Washington's housing department has poorly managed the renovation of Bates Street, the showpiece of Mayor Marion Barry's housing program, and should fire the developers so that the long-delayed project can be finished, the D.C. auditor said in a report yesterday.

"The city was in the position of throwing good money after bad," auditor Otis Troupe said in an interview, adding that because of "waste and incompetence," the city "paid more than it got in worth of work" on Bates Street.

The sharply worded review of the urban renewal project said housing officials failed to follow their own regulations for overseeing project spending until the developers had spent nearly $4 million in city-funded interest-free loans.

"To expedite the completion of the remaining houses and to eliminate the necessity of any future loans going to Bates Street Associates Inc.," Troupe's report said, "the contract with BSA Inc. should be terminated and new contractors should be selected on the basis of proven ability to perform."

Housing Director Robert L. Moore denied that his department mismanaged the project, but he agreed that controls over the work had increased "as the project began to run into difficulty."

"As the project progressed, improvements in monitoring, inspection, quality control and financial accountability have been put in place," Moore said in a written response that was included in the report. He added that he and the auditor disagreed on the "timing of thoughtful intervention."

He blamed high interest rates for most of the project's problems, and said the current developers should be retained in order to ensure they remain legally liable for the $4.2 million debt. Firing them, he added, would mean lengthy litigation.

Bates Street developers George Holmes, Jack W. White, John E. Haley and Dennis J. Makielski could not be reached for comment yesterday.

In the early 1970s the city bought up 133 homes in a 12-block area around Bates Street in the Shaw section of the city, with plans to transform one of Washington's best-known slums into a new neighborhood where the middle-class and the poor, blacks and whites would live side-by-side.

The project began under the administration of Mayor Walter E. Washington. In his campaign for mayor four years ago, Barry made boarded-up Bates Street houses a symbol of the Washington administration's alleged inefficiency in providing housing, and he pledged to complete the project quickly if elected.

Troupe's report reveals for the first time that the city has lent $4.2 million to the Bates Street developers, who are two years behind schedule on the still-unfinished project. In the past, Moore has publicly reported that the city lent the developers $3.1 million.

The agreement between the developer and the city required that certain work be performed satisfactorily before the developers received payments. However, the auditor found, "the only provision followed with any consistency was the [payment] schedule, even though other provisions concerning works in place were not adhered to."

Troupe said other city housing projects have also experienced problems with controlling payments to developers, and recommended that the department create a special team to insure that work is completed before payments are made.

His report noted that more than 100 liens, totalling $2.6 million, have been placed against the Bates Street developers, mostly by subcontractors who allege the developers have not paid them for work they did on the homes. Moore said that while some of the liens were justified, others were "frivolous."

D.C. City Council member and mayoral candidate Charlene Drew Jarvis (D-Ward 4), who requested the report earlier this year, said yesterday she will introduce legislation to insure that "there are strict guidelines for contract compliance when awards are made by the city."

Jarvis, chairman of the council's housing committee, said she would review the city's plans to have the Bates Street developers build Parkside, a proposed development on city-owned land along Kenilworth Avenue NE.