The Washington area United Way said yesterday that it will step aside from this fall's Combined Federal Campaign, allowing some other organization to take over the annual charitable fundraising drive among 180,000 federal employees.

The announcement means the end, at least temporarily, of a 25-year relationship between the United Way of the National Capital Area and the federal campaign. In recent years, the $50 million or so raised annually by the CFC has accounted for more than half the money collected by the local United Way. The rest has come from other workplaces.

Local United Way interim chief Robert Egger said the group decided not to bid on the 2003 federal contract in order to "focus all our energies on getting our own house in order." He said the local United Way would concentrate on its own fundraising efforts, results of which were down about two-thirds in last fall's campaign.

The embattled charity is attempting to regroup after undergoing a major reorganization prompted by more than a year of allegations of financial improprieties. The overhaul, which began five months ago, has included a new board of directors and interim chief, plus a 40 percent reduction in the group's workforce.

The local United Way said it has reached a deal with a sister affiliate, the United Way of Central Maryland, which will apply for the 2003 contract and, if it wins, use the D.C. group's CFC staff.

Egger said the move is "a practical decision that is both strategic and deliberate" and "allows us to play to our strengths, while we really work at shoring up those weaknesses that we discovered during this transition time."

Several other organizations are expected to submit CFC contract bids by today's deadline. The pledge campaign usually takes place in the last three months of the year.

The local United Way's decision to withdraw from this year's bidding stunned its rivals. "I'm shocked. My jaw has dropped. They've done it for so long," said Renee S. Acosta, president of the International Service Agencies, an Alexandria group that has handled the CFC drive for Department of Defense overseas installations since 1996 and recently submitted its first bid for the D.C. area federal campaign.

The winning bid will be selected by a volunteer panel of federal employees. An announcement is expected in mid-March.

The Washington area's federal campaign is far and away the nation's largest. Ironically, its 2002 pledge drive was considered a relative success, raising an estimated $45 million -- compared with $50 million in 2001 -- despite the local United Way's much-publicized problems. By contrast, pledges to the local United Way's fundraising campaign -- which includes private-sector and local government workers -- have dropped from more than $40 million in 2001 to about $15 million.

The charity was criticized last year for exaggerating its fundraising totals, improperly documenting expenses and making misleading statements about overhead costs. In addition, the organization was faulted for having made a $1 million pension payment to then-chief Oral Suer nearly two years before he actually retired.

Most of the questionable financial doings involved funds raised in the private-sector drive, though an audit in November by the Office of Personnel Management found irregularities in how the United Way handled CFC funds as well.

Federal workers leading the CFC pledge drive have carefully emphasized to their donor base that the CFC is separate from the local United Way's nonfederal campaign. The cost of administrating the contract in 2001 was $1.9 million.

The United Way of Central Maryland is no stranger to the CFC, having run the campaign among Baltimore area federal employees -- such as those at the Social Security Administration -- for 16 years. Last fall, its CFC drive raised $5.2 million in pledges -- fourth-highest in the country, said Larry Walton, the charity's executive director. It also raised $38 million in nonfederal pledges.

If his organization wins the Washington area CFC contract, Walton said, it will employ the D.C. group's eight-member CFC staff and will not bid next year so that the national capital group will have a better chance of regaining the contract.

"The ultimate goal is that when we go into 2004, both of these communities are going to have strong, functioning United Ways," Walton said.

This month, the national capital group's new board and Egger cut $2 million in overhead by eliminating 38 full-time jobs from a workforce that numbered about 100 this time last year.

Those familiar with the group's finances say it still has money problems, stemming in part from obligations to former employees such as ousted CEO Norman O. Taylor. The group's outgoing board of directors voted in a closed-door session in December to continue Taylor's $18,750-a-month salary until the end of his contract next year.

The ongoing turmoil is a source of concern to thousands of area charities that receive donations through the CFC and United Way campaign.

Chantilly-based America's Charities, a United Way competitor, said last week that it had raised about $4 million from employees at former United Way participants such as Lockheed Martin Corp. and Dyncorp.

Even so, charities worry that some of United Way's drop-off will fall through the cracks. "It's going to have a big impact dollar-wise on some of the larger nonprofits and percentage-wise for smaller nonprofits, which may depend on the United Way for a fourth of their total budgets," said Chuck Bean, who heads the Nonprofit Roundtable of Greater Washington. "This means a reduction in services throughout the region, no doubt."

Interim chief Robert Egger said the local United Way wants to concentrate on its own fundraising efforts.