A $9.1 million state contract awarded without competitive bidding has placed Gov. William Sheffield (D) in danger of becoming the first American governor in 58 years to be impeached.

Both Sheffield and the state Senate have hired former Watergate lawyers as the Senate begins a special session today to consider a 69-page grand jury report that brands the governor "unfit to hold . . . public office."

The Senate is expected to meet briefly today, then recess for a week to give members more time to sift through 8,000 pages of testimony.

The Superior Court panel said Sheffield and his chief of staff, John Shively, deliberately steered the lucrative state lease for office space to a political supporter and major campaign fund-raiser.

Although it returned none of the indictments submitted against Sheffield for misconduct and perjury, the grand jury said he and Shively had tried to conceal their roles in the transaction, and it criticized the governor for "lack of candor and a disrespect for the laws of this state." Its report, the jury said, would hold Sheffield accountable to the public.

But some veteran senators have criticized the grand jury for dumping the matter in their laps, and few are willing to predict the outcome of impeachment proceedings. If they go against him, Sheffield would be the first governor to be impeached since 1927, when Henry S. Johnston of Oklahoma was removed from office for incompetence and malfeasance.

Impeachment in Alaska requires approval by two-thirds of the state Senate, or 14 of 20 votes. If impeached in the Senate, Sheffield then would stand trial in the 40-member state House of Representatives.

Sheffield disputes the grand jury's findings and has said he will not resign the only public office he has held. The owner of a chain of hotels in Alaska and Canada's Yukon Territory, Sheffield was elected in 1982, the first candidate in the state to spend more than $2 million on a campaign.

"I feel bad about the entire situation . . . ," he said the day after the grand jury released its report. "I feel bad about the state's image, and I'm going to try to clear it up and get it all behind us."

The governor initially refused to accept the resignation of Shively, who was granted immunity from prosecution in exchange for his grand-jury testimony. The grand jury said that Shively, with Sheffield's blessing, manipulated bid specifications so that only one bidder could qualify, and lied to a state prosecutor who inquired about the governor's role in the lease's award.

The grand jury also said that after a reporter asked to see his file on the lease, Shively threw away state documents implicating the governor in the award.

Shively submitted his resignation a second time last week, saying that the public could legitimately question why he deserved to keep his $78,000-a-year job. Sheffield gave in, and Shively's resignation was announced Wednesday.

The company that won the lease was McBirney & Associates of Fairbanks, a partnership that includes plumbers' union leader Lenny Arsenault. The grand jury said that Arsenault helped raise $92,000 for Sheffield's campaign committee in 1983 and that the money was used to pay off debts from the 1982 election.

The grand jury was guided in its deliberations by former Watergate prosecutor George Frampton of Washington, D.C. Frampton was named by state Attorney General Norm Gorsuch, a Sheffield appointee who sought to avoid the appearance of partiality.

The state Senate last week hired Samuel Dash of Georgetown University Law School, the Washington lawyer who served as chief counsel to the U.S. Senate special Watergate committee. Sheffield hired Washington lawyer Philip Lacovara, assistant to Watergate special prosecutor Leon Jaworski in 1973-74. Both men will head teams of lawyers.

The governor's close friends -- among them Al Parrish, head of Sheffield's hotel chain, and cabinet member Emil Notti -- acknowledge that he faces a tough political future. Even if he survives the special session, they said, the grand jury report will make it extremely difficult for him to seek reelection next year.

Some of his associates have cried overkill by the grand jury.

"In no place did I see anything stating that they found a criminal act," state Sen. Jay Kerttula said. "Why would the criminal justice system dump this on the legislature and not continue it onto the courts if they had a case?"

Sen. Bill Ray said he wanted to know the names of his district constituents who served on the grand jury, even though the court has refused to disclose them.

"I've lived in Juneau for 50 years, and I could come up with a scenario of a lot of people who would like to come up with . . . crap like this," Ray said.

Controversy about his political fund-raising has dogged Sheffield since he took office. His first major crisis followed a series of fund-raising parties in New York, Houston, Dallas and Denver where oil companies and their executives contributed most of the $130,000 to repay Sheffield for loans he had made to his own campaign.

Sheffield drew fire for the timing of the fund-raisers -- one day after he announced that he had relaxed his previous stand for delaying an oil- and gas-lease sale in Norton Sound near Nome. A special prosecutor found no evidence of wrongdoing, but he rebuked Sheffield for a "lack of sensitivity to the appearance of impropriety."

Last year the FBI looked into allegations that Sheffield administration officials had pressured state workers in Juneau to attend birthday parties for the governor that were also political fund-raisers for the state Democratic Party. No wrongdoing was found.