The State Board of Public Works today completed its turnaround on an earlier controversial action by awarding a $21.5 million management contract for overseeing construction of the Baltimore subway to the Ralph M. Parsons Co., The California-based engineering firm whose "best qualified" bid previously had been rejected.

Transportation Secretary Hermann K. Intemann told the board members, Acting Gov. Blair Lee III, Comptroller Louis L. Goldstein and Treasurer William S. James, that he had negotiated a contract with Parsons that was about $2.6 million lower than the one first proposed last November and rejected in March.

It was the board's refusal to approve the Parsons contract last spring that led to the resignation of then Transportation Secretary Harry R. Hughes, who charged that Victor L. Frenkil, a politically influential Baltimore contractor, had "tampered" with the new process that was designed to eliminate favoritism from the awarding of contracts by state agencies.

Lee said the new agreement is "infinitely better" than the original one proposed by Parsons, not only because it has a lower estimated price, but because it "protects the state of Maryland a lot better" by requiring annual submission of a two-year budget and board participation in major decisions throughout the five-year life of the contract.

Intemann insisted that nine-month delay in awarding the contract resulted in "no monetary loss, no wasted man-hours."

If the new agreement is approved by the federal Urban Mass Transportation Administration. Parsons management personnel could be on the job in Baltimore next week, Intemann said. State and federal DOT employees will meet Thursday to go over the Parsons contract, Intemann said.

Intemann said work on the first tunnel in the 8.6 - mile subway line can begin once Parsons employees are on the job. Early construction work has been limited to "going down" into the ground, with the more delicate task of digging sideways" stalled until the management contractor was selected.

The State board also awarded today a $13.3 million construction contract to Peter Kiewit Sons' Co. of Omaha, for construction of the system's first passenger station at Bolton Hill. Frenkil's Baltimore Contractors, Inc., submitted a bid of $17.8 million, next to the highest among 10 proposals received on the station.

Frenkil's firm had been part of a consortium whose proposal was rated last among five qualifiers for the management contract. Executives of the Parsons firm told a legislative oversight committee that after the works board initially delayed accepting the Parsons contract. Frenkil told them he could smooth the way for their acceptance if his firm were taken on as a subcontractor.

When that didn't work, Frenkil told Goldstein, who is a former business associate of Frenkil, and Gov. Marvin Mandel, that the state could save $5 million by awarding the management job to the group of which he was a member.