The U.S. Coast Guard will hold a symposium June 3-5 in Washington about its plan to consider proposals from agencies, as well as the private sector, to develop an automated personnel, benefits and payroll system.

So what's going on here?

What's going on, industry and government observers say, is that contractors are facing increased competition from the agencies they want as customers.

"That is an uncomfortable situation to be in," said one industry official, who asked not to be identified. "There are some weird things going on," another official said.

The Transportation Department is looking for a firm that can sell its mainframe computer center, telecommunications and office automation services to other agencies, according to a May 14 notice in the Commerce Business Daily Transportation officials could not be reached for comment on the notice.

The FAA's contract award to the Department of Agriculture's National Information Technology Center in Kansas City, Mo., came the same day.

The Integrated Computing Environment-Mainframe and Networking system, or ICE-MAN contract, calls for the Agriculture Department to support the FAA's administrative information systems.

NITC's proposal offered "the best value to the government - a combination of technical excellence and cost to the FAA," the agency said in a May 14 statement announcing the award.

Alarmed by these developments, much of the information technology industry is rallying behind the Freedom from Government Competition Act pending in both houses of Congress. Such legislation would require agencies to rely on the private sector for all services that are not part of their core mission.

The bill already has 13 sponsors in the Senate, where it was introduced by Sen. Craig Thomas, R-Wyo. Rep. John Duncan, R-Tenn., is touting similar legislation in the House of Representatives, where it has 42 sponsors. Similar legislation has been proposed in the past but languished.

The Senate subcommittee on oversight of government management is expected to hold hearings on the legislation by the end of June, congressional officials say.

Chris Jahn, a legislative assistant to Thomas, said the senator's concern is that "there are a million federal employees doing work that could be done better or more efficiently by the private sector."

"The taxpayer is being cheated," he said.

Felix Martinez, director of government affairs for the American Consulting Engineers Council, said the Agriculture Department should not be in the business of selling IT services to other agencies. The council, based in Washington, backs the legislation.

The FAA contract might boost the prospects of the pending legislation because it draws attention to how agencies can stray from their charters, he said.

Another group supporting the legislation is the Professional Services Council, Vienna, Va., whose 140 members include CSC, El Segundo, Calif.; Science Applications International Corp., San Diego; and GTE Corp., Stamford, Conn.

However, Bert Concklin, president of the Professional Services Council, declined to comment on the FAA contract.

Several industry sources said that government agencies competing against one another is preferable to competitions where agencies compete against the private sector."You get too much into comparing apples and oranges," a source said.

What's more, the vendor community always must meet a higher standard, said Robert Dornan, a senior vice president at the market research firm, Federal Sources Inc., McLean, Va. Interagency contracting also raises the question of what recourse the contracting agency has if an agency does not perform, Dornan said. "You can't sue them."

Other officials questioned the propriety of the government spending U.S. tax dollars to bid on government contracts.

"I don't want to lose on the last day [to an agency] after spending hundreds of thousands of dollars on the bid," an official said.

In the FAA case, the agency acknowledged that price was a key factor. FAA officials could not be reached for comment on the recent contract award.

"Industry can never beat government on price," said an official who asked not to be identified.

Industry bids will be higher because they must take into account profit margins, taxes and other overhead costs that the government does not bear, sources said.Sources said that CSC was the only serious private sector contender for the contractor. Other firms such as IBM Corp., Armonk, N.Y., and Unisys Corp., Blue Bell, Pa., expressed interest initially but were not in the final running.

The only other bidder was the Defense Information Systems Agency.

Ironically, the FAA win by the Agriculture Department comes at the same time Agriculture is coming under scrutiny for problems with its information technology systems, which led to some head-scratching by some industry officials.

"Of all agencies [to win], why Agriculture?" asked one official.

The department has been criticized by Congress because its purchasing is too decentralized, with each of the department's 29 agencies doing their own IT procurements, said Kevin Kramp, a legislative aide on the House Agriculture Committee.

Agriculture's acting Chief Information Officer Anne Reed acknowledged those problems but said the computer center that won the FAA contract is an example of what the agency should be doing.

"We have a center with a reputation for customer service and low unit cost," she said. "It is a consolidated data center that reaches across the entire department."