The contract to manage a state employees' prescription drug program for nearly 300,000 people is being awarded to a company whose top executives have been among Gov. Ridge's biggest political contributors.

Eagle Managed Care, a subsidiary of Rite Aid Corp., won the contract despite an independent consultant's recommendation that it be eliminated from the bidding. The consultant, after reviewing the bids of 10 firms, selected four finalists. The consultant's summary said Eagle's financial proposal was too high.

The current contract holder, National Prescription Administrators (NPA) - which was one of the four finalists selected by the consultant - complained that the selection process had ``serious flaws.''

Ridge officials vehemently disputed any favoritism and said politics and campaign contributions had nothing to do with the contract. They said their main goal was to save money for the employee trust fund, which subsidizes the cost of prescription drugs for state employees and their families. The contract had not been competitively bid in the past.

The contract, which is expected to take effect July 1, was awarded by the Pennsylvania Employees Benefit Trust Fund in October. The 14-member board is run jointly by labor unions and the Ridge administration.

Board chairman Thomas G. Paese, Ridge's secretary of administration, acknowledged that Rite Aid's political donations might have created a negative perception about the selection process.

Paese and another trust fund board member, Charles Sciotto, Ridge's deputy secretary for employee relations, defended the process. ``Every decision was made on its merits, despite what the appearances may be,'' Sciotto said. ``This is one instance where appearances may be deceiving.''

Three Rite Aid representatives have contributed a total of $192,000 to Ridge's campaign since 1993. In 1995, two of them, retired Rite Aid chairman Alex Grass and Rite Aid lobbyist William Titelman, held a party that brought in an additional $230,000 for Ridge. Grass is now a major shareholder of Rite Aid, and Titelman joined Rite Aid last week as an executive vice president.

The Rite Aid subsidiary stands to take in close to $11 million in revenue from the three-year deal.

Under the drug program, state employees carry a card that allows them to obtain prescription drugs at participating pharmacies after making a co-payment.

A nationally known benefits consultant, William M. Mercer Co., evaluated the 10 bids, and recommended four finalists. Eagle was not among them.

Paese, the trust fund's board chairman, said in an interview that he and two union leaders - Edward Keller, Pennsylvania head of the American Federation of State, County and Municipal Employees, and Wendell Young 3d, head of the United Food and Commercial Workers - met informally after receiving the consultant's recommendations. He said the three of them made the decision to add Eagle to the consultant's four finalists. He said no other board members saw the consultant's report.

Paese said he and the two union leaders then allowed all five finalists to refine and resubmit their bids. The five other bidders were not given that chance.

After receiving the resubmitted bids, Paese said, he and Keller whittled the number of finalists to three - Eagle, NPA and Capital Blue Cross - before submitting the contract vote to the board, which unanimously approved Eagle as the winner.

``We thought [Eagle] had the ability to sharpen their pencils, and we decided it would be good to make them part of the mix,'' Paese said. ``And at the end of the day, they came out on top.''

Paese said he felt no obligation to follow the consultant's recommendation exactly.

``We can do it any way we want,'' Paese said, ``and we wanted to have the most competition possible.''

Paese said the three men added Eagle to the list because it was a Pennsylvania company and because it was ``heavily unionized.'' He said the seven union members of the board would ``have had a hard time'' rejecting Eagle because the company was unionized.

Paese's explanation does not hold up.

For one, Eagle is not unionized. For another, Capital Blue Cross, which is also based in Pennsylvania, submitted a lower bid than Eagle. And for yet another, the company that had been holding the contract since 1989 - NPA - is unionized. NPA was one of the four finalists selected by the consultant.

As a result of losing the contract, NPA says, it will lay off 60 union employees.

Paese later acknowledged that Eagle was not unionized but said that after the field was narrowed to three companies, it was the union leaders who expressed a preference for the firm because its parent company, Rite Aid, does employ union workers.

``Remember, I needed to find a consensus candidate,'' said Paese, noting that the board's members are split 7-7 between union and administration officials.

Employees at Rite Aid pharmacies in Pennsylvania are unionized. But under the terms of the contract, state employees can use the prescription plan at numerous pharmacies; all pharmacies in the state are permitted to participate. Under the current NPA contract, Rite Aid pharmacies are already participating in the state reimbursement program.

Several board members, including Young and Frank Schubert of AFSCME, said in interviews that Capital Blue Cross finished with the lowest bid.

The state did not disclose the dollar amounts of the bids.

Don Schell, senior vice president at NPA, said, ``We were very disappointed to hear of the decision and still believe our bid represented the best value for the State of Pennsylvania.''

Though not the lowest bidder in terms of price, Schell said, NPA, founded 20 years ago, offered the most years in the business, plus experience administering the complex state program. Eagle was founded three years ago.

Schell said he had complained to the director of the trust fund that ``the bid process had some serious flaws.'' He declined to say what they were.

NPA got the contract to manage the program nine years ago, without competitive bidding, under the administration of Gov. Robert P. Casey. NPA already had private contracts with many of the unions before the trust fund was created to consolidate their benefit accounts.

NPA officers had contributed money to Casey, including $10,000 in donations to an inaugural ball. NPA officials said they won that contract solely on merit.

Casey's secretary of administration, Joseph Zazyczny, later went to work for NPA and remains there today as a vice president. Zazyczny is now on medical leave and could not be reached for comment.

Board members said in interviews that they were not concerned about not having seen the consultant's report. They said they chose Eagle because it was a Pennsylvania-based company that offered among the lowest prices.

``It was a tough thing, because they weren't exactly the cheapest,'' said union leader Young. ``I think what Rite Aid was picked for is the total quality of service.''

Young, who represents state liquor store workers, and Keller, who represents the bulk of state employees, negotiate their members' labor agreements with Paese.

Martin Grass, Alex Grass' son and Rite Aid's current chairman and chief executive officer, said in an interview that there was nothing wrong about the process that resulted in Eagle's selection.

``Consultants don't always have the last word,'' he said. ``They are just that - consultants.''

Although Paese said he did ``understand the inference'' that the contributions might have helped Eagle, he and other Ridge officials insisted that Rite Aid's political ties had no bearing on the firm's selection.

Paese said the selection process - the first time the contract was put to bid - was geared toward saving money for the fund. The new contract will save about $1 million a year. All three finalists' bids would have saved the fund money, he said.

Government agencies do not have to choose the low bidder when buying professional services, and the trust fund is under no requirement to seek bids for contracts.

Young, the union representative, said there was nothing irregular about the process.

``I could blast the governor for going with his friends, but his people were pretty thoughtful on it,'' Young said.

Titelman, the lobbyist who became a Rite Aid vice president this month, said he did not believe his or other political contributions played a role in the contract award.

``Since we were going to ask people to sharpen their pencils anyway, I'm glad that the home team got a shot,'' he said.

Titelman has given $90,750 to Ridge in personal and political action committee (PAC) contributions since 1993. Alex Grass has contributed $70,000 since 1993. Vice president James Krahulek gave $31,500 through Rite Aid's PAC. All three are members of Ridge's Governor's Club, in which major donors attend dinners, golf outings and other events with Ridge.

Paese said he was unaware of how much money Titelman had given to Ridge. He said he had attended two fund-raising events for Ridge held at Titelman's house. The 1995 affair Titelman hosted with Grass, which raised $230,000 for the governor, was Titelman's fifth at his home.

Representatives with NPA and Capital Blue Cross also have contributed to Ridge over recent years, but those contributions were for hundreds of dollars, not thousands.

Titelman's wife, Maria Keating Titelman, a deputy chief of staff for Ridge, gave the Republican $11,350 for his 1994 election. She was not involved with the union drug contract, William Titelman and Ridge officials said. She did not respond to a request for an interview.

The trust fund provides benefits for 137,000 current and former state employees and their 152,000 dependents. The state pays into the fund based on negotiated agreements with various labor unions.