When the District last year awarded a welfare-to-work contract worth as much as $6.6 million to a company owned by dentist Arthur D. Stubbs, job placement experts were surprised.

The company's contract was larger than all but one of the eight awarded by the city, yet experts in the field had never even heard of the firm, G&S Associates, which apparently had no experience in job placement or welfare case management.

Stubbs was better known in some circles as the co-owner of a network of for-profit group homes for people with mental retardation. The homes, which receive about $7 million a year in city Medicaid funds, have a history of problems, including documented cases of poor medical care and abuse of residents.

Now, nine months after awarding the contract, D.C. officials have canceled it, citing G&S's performance and Stubbs's "inappropriate relationship" with the government official in charge of choosing the contractors. On July 29, G&S filed a suit alleging breach of contract.

The revocation of Stubbs's contract was only the latest development in a long, tangled saga. The District has a large number of poorly educated, longtime welfare recipients with few skills--the kind of group experts agree is particularly hard to move off welfare.

But the District was late in launching its welfare-to-work program, and city officials say none of the current contracts will be renewed.

The performance-based contracts are worth as much as $52 million, if the eight private companies and nonprofit firms reached every goal for every client assigned them.

What outside observers did not know at the time the contracts were awarded was that G&S's application contained supporting letters that were, apparently, sent from other companies Stubbs owns. And this spring, allegations surfaced that the acting head of the city's welfare office, A. Sue Brown, had steered the welfare contract to Stubbs. In April, Jearline F. Williams, director of the District's Department of Human Services, fired Brown. Two procurement officers involved with the contract also left their jobs; officials would not say whether they were fired.

Now, lawyers will sort the whole thing out. But meanwhile the clock is ticking for welfare recipients, whose benefits eventually will run out whether or not they have found their way into the workplace.

City officials say they do not have the same sort of questions about the seven other grants that they have about the G&S contract. But in all the cases, they say, the results have been disappointing. The city has rewritten its request for proposals and is now considering a new round of bids.

"Frankly," Williams said of DHS, "I'm not happy."

In setting up welfare-to-work programs, most states could rely in large measure on their employment offices and quasi-public Private Industry Council to provide job training and placement. But both agencies were dysfunctional in the District.

In addition, the District's entrenched population of welfare recipients was unusually difficult to employ. In fact, about half the welfare recipients contacted by the contractors have ignored orders to report for orientation.

About 13,000 adults on the District's welfare rolls are considered eligible to work, but are not working. They have a finite amount of time to get their lives together: Federal law has imposed a lifetime limit of five years on welfare. More than two years already have passed since the clock started ticking in the District.

Now it is clear that contractors have placed in jobs only a fraction of the clients assigned to them. Two contractors that agreed to supply results revealed that they have put to work only 12 and 22 percent of their caseloads, respectively.

Williams said the next round of contracts will give contractors more technical support and will pay them more so they can give more intensive help. Contractors currently get nothing for bringing the clients in, explaining the new world of welfare, and getting them to sign an "Individual Responsibility Plan." But because the work has proved so time-consuming, the next round of contractors will be paid $400 for each client who achieves that small, introductory step.

"This is a difficult job," Williams said, "and requires more than a lot of people thought."

Many welfare recipients with employable skills have left the rolls, she said, adding that "the creaming has already been done."

In fact, the challenges have shocked some vendors. They understood that it would be difficult to find jobs for welfare recipients. But they didn't anticipate that about half the clients simply would not show up for orientation and training.

Tom Knoll, of Community Family Life Services, said that repeated letters to clients on his caseload get no response and that when his employees visit homes, doors are not answered.

"Instead of job placement specialists, we're becoming private investigators," Knoll said. In desperation, he sent the no-shows invitations to a barbecue this month: Of about 120 no-shows, roughly half finally appeared.

The District's largest welfare-to-work contractor, Lockheed Martin Welfare Reform Services, has similar programs in 25 other locations, including Houston and Miami. Compared with the roughly 50 percent who don't show up here, Lockheed Martin's no-show rate elsewhere is about 20 percent. The firm is planning to conduct focus groups to try to discover why.

"I suspect some of them are already employed but don't want that known," said Mary Lou Tietz, of Community Family Life. "But a lot of it I think involves their level of education and self-esteem."

Some, she said, cannot read even basic signs.

More than two-thirds of the District's welfare recipients read below a sixth-grade level, according to a study two years ago. The study also showed that most had been on welfare a long time. About 85 percent of the mothers then on welfare had never been married, and 81 percent had a child age 4 or younger.

The District's caseload is one of the country's toughest. Inner-city welfare recipients, in general, tend to be harder to get off welfare, and the District has no suburban and rural areas to even out the statistics.

In some states, welfare recipients who do not cooperate with welfare-to-work programs can be kicked off the rolls, along with their dependent children. In the District, the D.C. Council legislated that adults who do not cooperate can, after repeated warnings, lose their own portion of the family's welfare check.

Thus, a typical D.C. family of a mother and two children loses just $50 a month if the mother refuses to cooperate: The check drops from $379 to $329.

So far this year, the District has sanctioned about 2,700 people.

Davis Memorial Goodwill, which has placed 62 of 500 people referred into jobs, is said by the city to be doing relatively well. Lockheed could have made as much as $33 million in one year with maximum performance. But eight months into the contract, the company has not yet fully earned its $1 million advance.

Like Maryland and Virginia, the District has cut the rolls, and despite the difficulties, the city is meeting tough federal mandates. In the District, the required percentage of people are engaged in "work activities," which can include unpaid job experience and looking for work. But that is not enough, Williams said.

"It's all right to get people into job activity," she said, "but I want people in jobs." City officials say the termination of the G&S contract is evidence that the District is getting serious about bringing integrity and accountability to the contracting process.

G&S's contract with the city called for the company to find jobs for as many as 1,500 welfare clients. In its letter terminating the contract, the city said G&S had found jobs for only 30 people. G&S's lawsuit says it placed 145.

Now, the city is trying to retrieve much of the $1 million paid to G&S--money paid for work that has not yet been done. But the G&S suit seeks the entire $6.6 million the company would have been awarded for maximum performance over the year-long contract, plus legal costs.

Stubbs has had other legal battles. In 1990, a subsidiary of what was then Blue Cross/Blue Shield of the National Capital Area sued him, accusing him of fraud and racketeering.

The suit in U.S. District Court alleged that Stubbs filed for dental services he never provided and that he submitted inflated bills. The insurance company and Stubbs eventually reached a settlement, and the files are now sealed.

"It wasn't worth fighting," Stubbs said in an interview. "There was no problem. Blue Cross/Blue Shield accepted the settlement. If they really thought I'd committed fraud, they'd have gone after my license."

G&S's proposal for the welfare-to-work contract, obtained through the Freedom of Information Act, consists primarily of copies of city handouts. The 10 pages that outline the company's plan are riddled with grammatical and spelling errors. The proposal included letters from six companies saying they would consider hiring welfare clients assigned to G&S. The letters, signed by various company officials, all were addressed to Stubbs.

But Stubbs appears to have been behind the letters himself. One of the companies, Lake Arbor Dental Associates, is his dental firm. D.C. Family Services is the network of group homes he owns with Sheila Gather, who is the "G" in G&S Associates. Children's Island Development Corp. also is his. Associated Management Consultants does not appear in standard directories of businesses, but its phone number is the same as that of Children's Island Development Corp.

Stubbs, reached at his dental office on Eighth Street SE, said that his other companies did indeed hire some of his welfare clients but that he could not say how many.

A former G&S employee who asked not to be identified said that employees were pressured to persuade welfare recipients to work at Stubbs's group homes, whether or not that was in the best interest of the recipients or the group home residents.

In addition to being paid by the city for placing clients in jobs with his own firms, Stubbs also qualified for a tax credit: Employers who hire welfare recipients get a federal tax credit of as much as $3,500 the first year and $5,000 the second year.

"If I have more than one company that can utilize government benefits in more than one way, then that's the American way," Stubbs said.

Stubbs's ties with the fired welfare administrator, Brown, go back years. While in another job, Brown had approved Medicaid contracts for him. Stubbs hosted a wedding for her niece, who had lived with Brown for many years in his luxurious home in Foxhall. After the welfare contract was approved, Stubbs rented Brown a home, with an open-ended option to buy it.

Stubbs called Brown one of the most ethical people in government and said their business connections were unrelated to his work with the District.

The city's inspector general is investigating the case. Lawyer Frederick Cooke Jr., who is representing Brown and Stubbs, said that nothing has been proved against his clients and that the U.S. attorney's office had declined to launch a criminal prosecution. Neither investigating office will comment on the case.

The city, meanwhile, has decided that welfare clients sent to Stubbs will all get another chance with another contractor. The city also will rescind any cuts in welfare payments to people assigned to G&S.

Staff researcher Bobbye Pratt and staff writers Katherine Boo and Maria Glod contributed to this report.

LOOKING FOR WORK

The District was counting on private vendors -- awarded contracts worth up to $52 million -- to get about 13,000 welfare recipients into jobs. But the program is floundering, in large part because clients lack skills, and about half refuse to show up for initial appointments. Here is the record of Davis Memorial Goodwill, which the city identifies as doing the best job:

DAVIS MEMORIAL GOODWILL

Clients told repeatedly to report to Goodwill: 500

Number that showed up: 266

Number in job search or unpaid work experience: 204

Number in jobs: 62