A Fairfax County construction company hired to help build the Metro subway system in Northern Virginia overcharged the Virginia Electric and Power Co. more than $1.3 million in fraudulent labor and equipment rental costs during a three-year period, the utility has alleged.

Grady L. Hinson Construction Co. improperly charged the power company the highest allowable wages for its employes' work on Metro projects, even though the company actually paid many of those employes substantially less, Vepco attorney E. Milton Farley III said in documents filed in Fairfax County Circuit Court in connection with Vepco's lawsuit. Farley said the Hinson company inflated its labor costs to Vepco by more than $1.3 million between September 1979 and December 1982.

Attorneys for the Hinson firm have denied the allegations of fraud, saying the labor and rental charges were "totally proper" and that the issue centers around a contract dispute between Hinson and Vepco.

"In no event can it be fraud, because nothing was hidden," said Hinson attorney Mark P. Friedlander Jr.

Hinson officials said in court records that the contractor routinely charged Vepco the highest allowable hourly wage rates. Friedlander said yesterday, however, that Vepco "knew what they (Hinson) were doing," and never questioned the practice until last spring when Metro and Vepco became involved in a dispute over construction costs.

Vepco officials deny that they knew Hinson was charging the higher labor rates indiscriminately. Vepco spokesman Jim Buck said the records were submitted to the power company in a form that could have disguised such information.

Vepco's contracts with Hinson established sliding wage scales for workers based on their skill and experience levels. The scales varied by several dollars per hour in most positions.

Vepco attorneys said the company based its allegations of fraud on comparisons between actual labor costs and the costs that Hinson billed the power company.

"When every single contract says you will get paid on the basis of your actual labor rates, labor costs, and you get billed something else, then we have been overcharged," said Vepco attorney Farley said in a deposition while questioning Grady L. Hinson, owner of the company.

The utility, according to spokesman Buck, began its investigation after being told by two former Hinson employes about the alleged overcharges.

In the court records, Vepco attorney Farley said the power company's investigation has revealed labor cost overcharges that totaled $409,774 in the last four months of 1979; $448,133 in 1980; $358,271 in 1981; and $120,003 in 1982.

Hinson construction had been hired by Vepco for Metro construction jobs since 1970, court records show. The company, which primarily lays underground conduits for electrical wiring, remains under contract to Vepco. Utility officials issued a stern warning to Hinson last April, according to the records.

"Payroll rates are to be billed at actual rates paid to individuals reported on the time sheets," Vepco vice president G. C. Headly Jr. wrote in a letter to Hinson. "We request that you submit copies of payroll records to support your labor charges."

Court records also showed that federal Labor Department auditors have been investigating the Hinson company for possible violations of the Davis-Bacon Act that requires contractors on federally funded construction projects to base wages on a government-approved scale. A Labor Department spokesman said yesterday the investigation is continuing.

Hinson's attorneys said the company denies any violations of the federal law.