Every year, hundreds of up-and-coming bureaucrats, government contractors, and even some bankers fill classrooms to learn the ins and outs of the massive federal acquisition regulations.

Why would bankers want to decipher thousands of ponderous pages that make up the FAR? To drum up business, of course.

Take $1.6 billion-asset United Bank in Fairfax, Va. Loans to contractors that make their livings off the federal government are 12% of United's $1 billion portfolio. It's a business line that looks increasingly attractive as the economy continues to soften.

"A lot of our clients are growing, because the government is outsourcing more of its operations," said Kendal E. Carson, United Bank's president and chief executive officer.

United, a subsidiary of $5 billion-asset United Bankshares Inc. of Charleston, W.Va., employs six lenders who work full time with government contractors. Louise M. Wager, the senior vice president who heads the group, said United has about 100 federal contractors as clients, about 60% of which do nothing but government work.

Washington and its suburbs are teeming with contractors that supply the government with everything from paper clips to network architecture to fighter jets and aircraft carriers. Stephen Fuller, an economics professor at George Mason University in Fairfax, says there are more than 9,000 such contractors in the area.

Texas, for example, paid contractors more than $700 million last year.

Because lending to contractors is so complex, money center banks - namely SunTrust Banks Inc., First Union Corp., and Wachovia Corp. - have led this market, Ms. Wager said. But there are signs that more small banks are warming to it.

With asset quality weakening, Mr. Fuller said, some small banks view government contractors as a safe bet. The reason: Despite its reputation for waste and inefficiency, the federal government pays its bills and pays on time.

Indeed, while most banks these days are reporting a rise in bad loans, United's asset quality has improved in the last year or so. Between March 31, 2000, and March 31 of this year, its ratio of noncurrent loans to total loans fell from 0.95% to 0.24%. Its ratio of net chargeoffs to loans was actually in negative territory, meaning its bad-debt collections exceeded new chargeoffs.

"That's not to say we haven't had some companies that have caused us some heartburn, but we've never had a loan to a federal contractor go bad," Ms. Wager said.

Still, United is facing heightened competition from big banks seeking more market share. (Two of the three biggest players, First Union and Wachovia, are merging to create the fourth-largest banking company in the country.) Meanwhile, a growing number of community banks are entering the bidding for smaller deals.

"Things are as tight as I've seen them in 12 years," United's Mr. Carson said.

For example, $464 million-asset Virginia Commerce Bank in Arlington, Va., is actively trying to expand its portfolio of loans to federal contractors. "We'd love to do more," said Peter Converse, its president and chief executive officer.

And $302 million-asset Sequoia Bank, in Bethesda, Md., one of the few Washington-area community banks to have lent consistently to federal contractors, is also eyeing deals, said James Tardiff, its chairman and CEO.

But lending to federal contractors demands a lot of resources.

"At a minimum, it requires a staff of two or three to stay on top of who got what contracts," said Jon Holtaway, a principal at Danielson Associates Inc., a Rockville, Md., consulting firm that closely follows Washington-area banks.

Not every bank is willing to make that kind of commitment.

James Monroe Bancshares Inc. in Arlington made lending to federal contractors a major component of its business plan when the company was organized in 1998. But officials quickly changed course when they learned how strong their rivals were.

"We saw a real niche for that kind of lending, but there were so many players that, from our standpoint, we wouldn't have been competitive," said John Maxwell, the CEO of $118 million-asset James Monroe.

The nature of the business also keeps many community banks on the sidelines. Most contractors are service providers lacking property that could serve as collateral for a loan, and most contractors carry more debt than other businesses, said John V. Pollock, an executive vice president at Sequoia.

Finally, there's this sticking point: A "termination for convenience" clause in all its contracts lets the government cancel deals whenever it chooses and with no explanation.

"You really have to have a strong commitment to this industry and know the companies you do business with," Ms. Wager said.

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