A plan to convert the old Oak Bluffs library at the corner of Pennacook and Circuit avenues into a mixed-used commercial building with a pharmacy on the ground floor and affordable housing on the second floor has hit a snag, as bids for the project were substantially higher than expected.

Town officials were hoping bids for library renovation would come in at around $900,000, and asked contractors to be as close to that figure as possible in their request for proposals. But when the bids were opened last week, the low bid was for $1.26 million from A.P. Whitaker and Sons of West Bridgewater, approximately $360,000 more than expected.

The second lowest bid was from J.K. Scanlon at $1.29 million and the third lowest was fron Construction Dynamics at $1.56 million.

The town-sponsored plan is to restore the 80-year-old, two-story, wood-frame building at the corner of Pennacook and Circuit avenues, and create a commercial space on the ground floor, likely a pharmacy, and three units of affordable housing on the second floor. The town plans to retain ownership of the building and execute a long-term lease and management contract with the Dukes County Regional Housing Authority.

The town of Oak Bluffs is technically the applicant for the project. The effort has been spearheaded by selectman Ron DiOrio, who is also chairman of the town affordable housing committee.

In August 2008, the town won a $445,654 grant from the Housing Development Support Program, which is administered by the state Department of Housing and Community Development, for the library conversion. Voters also have approved a total of $424,000 in Community Preservation Act funding for the project.

Town administrator Michael Dutton last week said the affordable housing committee was hoping the low bid would be under $1 million. He said town officials now have two options: come up with more money or put the project back out to bid. If officials choose A.P. Whitaker as the contractor, they will have to find additional money.

“We would have a few more dollars to find, whether that is grant money or town money. We’ll go to work finding out where state or federal money is available, and if we have to, we will rework the numbers,” he said.

Mr. Dutton said it is too soon to tell if voters will need to approve more money for the project at town meeting.

Mr. DiOrio was not immediately available for comment yesterday.

The library conversion project has already proven controversial, as a group of neighbors and a lone selectman, Kerry Scott, have pushed for the project to be referred to the Martha’s Vineyard Commisison (MVC) for review as a development or regional impact (DRI).

At a meeting in May, selectmen were presented with a petition with 33 signatures from Amy Billings, whose family owns the Western Auto Store, that urged the project be referred to the commission for DRI review. At that same meeting, Ms. Scott read a strongly-worded statement that criticized her fellow board members for failing to refer the library project to the commission.

On several occasions, Mr. DiOrio has argued the project should not be sent to the commission for a DRI review because the plan already has been reviewed by the town planning board, affordable housing committee, Cottage City Historical Commission and building inspector.

He has argued that the project is a renovation of an existing town building, and therefore commission review is not required.

Despite the petition and Ms. Scott’s urging, selectmen declined to refer the project.

The possible referral of the library conversion project was on a meeting agenda of the MVC’s compliance subcommittee. That panel has not yet taken formal action on the matter.