Metro, caught in a development dispute that has pitted some of the area's biggest builders against each other, yesterday canceled a previously awarded contract and reopened bidding on a proposed $214 million commercial and residential complex planned at the White Flint subway station along Rockville Pike.

The cancellation of the contract, Metro's largest subway property venture to date, came after the General Accounting Office faulted procedures used in selecting the winning bid. Metro had requested the GAO review.

The two firms that lost the competition to develop the 33-acre Montgomery County site had protested that the bidding process was flawed, and the GAO concurred in that protest last Friday, recommending that Metro conduct the bidding competition again.

Metro announced in March that it had selected the building proposal submitted by the Paramount Development Co., a partnership of the Blake Development Corp. of the District of Columbia and the Richmarr Development Corp. of D.C. and Fairfax County. The Blake construction firm, owned by the brothers Morton, Stanley and Howard Bender, is the area's second largest building company.

One of the losing bidders, White Flint Place Co., owned by shopping mall magnate Theodore Lerner, immediately challenged the award, arguing that the winning proposal bore little resemblance to the specifications outlined by Metro in its bidding prospectus. The second losing firm, the Travenca Development Corp., later joined the protest.

Both development companies complained to Metro, and then to the GAO, that the subway site project was described in the contract as a leasing arrangement with the transit agency, which owns the property. Yet, the contract eventually awarded to the Paramount group included a rental and purchase proposal in the overall development concept.

"A partial purchase arrangement would be much more attractive to a developer, but the . . . [Metro] prospectus clearly stated it was to be a lease arrangement only," said Conrad Monts, president of the Travenca firm. "The winning proposal did not conform to the request for proposals."

In announcing the decision to cancel Paramount's contract, Metro General Manager Richard S. Page said the transit agency -- after meeting with its attorneys throughout the day -- had decided to follow the GAO recommendation, even though the opinion does not have the force of law.

"It's not binding, but we said we would abide by the decision and we will," said Page. "It's a major development and we want to do the right thing."

The Paramount development, which the firm had expected to complete by 1985, would have guaranteed Metro a minimum of $1.5 million a year at the outset and several million more annually by the time the complex was fully operational, according to Page. The money from the project is intended to help finance Metro's operating costs.

Page said Metro hoped to expedite the new bidding competition, which will be limited to the three firms involved in the dispute. He promised that a new "revised and clarified" prospectus will be issued within the next four weeks, with another month allowed to submit new proposals.

He also cautioned that Paramount might take legal action to try to block the loss of its contract.

"They're pretty mad, and I think they have a right to be," Page said.

Officials at Paramount could not be reached for comment after Metro's decision yesterday evening.

Earlier yesterday, a Paramount official who was asked about the GAO recommendation, said the firm had submitted its lease-purchase proposal after checking with Metro.

"We were told to proceed, our project was chosen unanimously, and we were told, 'You've got it, man,'" said the official, who asked not to be named. He noted the firm already had spent considerable money readying the proposal for presentation to the county's park and planning board.

The initial Metro prospectus had invited bids on a proposed complex of commercial and residential development, all built on land leased from Metro. But the Paramount firm submitted a proposal that called for purchasing some of the property for condominium development.

The central issue, according to Michael Boyle, an attorney at GAO, is what did Metro say it wanted at the site "and what did it settle for?"

The Paramount proposal included plans for two 608,000 square-foot office buildings, a 350-room hotel, a 100,000 square-foot, two-story shopping mall, 650 condominiums and 115 moderately-priced rental units, all in a "park-like setting" on the wooded land.