver the site in September, although, he added, the agreement with Chase included a six-month extension.

Further delays could also effect plans to construct ramps that would run from a newly built vehicle security center, just to the north of the former Deutsche Bank building, to tunnels and a garage underneath the trade center site.

The developer Larry Silverstein needs access to the ramps to complete construction of three office towers on the site. Rebuilding officials are looking at alternatives in the event that the tower is not demolished on schedule.

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