D.C. Auditor Matthew S. Watson has recommended that the city's Department of Housing and Community Development be stripped of its maintenance contracting activity for public housing because it "does not have the resources to properly manage its contracts."

The recommendation, which was sharply challenged by the housing agency's top official, followed audits of departmental contracts for elevator and heating boiler maintenance and for apartment management.

Based on a review "of a limited number of contracts for a limited period of time," the auditor reported, "we conclude that the department does not have the resources to properly manage its contracts."

The auditor found that billings and payments in many instances were not made in accordance with contract terms, and that old contracts had been allowed to run for extended periods without being renegotiated or reopened for bidding.

No overall figure on the city's financial loss was cited. However, the report did say that as much as $1,455 a month was overpaid for management of one project, Sibley Plaza, and $501 for another, Edgewood Terrace.

The auditor said the contracting activity should be shifted to the Department of General Services, the city's primary housekeeping agency.

Lorenzo W. Jacobs Jr., director of the housing department, said the procedures cited by the auditor have been tightened up, partly the result of the auditor's investigation.

Considering that the department has awarded contracts totaling $49.9 million since 1975, it is doing pretty well, Jacobs said. "Although we still have things to do before we will have achieved our management objectives . . . we are fully as capable as anyone of handling our own contacting and contract administration," he concluded.