The firing of two investigators who blew the whistle on problems at Los Alamos National Laboratory was "incomprehensible" and discouraged other employees from raising concerns with management, the Energy Department inspector general reported Thursday.

The report by Inspector General Gregory H. Friedman comes amid a growing threat that the University of California may lose its contract to run the Energy Department lab, a contract it has held for six decades.

University officials spent the week in Washington, trying to restore confidence in their lab management.

"I made clear to them that, No. 1, their contract is in jeopardy and, No. 2, one way or another things have to dramatically change with regards to procurement and management of material at the site," said Rep. Jim Greenwood, R-Pa., chairman of the House Energy and Commerce Committee's oversight and investigations panel, which is investigating the lab.

Greenwood met with university officials Wednesday.

Glenn Walp and Steve Doran were fired in November after they reported on $2.7 million in missing computers and property and the misuse of lab-issued charge cards -- including one employee who tried to use a lab charge card to buy a souped-up Ford Mustang.

Friedman said the reasons given for the firing "do not withstand scrutiny," and the timing was suspect.

Coupled with a series of memos urging employees to "resist the temptation to 'spill your guts,"' the management actions created a chilling effect on employees who might have called attention to management problems, Friedman wrote.

Energy Secretary Spencer Abraham also expressed concern about the firings, and last week the university hired the two men to advise the university's investigation of Los Alamos.

Walp said the report confirmed what he and Doran had been saying and he would be "highly surprised" if the investigations do not lead to criminal prosecution against at least a few present or former lab officials.

He and Doran found "blatant criminal activity" at the lab and a calculated effort to keep it quiet and protect the UC contract, which he called "the golden calf."

"I believe in being dedicated to your boss, but there's a line you don't cross," Walp said, "and they crossed that line and began to perceive wrong as right."

The University of California said in a statement that Inspector General Friedman's findings match those from the university's own investigation and the school "has taken aggressive action" to address the shortcomings, including appointing a new lab director and shaking up senior management.

Abraham's spokesman, Joe Davis, said, "We embrace the inspector general's recommendations and thank them" for their work.

Since allegations of mismanagement arose, five top lab managers have been toppled, including former director John Browne. The FBI and several congressional committees are also investigating the lab and congressional hearings are expected next month.

It was the latest in a string of embarrassments for the lab, including the botched investigation into classified material mishandled by lab scientist Wen Ho Lee. The episodes have prompted some members of Congress to question whether University of California should be allowed to keep the contract without competitive bidding.

"Clearly there is a growing sentiment among many of our members to put the contract out for open bidding," said Ken Johnson, spokesman for the House Energy and Commerce Committee.

Two days before leaving office in 2001, President Clinton's Energy Secretary Bill Richardson -- who is now governor of New Mexico -- extended the University of California's contract to run Los Alamos through 2005.

"This report is only the tip of the iceberg and clearly should be the final nail in the coffin of this contract," said Danielle Brian, executive director of the Project on Government Oversight, a Washington-based watchdog group.

UC has run the lab since it was created as the headquarters for the Manhattan Project, the secret program to develop an atomic bomb during World War II.

"I have been absolutely appalled at what I have learned about the thievery that has occurred at the laboratory," said Greenwood. He said his committee would look at whether a lack of competition fostered lax oversight, but he has not made a decision on whether competition for the contract is needed.