The Department of Transportation has cancled $1.7 million worth of public relations contracts as a frist step toward limiting outside contracts.

"It's a ripoff," said DOT's new public affairs director, David Jewell. "All I saw was a bunch of guys drafting press releases, crummy newsletters and writing speeches. I said, "hell, we can do all this in-house.""

Jewell, in consultation with Transporatation Secretary Brock Adams, canceled two contracts signed in September to promote safe driving, seat belt use and the 55 mph speed limit. The two three-year contracts were the Grey Advertising, for $678,000, and with J. Walter Thompson, For $518,000.

Three proposed contracts were also canceled: with J. Walter Thompson to hire three more writers at $150,000 with Mariscal Corp. for promoting of the Northeast corridor railroad at $60,000 and with an unidentified firm to promote the 55 mph speed limit at $250,000.

"It was a boondoggle," Jewell said. The advertising agencies were unavailable for comment yesterday.

DOT employs a public affairs staff of 303, of whom more than half work for the Coast Guard and the Federal Aviation Administration. Robert Holland, another DOT spokesman, said personnel could be transferred from various divisions to perfrom the work planned under the contracts.

Adams visited Grey's offices at L'Enfant Plaza unannounced last month, Holland said. "He poked around, asking people what they were doing. One gentleman was drawing up a list of media. Someone else of writing a story he hoped would be picked up by a newspaper.

"Nothing was so estoeric that it couldn't be handled by our own staff," Holland said.

Adams has ordered his top staff to examine contracts in otehr divisions to determine if the work could be done by DOT's 73,000 civilian employees, Jewell said.

"Adams' predecessor, William Coleman, had begun in the weeks before he left a review of $104 million worth of DOT contracts, studying whether the work, ranging from behavioraial studies to technical engineering, could be done by department employees.

The in-house versus contracting-out issue has been debated throughout the federal government over several decades. Federal employee unions claim millions of dollars are wasted on contracts for work that could be done by civil servants.