ANNAPOLIS, AUG. 13 -- A federal grand jury indicted two contractors today, charging them with conspiring to influence the award of a $2.1 million housing rehabilitation contract by the Annapolis Housing Authority.

The indictment returned in Baltimore charges that Baltimore contractors James W. Cox and Robert Kniffin arranged for Cox and a third Baltimore area contractor to submit sham high bids so that Kniffin's lower bid would be accepted.

The housing authority, which has been the subject of a 17-month investigation by the FBI and the Department of Housing and Urban Development, accepted Kniffin's bid in 1984. Kniffin's firm, R&K Contractors Inc., then built storm drains, sidewalks and parking lots as part of a $5 million project at Robinwood, a housing project on the south side of Annapolis.

The indictment charges that Cox and Towson contractor Vincent Favazza each submitted bids more than $100,000 higher than Kniffin's $2.1 million bid -- which was $244,000 higher than the authority had budgeted -- in an effort to ensure that the contract was awarded to Kniffin. The indictment also charges that Cox and Kniffin filed false affidavits with HUD, claiming no collusion had occurred.

The indictment did not implicate the city's housing director, Arthur G. Strissel Jr., who has denied accusations of mismanagement and conflict of interest by some city officials. An FBI source said "the investigation is continuing, and they are still looking to see whether the authority itself was in collusion in this particular matter."

Strissel said today that the contracting bids "always seem to come in over budget. That in itself wouldn't raise a flag." He said Kniffin's firm had worked on many housing authority projects and its work always had been satisfactory. The firm is working on rehabilitation of the authority's Bloomsbury Square housing project, Strissel said.

Annapolis City Council member Carl O. Snowden, a frequent critic of Strissel, said today that the indictments came the day before the housing authority is to hold a boat cruise on the Chesapeake Bay to celebrate its 50th anniversary. "These indictments put a serious blemish on that celebration and call into question the management of the authority by Mr. Strissel," Snowden said.

Kniffin and Cox, who could not be reached for comment yesterday, could face up to 10 years in prison and a $500,000 fine if convicted.