When QuesTech Inc., a Falls Church-based defense contractor, decided to diversify into the commercial market, it took the word diverse to heart. The company, which specializes in research and development in electronic warfare and signal intelligence, got into plastic packaging technology.

Now, while many defense contractors are retrenching, QuesTech is beginning to reap benefits from its new technology. QuesTech's venture, still in its early stages, makes an interesting case study for government contractors trying to move into the commercial market.

Last month, QuesTech reached an agreement to sell Royal Dutch Shell Corporation, the European-based oil giant, machines using QuesTech's plastic container technology. While the terms were not disclosed, the company said the agreement could be worth tens of millions of dollars. Royal Dutch Shell intends to use the machines to manufacture containers to be sold to the food packaging industry.

Five years ago, QuesTech joined with Rampart Packaging of Williamsburg to develop technology and machinery to produce plastic containers possessing many of the qualities of glass or tin. Called barrier-layer plastic containers, the technology involves combining various layers of plastic into a container safe enough to package food.

Vincent L. Salvatori, QuesTech's president and chief executive, said the company's foray into packaging is simply an extension of skills developed for military research and development. "We took the same approach as we would for a government contract," Salvatori said.

Salvatori said his company was criticized for showing lower profits while it funded the joint venture. QuesTech believes the investment will pay off, and said the agreement with Royal Dutch Shell represented an important step toward that goal.

Under the agreement, Royal Dutch Shell promised to purchase machines that manufacture barrier-layer plastic containers over a 10-year period.

Royal Dutch Shell also signed a separate agreement with QuesTech in which the oil conglomerate will sponsor further development of the barrier-layer technology in exchange for international marketing rights.

Royal Dutch Shell was interested in the product because the plastic is manufactured from oil byproducts, Salvatori said. "It's a mutually beneficial arrangement," he added.

Because QuesTech retains the U.S. rights to the technology, it is currently drawing up a plan to sell the containers and the machines domestically. In this area, the company may run into some trouble.

Not only will QuesTech's product compete with similar barrier-layer plastic containers, but it also faces competition from glass, tin and other packaging products.

"Packaging is not the kind of industry where you're going to make a bundle. It's not a tremendous growth industry," said John Rasch, technology director for the Packaging Machinery Manufacturing Institute in Washington.

But Salvatori said the product has several advantages over its competitors.

"I can make the same container {the competition} can, and I can make it cheaper," Salvatori said, adding that the material can be recycled and can be placed in microwave ovens.

Company officials hope the agreement marks a turn for the better for QuesTech, which has seen its share of troubles over the past few years.

Last year, former QuesTech president William L. Mayo filed a highly publicized lawsuit against the company, alleging that he was fired because of his efforts to investigate sexual harassment complaints within the company. The suit was settled out of court, and the terms were not disclosed.

The company lost $2.6 million in 1989. This year, the company posted a first-half profit of $143,200, and its revenue fell 2 percent during the same period.

The company laid off about 200 employees and altered its employee benefit program to cut costs.

Salvatori said it's too early to tell what proportion of the company's revenue will come from the packaging technology. However, he said that military contracts will continue to comprise an important part of QuesTech's business.