New York City officials announced yesterday that former labor secretary Raymond J. Donovan's construction company is "not a responsible bidder" under applicable laws and regulations.

Deputy Mayor Bob Esnard said the immediate impact of the decision was to reject the apparent low bid of Schiavone Construction Co., Donovan's firm, for a $15.9 million portion of a mammoth water tunnel project between New York City and upstate reservoirs.

"The city of New York, as a matter of policy, does not want to do business with anyone who is not on good terms with the law," Esnard said in a telephone interview. "We just do not want any cloud on any contract with the city."

Schiavone Construction, under indictment with Donovan in the Bronx for fraud and grand larceny, has done hundreds of millions of dollars worth of work in New York City over the last decade, most notably on subway projects awarded by the New York City Transit Authority.

A transit authority spokesman said last night that he was unaware of the city's action and knew of no plans by the authority to stop doing business with Schiavone, named after Ronald Schiavone, board chairman and another defendant in the Bronx case.

Esnard confirmed that the city's action would have no immediate impact on transit authority contracts.

A Schiavone spokesman, John Berard, an executive of the Washington-based Gray & Co., said the company is "disappointed" by the action. He contrasted it with a decision last July by authorities in New Jersey, the company's home state.

Authorities there decided that the Bronx indictment, accusing Donovan and others of defrauding the New York transit authority of about $7.4 million, was not of sufficient weight to justify the company's suspension.

Tbe federal Urban Mass Transportation Administration has, by inaction, taken a similar position. But the Environmental Protection Agency announced last month an agreement whereby Schiavone would not bid for any new EPA-funded projects during the Bronx prosecution.

Esnard said no federal money was involved in the water-tunnel project awarded last Friday to Grow Tunneling, the second low bidder, for $15,982,400, $11,000 more than Schiavone's proposal.

The decision, subject to court appeal, came after three weeks of hearings, at which, Esnard said, five Schiavone executives failed to appear, on advice of counsel.

Accordingly, it was said, the Board of Responsibility decided that Schiavone "is not a responsible bidder predicated upon the grounds of the outstanding indictment, the refusal of its officers to testify at this board's hearings, and the failure of the company to demonstrate that the indictment is of such doubtful validity that the board should disregard the allegations contained therein."