A division of Sears, Roebuck and Co., which surprised more experienced computer systems firms by outbidding them for a major Treasury Department data processing contract, has lost the contract because it failed to meet key specifications.

The General Services Board of Contract Appeals has directed the Treasury Department to terminate "for the convenience of the government" the multimillion dollar computer contract it signed last May with Sears Business Systems Centers.

The board's decision instructed the Treasury to either award the contract to the second lowest-priced bidder or revise its requirements and allow further competition against the new specifications. Should the Treasury choose the former alternative, Sears would be eliminated from further competition. If the department chooses to reopen the competition, Sears -- the original low bidder -- can bid again.

The board's decision, rendered last Friday, upheld protests by Sysorex Information Systems Inc. of Falls Church, SMS Data Products Group Inc. of Reston and Falcon Microsystems Inc. of Landover, the three losing bidders.

The contract has an evaluated value of $228 million but authorizes the Treasury Department to buy up to $400 million in goods and services. The contract is designed to outfit the department and its 12 bureaus with computer hardware, software and networks that link together different data processing and information services.

The award surprised many members of the local computer community. It was Sears Business Systems Centers's first foray into the federal contract marketplace and industry experts wondered how Sears defeated its more experienced rivals to win the coveted contract.

According to the GSA board's decision, released last week, the contract required each bidder to comply with all technical specifications. The board found that Sears's proposal did not meet many of the technical requirements and that the Treasury's award thus violated both law and regulation. Among its other aspects, the contract required each bidder to propose eight different desktop microcomputers and three models of laptop computers.

"The protesters understand the law correctly: If Sears did not meet even one significant solicitation requirement, it should not have been found eligible for award," Administrative Judge Stephen Daniels wrote in an opinion joined by fellow judges Vincent LaBella and Edwin Neill. "The evidence shows that Sears's proposal did not comply with 10 separate mandatory requirements."

For example, the board said, Sears proposed to supply a less powerful operating system software for one model of computer than the bid called for, which would have significantly reduced the amount of its offer.

According to the decision, Sears "alleged that it made a typographical error in its proposal ..." but the company has not "made a credible case that its errors ... were clerical. We find instead that they were unilateral errors in judgment." The board also faulted Sears for submitting a laptop computer that it knew exceeded the allowable 16-pound weight limit without informing the Treasury of the actual weight of the machine.

"We are disappointed in the decision because we offered our bid in good faith and made every effort to adhere to all of Treasury's specifications," said William Lenahan, president of the Sears unit.

Sears can appeal the board's decision to the federal circuit court of appeals. The company declined to say whether it planned to do so.

Sears sued Sysorex and a local consultant, alleging that the consultant sold Sysorex proprietary data that helped Sysorex challenge the award.

"I'm disappointed in the decision because we need to proceed forward with the operations of the government and this is hindering us," said Steve Broadbent, the Treasury's deputy assistant secretary for information systems. "It's a difficult way to do business for the government. {But} we'll comply with the judges' order."