The Defense Department has allowed construction companies to pocket millions of dollars for shoddy work in recent years while permitting them to act as inspectors of their own projects and rarely forcing them to repair their mistakes, according to recent audits and Pentagon documents.

The Army Corps of Engineers and its Navy counterpart, the Naval Facilities Engineering Command (NAVFAC), oversee more than $11 billion a year in military construction.

They have relied on contractors to inspect their own work since 1961, a practice "unique to the Department of Defense," according to the Pentagon's inspector general. A Defense Department review of 39 large projects supervised by the Army or Navy found serious construction defects in 32, including two multimillion-dollar projects that were unusable.

In no instance had the contractors' inspectors reported the major flaws, and in only one case was the contractor eventually required to correct the defects at his expense.

On one project, the government spent $2 million to build a submarine testing facility at the Portsmouth Naval Shipyard in New Hampshire.

Auditors found that 50 of 65 key welds were defective, that four of five welders on the project lacked the proper certification and that it may cost $2.3 million to fix the now idle plant.

Nevertheless, "the construction contractor had not been held liable for his mistakes," according to an audit in December by the Pentagon's inspector general. A Navy official said yesterday that the Navy had obtained a $100,000 credit from the contractor as compensation for the poor work.

A $4.9 million test facility for jet engines at the Patuxent River Naval Air Station was at least 27 months overdue. Despite hundreds of construction flaws, the contractor's inspector "did not record a single deficiency on his reports" until they were pointed out by government supervisors.

Defense Department officials said that they "basically concur" with criticisms in the inspector general's report and a similar study by the General Accounting Office.

The Navy said one explanation for the problem lies in Pentagon regulations that do not permit sanctions against contractors for "marginally satisfactory performance," as opposed to "unsatisfactory" performance for which they can be punished.

A NAVFAC official who spoke for his agency on the condition that he not be identified acknowledged the problems but said the GAO examined a "biased sample" of projects that made the shortcomings seem more widespread than they are.

He noted that private construction projects also frequently encounter delays, leaky roofs and similar defects.

The studies by the inspector general and the GAO, Congress's investigative arm, are the latest in a series of revelations of problems in the Pentagon's procurement process. Most until now have focused on the more visible world of weapons-buying.

The practice of "self-inspection" is intended, among other things, "to improve the working atmosphere" between defense officials and civilian contractors, according to the inspector general's audit.

The report said that government supervisors are supposed to "monitor and spot-check" the efforts of contractor inspectors.

But the auditors noted a widespread belief in the Corps of Engineers and NAVFAC that "it was unrealistic to expect the contractor's inspector , an employe of a profit-oriented low bidder, to report deficiencies that would increase his employer's cost.

"If defects can be hidden and short-cuts taken, profits are increased," the report added.

Another government investigator with ties to the Navy put it more bluntly: "It's absurd. It's an absolutely stupid notion."

A Navy management review concluded last September that NAVFAC "has placed little emphasis on the development of a highly skilled staff of contract professionals," although the amount of Navy construction is expected to double during the next five years.

NAVFAC has continued to rely on technicians with "inadequate procurement training" although "programs are larger than in the past, more technically complex and have tighter schedules."

One defense supervisor told the inspector general's staff that his colleagues generally believe that the government is "to only provide enough insistence on enforcing contract provisions so that the contractor will not believe the government is a total pushover."

Another unnamed supervisor said, "The only way to lose your job in this organization is to do it."

But in many cases the government appears as much culprit as victim.

For example, investigators for Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Governmental Affairs Committee, documented the case of an $11.7 million NAVFAC project in Indian Head, Md., which they concluded was a "colossal white elephant."

The now-abandoned facility, intended to dispose of unwanted solid propellants, was tested during construction by the Navy, which then neglected to drain water so that "during the winter the system froze up solid, damaging much of the piping and equipment," according to the Roth report.

The contractor, stricken with cash-flow problems because hundreds of change orders were required during construction, was sued by some of his suppliers, lost his insurance company bonding and saw "his credit rating destroyed."

Investigators also found:

* The Navy spent $20 million for a Trident submarine training facility at Bremerton, Wash., that was plagued by a leaky roof "due to poor workmanship and maintenance problems due to poor design," according to the GAO. After spending $55,000 on emergency repairs, the Navy eventually spent an additional $2 million for a new roof.

The Navy official interviewed yesterday said that the Navy paid for the new roof because it could not prove that contractor sloppiness, rather than government design error, caused the problem. He also said that contractors on private jobs are more willing to assume responsibility for mistakes so they can win future jobs, while the government almost always awards contracts based on lowest price rather than prior performance.

* At the Norfolk naval base in Virginia, a $6.5 million contract was awarded to build a new power plant, which was delivered to the government 3 1/2 years late. The Navy then spent $360,000 to hire a consultant who pointed out more than 200 flaws in the project's boiler. Then, $290,000 was spent on repairs. The government had to spend $17 million extra on heating oil because of delays in completing the coal-fired steam plant, according to the inspector general's audit.

* The walls of a new barracks at Fort Belvoir began to crack soon after construction and the Army spent $200,000 to fix them.

* The air ducts for enlisted housing at Robins Air Force Base in Georgia were improperly designed and built. To tear out the work would have cost $400,000, so the Army Corps of Engineers settled for a credit of $15,000 from the contractor, then paid him an extra $42,000 to partially correct the defects.