In their haste to provide mental health services for Cuban refugees at Fort Chaffee, Ark., last fall, federal officials bypassed regular contract procedures to give a Washington area firm a $3.4 million contract at inflated prices, General Accounting Office investigators have found.

GAO report released last week shows that when Preventive Health Programs Inc. of Falls Church won the rushed contract last October, it began hiring many of the same nurses and technicians who had been working at Fort Chaffee for another private firm. But suddenly, nurses who were getting $9 an hour were making $14 an hour, and technicians making $7 an hour began pulling down $10 an hour.

The report concluded that it was "not unreasonable" to use the fast track approach because of the crisis atmosphere in resettling the refugees. But the GAO listed several "negative consequences" of the rare contracting procedure, including the "considerably higher" salary levels.

It wasn't until mid-January that federal officials sought adjustments to lower the cost of PHP's $3.4 million contract. Rep. John Paul Hammerschmidt (R-Ark.), who represents the area around Fort Chaffee, said, "This investigation is a shocking indictment of the loose manner in which government contracts are handled."

It wasn't immediately clear how many other contracting shortcuts were taken in the rush last summer to deal with the influx of $125,000 Cuban refugees. But PHP has a rare sole source contract for $3.1 million to treat fewer than 100 Cubans at St. Elizabeth's Hospital in Washington. And the firm that lost the mental health contract at Fort Chafee still has a $3.1 million sole source deal to provide other health services there.

The federal government already has spent more than $90 million to run Fort Chaffee and it is estimated that the settling of Cuban and Haitian refugees will cost more the $720 million by Sept. 30.

Dr. Larry Silver, the National Institute of Mental Health official who handled the PHP contract at Fort Chaffee, said, "In hindsight, we might have tried to do better. But it was an unusual circumstance . . . The lawyers told us what we could do legally and we picked the speediest option."

Silver said the higher pay rates were necessary to attract bilingual experts from around the country to come to Arkansas in winter for a few months. Local personnel were paid at the same high rates to avoid morale problems, he added.

The GAO found that 44 of the first 58 employes PHP hired already were working for a local firm at the base at sharply lower rates. This especially embittered John Canterbury, head of Temporary Employes Corp. of nearby Fort Smith, which had been providing the health services for the Cubans.

"They [PHP] started hiring my people away, so I started yelling." Canterbury said. He said he'd been given only a day and a half to make a proposal to win the comprehensive mental health contract and wondered how PHP and another local firm could have responded so fast on such short notice.

Charles Robbins, president of PHP, said his firm didn't receive any advance warning on the contract. "We'd been working on a proposal because you didn't have to be a smart to see the government was going to need some help," he said. His firm already had worked at three other Cuban refugee camps.

A call by Canterbury to his congressman led to the GAO investigation. His firm still has the multimillion-dollar contract to provide regular health service for the more than 4,600 refugees still at Chaffee.

A "letter contract" was used to hire PHP instead of regular procedures, that take months, Silver said, with the idea of sitting down with the frim quickly to complete the cost estimates. The firm's proposal was much cheaper than the only other company to reply to the emergency call for help, he added.

It took more than three months for the government to pin down PHP on its cost estimates, and in the meantime the original $2.4 million contract proposal in increased to $3.4 million. This was necessary because it became apparent that more of the refugees than expected had mental health problems, Silver said.

By mid-December, PHP had suggested the contract be raised to nearly $5 million but that idea was rejected.

When the contract review was finally made last month, the $3.4 million contract price was cut to just over $3 million, the $14-an-hour rate cut to $9 an hour for future hires of local employes, and the PHP profit cut from $263,000 to $200,000.

Silver said the adjustments were normal, and were not caused by the scrutiny of the GAO investigators. A similar cost-cutting exercise is now being tried with the contract at St. Elizabeth's, he added.