For 15 years, McDowell Contractors Inc. signed contracts with the Operating Engineers union, agreeing to provide union wages, benefits and pension contributions in exchange for a steady supply of skilled labor from the union hall in Birmingham.

But in 1980, all that changed. As members of Engineers Local 312 prepared to start work on an airport-paving job that McDowell had won, the company told the union that McDowell Contractors' workers would not be doing the job.

Instead, McDowell Materials Corp., a newly formed company, would be performing the airport work. McDowell had gone "double-breasted" by creating a nonunion spinoff firm, and the union members were out of luck.

In one of the sharpest labor-management congressional battles of recent years, the Senate is expected to consider this week a highly controversial bill that would outlaw such double-breasted construction firms. The House approved the measure 229 to 173 on April 17, but its outcome in the Senate is uncertain.

Business lobbyists were caught by surprise when the AFL-CIO succeeded in pushing the bill through the House, winning what was considered the first major legislative victory for labor in the last several years. The Senate vote is now shaping up as a major test of strength between a declining labor movement and an aggressive business coalition.

Labor union lobbyists and sponsors of the bill describe it as a simple matter of fairness. "We believe the law should not permit employers to avoid collective bargaining contracts by playing corporate shell games," said Robert Georgine, president of the AFL-CIO Building and Construction Trades Department.

But a broad coalition of business groups and their Senate supporters is strongly fighting the bill. Sen. Orrin G. Hatch (R-Utah), chairman of the Labor and Human Resources Committee, has called it an "obscene measure" that would trample the rights of employers and employes, who Hatch said could be forced to join unions against their will. Hatch has offered 100 amendments and threatened a filibuster to slow the bill's progress.

Sen. Alfonse M. D'Amato (R-N.Y.), who has strong support from New York's powerful construction unions, is a prime sponsor of the bill and plans to increase its chances by trying to attach it to the pending resolution on defense authorization or to legislation to increase the federal debt ceiling.

Both sides have run intense lobbying campaigns aimed at key Senate Republicans, especially those seeking reelection, and both sides claim to have at least 50 votes.

The so-called double-breasting bill is an attempt to reverse the dramatic decline in union membership among the nation's 5 million construction workers. Unions represented roughly 75 percent of construction workers in the 1960s, but that share has fallen to about 30 percent, in part because of the growth of double-breasted operations, which are now common in major metropolitan areas.

In the District of Columbia, for instance, two leading construction firms, offshoots of the same parent firm, are a prime example of double-breasting. The George Hyman Construction Co., founded in 1922, has operated as a union shop for decades. In 1977, Hyman's parent company set up a nonunion arm, Omni Construction, which has became a leading builder in the region. Both are controlled by the Clark Construction Group, based in Bethesda.

The bill would alter the Hyman-Omni setup by amending the National Labor Relations Act to redefine such companies as a "single employer." The House-passed bill says that any two construction firms "having any direct or indirect common ownership, management, or control" would be bound to honor any union contract involving either firm.

"You would force employers to go either all-union or all-nonunion routes, and you would force literally tens of thousands of workers into unions, without their ever having a vote," said Mark A. DeBernardo, manager of labor law for the U.S. Chamber of Commerce, which has lobbied heavily against the bill, along with the National Association of Manufacturers, the Associated General Contractors, and dozens of other trade groups and corporations. Labor Secretary William E. Brock also opposes it.

"This is very, very bad legislation . . . and it took awhile for the industry to come awake to how bad it is," said Richard Getsinger, senior vice president of Hyman. He said the bill could force Clark to choose between nonunion and union operations, and said the bill could "backfire" on unions by forcing some firms to abandon union operations.

Getsinger said labor law already prohibits union firms from creating "sham" companies specifically to evade an existing union contract. The National Labor Relations Board has cited dozens of companies for illegal double-breasting in recent years, but unions contend that loopholes in the law allow most companies to avoid NLRB sanctions.

Critics said a hidden danger of the bill is that it would legalize "common situs" picketing, in which workers striking one subcontractor could shut down an entire construction site. Such picketing is now illegal. Critics also said that if the owner of a nonunion firm in Texas with 500 workers bought stock in a unionized firm in Maryland with 10 workers, the 500 workers would be instantly unionized against their will.

But these arguments are dismissed as "red herrings and scare tactics" by former representative Leo C. Zeferetti (D-N.Y.) now the AFL-CIO's chief lobbyist on the bill. "This has been the most ridiculous campaign of nonsense and rhetoric ever," said Zeferetti, who said the bill has been debated and amended in the House so that it is clearly aimed only at requiring "both sides to live up to their contracts." When nonunion workers are compelled to join unions, he said, they are free to vote to decertify the union.

"It is a classic union-versus-contractor dispute," said a Republican Senate staff member, "Some of the unions have made it their life-and-death number one priority, and the businesses are now working hard to mobilize opposition and have finally started screaming."