Economic development in the District suffered another setback last week when the city's urban renewal agency decided to limit a new round of bidding for development rights on the Portal site in Southwest Washington to the five developers who originally vied for control of the property four years ago.

The Redevelopment Land Agency's decision to preside over a replay of a failed process shouldn't come as a surprise, given the agency's dismal record in stimulating development over the years.

Economic development has been given priority status in the administration of D.C. Mayor Marion Barry, but there apparently is a communications gap that the mayor has been unable to bridge in trying to get his message across to the RLA board.

To his credit, the mayor publicly scolded the RLA 18 months ago for what he considered its failure to spur major development on urban renewal land. The RLA board, Barry said then, "has not been successful since 1974 in making sure any major development happens in this city."

The process used by the agency to dispose of urban renewal land "needs to be reevaluated to see if there is a better way to do business," the mayor added.

That assessment is as accurate today as it was in 1983. Asked then whether he was thinking of dissolving the RLA and assuming some of its powers, Barry replied: "I haven't heard that advocated yet . . . I'm not advocating it."

If economic development is really going to be the centerpiece of the mayor's administration, then he ought to advocate a dissolution of the RLA and transfer its powers to the Office of the Deputy Mayor for Economic Development.

If it had taken a more enlightened view of its role as a catalyst in the development process, the RLA might have made a more significant contribution to economic development in the District. The RLA's mandate is really an economic development tool, but the agency hasn't shown that it knows how to use it.

It took 10 years, for example, for the RLA to dispose of the valuable Metro Center parcels in the heart of downtown. And now, after an abortive attempt to dispose of the highly coveted Portal site in Southwest Washington, the RLA board wants to re-enact a farce that it chooses to call a bidding process.

When the successful bidder in the previous competition offered to pay the city $38 million, instead of its original offer of $45 million for the 10.5-acre Portal site, the RLA board revoked the development rights to the parcel to the east of 14th Street and overlooking the Southwest waterfront. The board's decision was the correct call and was applauded as such. Last week, however, the RLA board abandoned its newly found credibility and voted to reopen the bidding to the same five development teams.

That assumes that the same five teams are prepared to bid at least $45 million for the 10.5-acre site. Anything less would be ludicrous, given the escalating land costs in the District and the board's earlier decision rejecting the $38 million. It also assumes that the four developers who failed to get the nod four years ago will radically alter their original proposals, which obviously were found lacking in the first place.

In the meantime, the message to all would-be developers is: Nobody else need apply. Surely, the mayor must have serious misgivings about this exclusionary policy, which could hurt the city's development efforts. Is the District really prepared to exclude major national developers from the bidding process? Can the city afford to ignore overtures from major national development firms who may be willing to invest heavily in what could be an economic development plum?

"We don't think that it's unfair to restrict bidding to the original five developers," a member of the RLA board is reported to have said last week. "We see it as a continuing process."

That is precisely the problem at RLA: The continuing process has outlived its usefulness.

Incredibly, 18 months after RLA refused to accept $7 million less than the original bid price for the Portal parcel, the same board member noted last week that "price is not the only priority."

Indeed, it isn't. The priority is no mystery. The District doesn't need RLA to attract developers of more office space. Speculative building and other market forces have made Washington one of the hottest office construction markets in the United States. Developers have shown they don't need to be invited to build more office space here.

What's needed, then, is a policy that says clearly to developers that the sale of urban renewal sites will be based on target intervention. In other words, the District ought to use renewal sites as inducements in targeting specific industries, companies and land uses. An urban high-technology park, for example, might be considered as a viable alternative to helter-skelter, speculative office development.

In any event, it's high time for the mayor to wrest a valuable tool from the RLA, in the interest of expanding the city's economic base and providing more jobs for District residents.