Detectives in Lancashire are furious at the intervention by Sir Nicholas, which has cast a shadow over their three-year investigation into links between councillors and senior officials in Preston and building companies and property developers.
As part of that inquiry - Operation Angel - police say they uncovered a payment of pounds 140,000 from Balfour Beatty to the Isle of Man bank account of Global Enterprises (NW), a firm run by Frank McGrath, former deputy leader of Labour-controlled Preston council.
The police raided Balfour Beatty offices in London during their inquiry.
The payment was allegedly made after the council brought in Balfour Beatty to redevelop Preston docks in 1984, despite years of ground-work by the Mowlem Group, another building company.
The police also believe they can trace the transfer of pounds 40,000 of the money to one of Mr McGrath's senior colleagues.
Only the allegations against Mr McGrath relating to Balfour Beatty have been rejected by Sir Nicholas; the former councillor still faces 10 charges of theft and deception involving his own companies. Mr McGrath was told of the decision not to prosecute in a letter dated 17 December from the Provincial Fraud Division of the Crown Prosecution Service.
Mr McGrath said last night that he had been interviewed by the police in connection with Balfour Beatty. He said: 'It involves pounds 140,000 paid to me by Balfour Beatty to an account in the Isle of Man.'
He added: 'I offered no comment to the police when they questioned me and I understand the company did the same.'
Mr McGrath said he was expecting charges to have been brought: 'I had a prima facie case to answer.' If the case had gone to trial, he would have maintained the money was a loan to fund the acquisition of a block of flats outside Blackpool.
Lancashire police said last night they took advice from the Crown Prosecution Service. One senior officer said: 'We can only speculate at the reasons behind the Attorney General's decision.'
The CPS confirmed that none of the charges brought against Mr McGrath concerns Balfour Beatty. A spokeswoman said the police had referred the Balfour Beatty case to the CPS. 'In one case involving Operation Angel, the Attorney General's office refused their consent,' she said. Asked why, she replied tersely: 'It is a matter for them.'
At least 19 people are now facing charges arising from Operation Angel, which began with early morning raids on the homes of politicians, officials and developers across the North-west of England. Preston Town Hall was also raided and the town's architect and planning chief were suspended.
It is understood that none of the remaining charges involves Balfour Beatty. A company spokesman said last night that it knew about the police operation: 'We were doing some local development work in Preston. We were part of the police investigation. We responded and gave them all the help we could. As far as we understand it, the investigation is now closed.'
Sir Nicholas's office refused to comment.
Pergau 'cover-up', page 2