A government unit created to manage and sell property from failed savings and loans is taking business away from private companies offering the same service, costing private firms millions of dollars and forcing some to close their doors, according to industry executives and congressional investigators.

Since the government created the Federal Asset Disposition Association with $25 million in seed money two years ago, the unit has been plagued by charges that it is inefficient, riddled with conflicts of interest and unable to fulfill its mission of selling property from failed S&Ls. To stay alive, it needs as much $20 million more from its creator, the Federal Home Loan Bank Board.

Critics argue that a government unit, especially one that by most accounts has been unsuccessful since its inception, should not be subsidized to compete with the private sector, especially under an administration determined to turn over as many government tasks as possible to the private sector.

In an interview, Gerald P. Carmen, the new chief executive of FADA, balked at the idea that he directs an activity that might best be handled by the private sector.

"For God's sake, don't make me out to be an enemy of privatization, because I'm an advocate of privatization," said Carmen, a long-time Republican who ran Reagan's 1980 campaign in New Hampshire.

But a few minutes later Carmen described FADA's mission this way: "We intend to give the private sector a run for its money."

Such a policy makes some lawmakers and industry executives bristle.

"FADA is a socialized, inefficient monopoly created by the Reagan administration," said Rep. James Florio (D-N.J.). "It doesn't make sense. You've got these private companies out there and you've got this failed agency and you decide to give more money to FADA rather than to the more efficient private sector."

The bank board, the federal agency that regulates S&Ls, created FADA in late 1985 at the request of the S&L industry's largest lobby group.

When bank board official Stuart Root, in charge of overseeing FADA, was asked about accusations such as Florio's, he said such accusations come from those who are "carrying the torch for the private sector."

Root said that under a new contract the bank board is devising, FADA will charge the government fees that "are competitive if not better" than what the private sector charges. He conceded that FADA is competing head-to-head with private companies for bank board business. But he said that FADA would not be able to compete with private firms for contracts from the private sector or from other government agencies.

FADA is often so understaffed to handle the work it wins from the bank board that it must then subcontract out the work, thus adding another layer of fees to the government's cost of selling repossessed real estate.

But FADA has pursued a policy of shunning asset management companies that have had contracts with the bank board, government sources say, and instead tends to hire less experienced or less well-known subcontractors.

According to congressional aides investigating it, FADA's reasoning is that if it subcontracts out to companies that the bank board used to manage problem real estate, then government officials might question the need for FADA in the first place.

Industry and bank board officials interviewed spoke on the condition that they not be identified. The sources said they feared for their jobs or the possible loss of contracts, concerns they also have expressed to investigators on Florio's staff and the staff of House Banking Committee Chairman Fernand J. St Germain (D-R.I).

Among the private companies reportedly hurt because they lost contracts to FADA:

J.E. Robert Cos. of Alexandria, one of the country's largest asset management companies. Since mid-1986 -- when FADA began operation -- J.E. Robert has not received any significant asset management contracts from the bank board or subcontracts from FADA, even though the company completed several contracts before FADA's creation.

Four months before the bank board closed the FirstSouth savings and loan in Arkansas, J.E. Robert was hired to get the S&L's records in order and to oversee its closing, according to government sources. J.E. Robert charged the government about $270,000 a month for the services, the sources said. When FirstSouth was closed, Robert's contract was given to FADA, at a cost to the bank board of about $500,000 a month.

Officials at J.E. Robert did not return telephone calls, but industry sources said the company lost millions of dollars in business during the last year.

Eastdil Realty Inc. of New York and The Palmieri Co. of Los Angeles, two of the largest asset management companies. Neither has won an asset management contract in two years, according to industry sources and congressional investigators.

In the case of Palmieri, the company has notified its top executives that they might have to be laid off by the end of the year, according to sources.

Neither company returned telephone calls.

CCF/Jennings-Link of Seattle, a medium-sized property management company that industry sources say has lost millions of dollars in bank board contracts to FADA.

The company has been given several small subcontracts from FADA, but those are being withdrawn and no new ones have been awarded for several months.

Old Stone Real Estate Services of California, a medium-sized asset manager. Recently, Old Stone folded its asset management operations for lack of business, industry and government sources said.

In one case, FADA officials transferred Old Stone's contract to another company after taking exception to a statement by an Old Stone official quoted in a Rhode Island newspaper, industry sources said.

FADA then gave the contract to a company partly owned by Patrick Kruer, a California real estate developer. Kruer's company canceled the contract with FADA last fall because it was not being paid "in a timely fashion" and because the company decided it could not meet the goals FADA had set out for it, Kruer said.

Kruer is a director of the Federal Home Loan Bank of San Francisco, of which William McKenna is chairman. McKenna is also chairman of FADA. Kruer said he never discussed the FADA contract with McKenna until Thursday, after an inquiry from The Washington Post. "I stay well clear of anything that would have even the appearance of conflict of interest," Kruer said.

A spokesman for FADA said Old Stone's contract was not renewed because its work was inadequate.

At the same time that private management companies are losing business to FADA, the government's warehouse of shopping centers, condos, homes and other repossessed real estate climbs to record levels -- a quantity that the government concedes is too big for FADA to handle alone.

The creation of FADA "is a policy that runs counter to the basic intent of the Reagan administration," said Bert Ely of Alexandria, a financial consultant who specializes in the S&L industry. "Why have FADA at all, that's the real question." Like other critics, Ely believes FADA is a good example of how the bank board caters to the very S&L executives it is supposed to regulate.

Referring to the U.S. League of Savings Institutions, the largest S&L lobby group, Ely said, "FADA was set up at the request of the league; it's a league-controlled company. It was set up to meet their interest to keep property off the market."

The commerce, consumer protection and competitiveness subcommittee of the House Energy and Commerce Committee said FADA and the bank board have failed to respond to repeated requests for information. Florio chairs the subcommittee.

The bank board created FADA as a government-owned company whose salaries are not subject to federal pay caps. FADA's top executives are among the highest paid in government, with its current president and former chief executive, Roslyn B. Payne, earning at least $250,000 a year, more than the president of the United States.

The bank board is supposed to oversee FADA, but its operations are in such disarray that bank board officials admit they often do not know what goes on there.