The D.C. Department of General Services (DGS) has scheduled a public hearing for Nov. 10 on a controversial task force recommendation to lease the abandoned streetcar tunnel under Dupont Circle to a firm that wants to operate a health and squash club.

The task force action has been sharply criticized by Dupont Circle community leaders and two rival bidders for the tunnel space who complained that the task force had acted hastily and without the citizen participation that the DGS had promised this summer.

The three-member task force of city officials decided during a two-hour meeting Sept. 21 to recommend that the lease be awarded to Dupont Recreation Corp., which had said its proposed underground health club would generate $2 million in revenues and $80,000 in rent for the city the first year.

Onshore SOG Inc., an Alexandria firm, proposed converting the tunnel to a mausoleum, and Dupont Trolley Market Inc. proposed opening a specialty food and produce market.

During the September meeting at which the recommendation was made, Courtland V. Cox, a special assistant to Mayor Marion Barry, argued successfully that the task force should move ahead.

Cox said yesterday that the task force's action was not improper and did not violate any city regulations.

"We haven't contravened any law because we haven't taken any action. There are a number of steps that have to be gone through. When we come to a final decision, we'll make the city's position clear on what will be done."

During the Sept. 21 meeting, oneof the task force members and the official representative of DGS strongly urged against voting until they had visited the tunnel site, or held public hearings and permitted the bidders to make oral presentations, according to a city government internal memorandum summarizing the meeting.

John H. McKoy, a top city government planner, sought a delay until task force members could visit the site. Stanley E. Storck, a DGS realty specialist, cautioned that the members might be violating city law if they made a recommendation before holding a public hearing, and pressed for oral presentations by the competitors.

Storck's reasoning reflected criteria announced last June by DGS for picking a developer and the procedures used in an earlier effort to lease the tunnel during the late 1970s.

"Mr. Cox said that he did not desire for the committee to hold a public meeting but for DGS to hold a public meeting at a later date after the committee had made its decison," according to the memorandum, dated Sept. 28 and prepared by Elbert Ransom Jr., DGS assistant director for building management.

Cox said this week that he opposed an on-site inspection because the tunnel, which was closed to streetcar traffic in the 1960s, was "dark and dank" and because "there was nothing I could have seen that could help me to make a decision."

Ransom's memo to Harold T. Henson, acting director of DGS, expressed concerns that the selection process would be incomplete until the department arranged for a public hearing that the task force declined to seek.

The day after Ransom's memo was circulated in the department, John C. Pappas, president of Onshore SOG, wrote a letter complaining that the closed-door selection of a developer was done without citizen input.

Henson instructed Ransom in a Sept. 30 memorandum to establish a citizens panel to review the proposal and formally notify the community of the intent to lease "in order that this Department will be in compliance with the laws."

Part of the controversy surrounding the decision stems from the fact that William B. Fitzgerald Sr., president of Independence Federal Savings and Loan, is a director, secretary-treasurer and, along with his daughter, 50 percent owner of the recreation corporation. This issue has been raised by Pappas and some community leaders.

Mayor Barry's wife, Effi, has been on the board of Independence since 1979 and Barry's top aide, the city administrator, will make the final decision on awarding the lease.

Fitzgerald said yesterday that he knew little about the selection process. "I'm satisfied that whatever the District government decides to do will be appropriate and proper," he said.

L. Page Maccubbin, an Advisory Neighborhood Commission member in the Dupont Circle area, said yesterday, "We are very upset with the apparent selection of a proposal without any citizen input. What business do they have making any decision without the public input in the process?"

Maccubbin said he expects the neighborhood commissioners "to ask at the Nov. 10 meeting that the city reappoint the panel, an impartial group to make an impartial selection."

Joseph Grano, president of the Dupont Circle Citizens Association, said the mayor promised in a letter last August that Henson would consult his group on the project. Grano said he was never contacted.