Despite looming federal budget cuts, the uncertainty of presidential politics and the government's crackdown on contractors' profits, Washington area defense contractors predict continued growth for their industry, arguing that in an era of belt-tightening, they can give the government a bigger bang for the buck.

However, changes in procurement rules are expected to reduce profits, limit the types of costs that contractors can charge to the federal government and force companies to assume more initial risks.

"The whole relationship {between the federal government and contractors} has turned very adversarial," said Jerry Cantwell, vice president of research for Wertheim Schroder & Co., a New York investment bank. "There have been many changes in procurement policies that have ... eroded profitability and increased risk in the industry.

"Existing backlogs were not affected by the contracting changes, so the full effect of those changes has yet to be felt," he said. "But old backlogs have been worked off, so they will begin to be felt."

Some contractors said the shifting priorities and the continuing budget battles are causing uncertainty and some nail-biting around the Capital Beltway. "We begin the year with a hell of a lot of uncertainty," said Robert B. Pirie Jr., president of Essex Corp., an Alexandria professional services firm.

"A great many of the things that might well have been done in October are still hanging fire and will hang fire ... perhaps for another few months," said Pirie, who said a six-month delay in awarding contracts can cause companies like his to find itself with an expensive work force that has nothing to do.

There is "a change, a natural evolution" taking place, said Virginia Littlejohn, executive director of the Professional Services Council, a trade association. "The government does shift priorities, and there has been a change in the mix. And you will continue to see that with a new presidential administration."

Local government contractors said firms that are able to move swiftly and adapt to the changing priorities will come up winners. Littlejohn identified energy, environment, the biomedical area and information technology as potential growth areas.

And Wolfgang Demisch, a defense analyst at First Boston Corp., said, "The Washington area's industry is going to end up doing pretty well, even though the money will be less available... . I don't think you need to fear bread lines on the Beltway."

While the aerospace industry is expected to take the brunt of the budget cuts if major defense programs are canceled or postponed, electronics and professional and technical services companies should earn higher profits, analysts said, as the demand for smart weapons -- those more dependent on computer technology -- accelerates.

"Advanced sensors, smart weapons, the whole space surveillance and software area, that is clearly where the funds will be more abundant," Demisch said. "We may have to cut the size of the forces, give up some of this force structure and spend the money on advanced weaponry so the small number {of people} we commit to fighting are adequately equipped."

Demisch said Bethesda-based aerospace giant Martin Marietta Corp. has "done as effective a job as any in terms of orienting itself to be more bombproof through investments in sensors, space and advanced software." For the past five years, the company has emphasized space, defense and information systems over more traditional hardware. For example, Marietta makes an electro-optical laser and infrared system for F15 and F16 fighter planes that allows them to fly in utter darkness and "see" targets and the terrain below.

Ten large programs like these make up only 50 percent of the company's sales, which totaled $4.8 billion in 1986. "We are probably less subject to fluctuations in the budget than any other aerospace company because of our broad product diversification in systems that are required to increase or enhance operability of main systems needed by the Department of Defense," a spokesman for the company said.

Martin Marietta won a contract last week that is expected to move it into the new age of defense work: a $508 million award to design and operate a simulation facility for the testing of concepts, equipment and software to be used in the Strategic Defense Initiative program.

Martin Marietta's vice chairman and chief executive officer, Norman R. Augustine, described the project covered by the contract as "a quantum leap in the field of computer simulation... . This program will greatly aid the Strategic Defense Initiative Organization's efforts to ascertain both the feasibility and utility of what is certainly the most sophisticated defense system ever devised."

Overall, the Electronic Industries Association, a Washington-based trade group, predicts an upturn in defense electronics profits because of the need to upgrade existing weapons systems, coupled with the need to make them operate better. Even if the defense budget continues to decline through the early 1990s, government spending on electronics is expected to grow from $45 billion in fiscal year 1988 to more than $48 billion by 1997, according to association estimates.

"Command and control systems have basically been supported quite nicely by the Congress," said Robert D. Williams, vice president and general manager of the TRW federal systems group in McLean, referring to classified electronic warfare.

Some companies, like McLean-based DynCorp, have stayed away from hardware production and diversified into a broad range of technical and support services.

DynCorp offers airplane maintenance services, the operation of military bases and missile test ranges, and the testing of missile systems, said Dan R. Bannister, the company's president and head of an investor group whose $262 million takeover offer was accepted by the company's board last week.

DynCorp's strategy is based on the assumption that the government will be looking for ways to slash its work force by turning to outside contractors.

"People who provide services or products that reduce manpower needs are going to become very popular in the near future," Bannister said. "The government's own statistics show that there is 30 percent saved when a contractor replaces a government function."

Peter Weddle, president of Hay Systems Inc., a Washington-based management consulting firm, said his company and other subcontractors working on such major projects as the $60 billion Light Helicopter Experimental Program could be hurt if the program is halved. But he said Hay will continue to thrive.

"Some of us work in systems that don't shoot bullets or go bang in the night," he said. "We help build systems that can be operated and maintained by people more easily... . That's our niche -- more bang for the buck."

For example, Hay recently unveiled new computer software that evaluates the skills needed to operate new weapons systems before they are built to prevent the production of weapons systems that are extremely difficult to operate.

Vanguard Technologies International Inc. of Fairfax believes it will do well by supplying paper, microfilm and microfiche storage and retrieval and other business services to the federal government.

The Fairfax-based company also runs 35 federal government data centers.

"We do a lot in administration management of business systems that aren't tied to major weapons systems," company president Dean W. Crawford said. "Those are systems the government wants when things get tight, because in the long run it saves them money."

Harold Olson, director of Department of Defense marketing for Boeing Computer Services in Vienna, said he expects the demand for computer-support services required to run a data center, a laboratory or a command center to keep growing.

"We recognize that there are some very large weapons systems that will have their difficulties, depending on the next administration," he said. "We just think we're going to have to aggressively compete in the market."

Despite some gloomy budget predictions, most Washington executives interviewed were upbeat. "I know all the economists have these doomsday scenarios, but I haven't seen it in our business or the people I talk to in their business," said Charles Rossotti, president and chief executive of American Management Systems Inc., an Arlington company that develops and operates computer software systems. "I just haven't seen it."