The D.C. housing department violated city law and standard city procurement procedures last year when it awarded a $3.2 million contract to a private construction firm to renovate the department's new headquarters in Northeast Washington, according to a report released yesterday by D.C. Auditor Otis H. Troupe.

Among the violations, the auditor reported, were the use of a federal housing funds earmarked for other purposes, and the utilization of an "informal, noncompetitive" bidding procedure in which bids were solicited over the telephone from a handful of contractors rather than through public notice.

In addition, Troupe said, the department paid an extra $1.1 million for the project because the contract it negotiated with the private construction firm, Leapley Construction Co., did not include several crucial parts of the renovation -- including rehabilitation of the entire fourth floor.

Robert L. Moore, director of the D.C. Department of Housing and Community Development, said that the procedures used were justified and labeled the report a "political document." The city auditor works for the D.C. City Council.

"There are so many rules that somebody can always pull out one and say, 'Hey, you didn't follow that one either,' " Moore said. He added, "There were no shenanigans in this."

The report centers on the department's decision to move its offices, then scattered throughout six sites in the city, into an abandoned warehouse at 1133 North Capitol Street.

In August 1980, acting through the quasi-public District of Columbia Development Corporation, the department awarded the Leapley firm a $3.2 million contract to renovate the warehouse.

City law usually requires that bids on all contracts over $2,500 be solicited through formal advertising or other public notice. In this instance, however, the department chose three contractors recommended by the project architect and solicited bids from those firms by telephone. Only two firms -- Leapley and Volpe Construction Co. -- submitted bids.

Housing director Moore said standard procedures were not followed because the department was on the verge of being evicted from its old offices and was in a rush to complete the project. Moore also said that the designated developer of the project, DCDC, is not governed by city government contracting procedures.

Troupe concluded, however, that the bidding process did not allow for genuine competition and "was unfair and contrary to the interests of the District, to the contracting industry in general and to minority contractors in particular."

Firm owner Dennis Leapley is a white contractor whose business office is at 1719 Kalorama Rd. NW, but who lives in Edgewater, Md.

Troupe said Leapley's winning bid included no provisions for installation of air conditioning, heating ventilation and carpeting, It also contained no specifications for renovation of the fourth floor, which was later added to the project.

By the time the department moved into the building nine months later, it had agreed to 13 separate change orders -- including a $300,000 addition for fourth floor work -- totaling $1.1 million. That raised the total project cost to $4.3 million, the auditor states.

Troupe's report alleges that Leapley received a "significant" competitive advantage in winning the original award because the only other firm to submit a bid, the Volpe Construction Co., had included such items as air conditioning and fourth floor work that Leapley had left out.

But Moore contended that, even discounting the differences in project scope, Leapley was the low-bidder because on a square-foot basis, his estimated price was $29.20 compared with $32.19 by Volpe.

The report was the second in eight months criticizing city transactions with Leapley's firm. Last March, the auditor released a report concluding that Leapley had been given favorable treatment over another bidder from the DCDC in purchasing a warehouse across the street from one of his business offices.

However, Troupe fails to reach any conclusions as to why he believes Leapley twice received favorable treatment on city contracts. "Maybe he just got lucky," Troupe says.

Leapley said he has received no favorable treatment from the city and has received no other city contracts.

"The District saved a considerable sum of money on that contract," he said."I don't think there's anyone in town who can come close to turning that the office building over in the time frame we did."