You may also not have the correct permissions set up on
your accounts that communicate between Project and
Project Server and/or between Project and STS.
Thanks Kevin, yes we have installed STS and have the
defaults set. It creates a subweb number like 103, 104 but
not the actual subweb. We have to go the the subweb
through the STS admin and change the default setting from
Browser to Admin and then go back to Manage Subwebs and
create the subweb....then it works? Thanks for your
response