D.C. businesses would have preferential treatment in competitive bidding for District government contracts under a bill introduced by City Council Chairman David A. Clarke at the request of Mayor Marion Barry.

The bill was discussed yesterday at a meeting of the council's Committee on Government Operations. Kwasi Holman, acting director of the Office of Business and Economic Development, testified in favor of the bill.

"There is no question that it costs more to do business in Washington than in the surrounding jurisdictions," Holman said. "In spite of the recent substantial reduction in the high cost of workers' compensation, we are still the highest in the region . . . . If we are to promote economic development in the District of Columbia, which includes retaining our existing business base, we must give special preference to District-based firms."

Holman said District-based businesses have complained for years that they were operating at a disadvantage because the D.C. government offers them no special preferences on government contracts.

The proposed legislation requires that the bid proposals of local businesses be reduced by 5 percent before the bids are evaluated. Such a reduction is expected to give local businesses an edge when bids are awarded.

To qualify for the preference, the measure requires a business to have maintained an office in the District for two consecutive years before its bid proposal, to have paid District taxes for that period and to have District residents as at least 51 percent of its employes.

If a company is found to have given false or misleading information to obtain the local business status, the company would be denied the right to bid for government contracts for three years.

The bill excludes contracts on which the 5 percent reduction would result in the loss of federal funds and those for work that would be substantially performed outside the District. It also excludes purchases through federal supply contracts and purchases estimated to be $10,000 or less.

In a letter recommending the legislation, the mayor pointed out that "virtually every state," including Maryland and Virginia, extends some type of preferential treatment to state businesses that are awarded public contracts.

Barry said that in cases in which a contract is estimated to exceed $5 million, he would have the authority to reduce the 5 percent factor called for in the legislation. Barry also said that if the bill becomes law, it would require additional staff to monitor compliance.