The District government reopened bidding yesterday on a vital contract to replace two large computers that run the city's financial management system, acknowledging that its original bidding process may have been "tainted" by improper city conduct.

The bidding resumed after D.C. Superior Court Judge George Mitchell denied a motion for a temporary restraining order made by OAO Services Inc., a firm that said it was awarded the multimillion-dollar contract Feb. 7, although the city never signed a contract.

The new bidding is the latest development in the city's two-year effort to replace the two computers, which are crucial components in the system that handles virtually all the District government's financial affairs.

Lawyers for OAO argued that the city had committed breach of contract and made a "thinly disguised" attempt to subvert the bidding process to obtain more favorable contract terms.

They contended that Fernando Burbano, an official of the Department of Administrative Services, tampered with the bidding process after the contract had been awarded to OAO by contacting competing firms to determine whether the city could still get a better price.

"He was exploring better prices," said Thomas Earl Patton, one of the lawyers for OAO.

Cary Pollak, a lawyer in the D.C. corporation counsel's office, acknowledged that Burbano may have made some telephone calls to competing firms, but added that this was reason enough for the court to deny the request for a restraining order and reopen the bidding.

"If in fact there were some telephone calls that possibily put a taint on the process . . . the cure is to reopen the bidding and go on with an untainted process."

Alphonse G. Hill, deputy mayor for finance, said after the hearing that the District decided to reopen the bidding because of concern about the implications of Burbano's telephone calls.

"In the face of some things that transpired in the Department of Administrative Services and on the advice of our legal counsel, we decided it's in our best interest to go out again" for bids, he said.

Burbano declined to comment on the matter until the city has completed its contracting process and finished dealing with OAO's legal challenge. However, sources in the Department of Administrative Services said yesterday that Burbano's telephone conversations with an OAO subcontractor and other companies seeking the contract were general in nature and were not intended to try to renegotiate the contract.

The dispute over the computer contract is the latest development in a growing controversy over the District's handling of city contracts.

Jose Gutierrez, the former director of administrative services, charged recently that he was pressured by higher-ups to award contracts for largely political reasons, an allegation that has been denied by Mayor Marion Barry and City Administrator Thomas Downs.

Three D.C. City Council members have called for an thorough investigation of the District's contracting process. Barry, who demoted Gutierrez in retaliation for going public with his complaints, has ordered an investigation of Gutierrez's activities while he headed the department.

The District is under the gun to resolve the dispute over the computer contract to replace a system that officials say is outmoded and that is fast running out of capacity for storing important financial information and data. The highly complicated financial management system, which went on on line in October 1979, currently operates on two large-scale computers manufactured by IBM computers that were designed in 1965. "The generation of computers we have now is outdated," Hill said said.

The District first sought bids to replace the computers in September 1983 and initially awarded the contract to IBM. However, the city was forced to rescind that contract last June, following a long court challenge by the Amdahl Corp., which complained that the city's bid solicitation had been written in such a way as to rule out all but equipment manufactured by IBM.

OAO said that, following a reopening of the bidding and negotiation process, it was notified by a city official last Feb. 7 that the company and its subcontractor, Amdahl, would be awarded the contract. Lawyers for OAO said the company signed the contract agreement and returned it to the city Feb. 14, but since then the city has "failed or refused to issue the completed contract document to [OAO] or to acknowlege that a binding contract exists."