Mayor Marion Barry has awarded the city's controversial $17.8 million fuel oil contract to Tri-Continental Industries Inc. to replace an old contract with the company that drew criticism during the summer and touched off efforts on Capitol Hill to force the city to make greater use of competitive bidding.

In a statement announcing the award, Barry said the apparent low bidder for the bulk of the contract, Atlantic Petroleum Corp., had not meet the city's stringent requirements to protect the city from potential interruptions in supply.

The mayor, who signed the contract on Friday, said the city suffered school shutdowns and the threat of a disruption in police services in late 1980 and early 1981 when its fuel contractor failed to provide the necessary fuel. "We simply cannot risk being unable to provide critical services if a contractor does not perform," Barry said.

Barry said Atlantic did not have the required $2 million line of credit at a financial institution or contractual agreements that would allow the company to store fuel at area terminals.

Atlantic Petroleum has filed a protest with the city citing what the firm's owner calls procedural irregularities and unfair requirements. Company President Roslyn Hill contends the city adopted the requirement for a $2 million line of credit in order to eliminate the firm from the competition and ensure an award to Tri-Continental, the city's fuel supplier since 1982.

Tri-Continental Industries won the 1982 contract in competition with other firms. Disclosures that the city extended the contract for two years without seeking bids from other firms spurred the House to pass an amendment requiring competitive bidding for all city contracts. The city has restricted bidding on the fuel contract to minority firms since 1983.

Officials from four other jurisdictions including nearby Fairfax and Montgomery counties said yesterday that they do not require a line of credit and instead rely on performance bonds or financial checks. But they said different circumstances may warrant the District's stricter requirements.

Hill also stated in her protest that she provided the city with all the required contractual agreements providing for the supply and storage of fuel.

William Johnson, director of the city's chief purchasing agency, said, "What they have provided to us . . . are not contractual agreements."