A D.C. contractor who received $41,000 worth of city business after complaining to Mayor Marion Barry was indicted by a federal grand jury yesterday on two counts of distributing cocaine and one count of unlawfully using a telephone in aid of drug trafficking.

The indictment of Herbert Young, 58, who also is known as "Dusty" and "Sonny," came 10 days after he was arrested at his home by FBI agents, who, according to sources, wanted to question him about his contacts with the mayor. Young refused to cooperate with prosecutors, according to sources and his attorney.

Young, the head of Aafro Construction Co., has told acquaintances that he asked the mayor for assistance in obtaining city contracts during a May conversation in which Young informed Barry that he had seen an FBI agent watching the mayor's house.

According to the account, Barry referred Young to David E. Rivers, a top adviser to Barry who formerly headed the Department of Human Services. Sources said Rivers later told agency officials to look for work for Young.

Barry, who has said that Young appeared on several recent occasions to have been drinking when he came to Barry's house, has denied that Young informed him of any FBI surveillance and that he referred Young to Rivers. Rivers' attorney also has denied any improper conduct by his client.

Young, a friend of Barry's since the 1960s, had originally been charged only with the telephone count.

According to court documents, Young's telephone conversation with an undercover FBI agent led to the sale of an ounce of cocaine to the agent on Nov. 7. A preliminary hearing had been scheduled for Monday to determine whether there was sufficient evidence to support a charge. The indictment eliminated the need for such a hearing.

G. Allan Dale, Young's attorney, said last night that the indictment was returned yesterday because government prosecutors "were afraid to confront me Monday." Dale said he had planned to call witnesses who, he said, "would blow the government's whole undercover investigation out of the water."

On May 22, U.S. Attorney Joseph E. diGenova disclosed a wide-ranging undercover investigation of D.C. contracting.

The U.S. attorney's office said it had no comment on the indictment, which also charges Young with selling cocaine on Oct. 14 and 16. No details about these alleged sales were contained in the indictment, which was returned by one of three grand juries investigating D.C. contracting. Rivers has been identified as a key figure in the contracting probe.

If convicted of all counts, Young, of 2518 Q St. SE, could face as much as 34 years in prison and a $500,000 fine. He is free on $10,000 bond. The case was assigned to U.S. District Judge Stanley S. Harris.

Young, a general contractor whose firm formerly was called Playland Construction Co., has had contracts with the Department of Housing and Community Development and D.C. General Hospital, but has told acquaintances that he had been unsuccessful in obtaining city contracts for about two years.

Young has told acquaintances that after asking Barry for help, he received two jobs totaling $41,000 for painting at Oak Hill, the city's juvenile detention facility.