There is no federal law prohibiting the government from contracting with any firm or industry.

The Environmental Protection Agency, like most federal departments and agencies, has its own rules about conflicts of interest.

Essentially, the EPA policy on the issue is that each time the agency considers a firm for a contract, the firm must fully disclose any potential conflict of interest. After the disclosure is made, EPA contract officers are to use their discretion in deciding whether a conflict exists -- and if one does, whether a contract should be awarded.

There are no penalties written into the regulations if a decision is later found to be wrong.

In 1978, EPA adopted a policy prohibiting firms which produce chemicals from bidding on a contract which would require them to study chemicals they produce. That provision, however, does not prohibit a chemical company's research subsidiary from winning such contracts.

The issue of conflicts of interest is subject to a "recurrent debate" among lawyers at EPA, according to David Bickart, EPA deputy general counsel.

"By the relativity small number of cases (conflicts) brought to my attention, it appears to be working pretty well," he said.

He pointed out, however, that of the 85 lawyers at EPA, only one is a full-time contracts lawyer. EPA awarded over 2,000 contracts last year for $309 million.