Hello Iden,
DC Water looks at the Water Supply Fixture Units (total water demand in the house) to determine the size of the water line and meter. The introduction of sprinklers often triggers the need to increase the service line and meter, if the intent is for both domestic and fire services to function simultaneously. However, you can propose the installation of a solenoid valve that shuts off the domestic service in the event that the sprinklers are activated. If the sprinklers are the only new plumbing demand being added, then you should be able to keep the existing domestic service line and meter. However, if additional fixtures are being added, then the water service line and meter may still need to increase in size to meet the domestic demand.
While the solenoid valve may address your question about increasing the service line, I'm surprised that DC Water is not requiring you to install a separate fire service line that splits from the domestic service line, after the meter but before the curb stop (service shutoff in public space). In my experience, DC Water requires this parallel line when sprinklers are introduced, so they can shut off your domestic water in the event of nonpayment, without shutting off the sprinklers too. So, while you may avoid increasing the size of your domestic service line and meter, I believe you will be required to install a separate fire service.
As for your question about contractors, I'm not surprised that plumbing contractors don't want to do this work, because it involves filing for a DDOT public space permit, performing excavation, and usually rebuilding portions of the public street and sidewalk. These tasks involve trades/skills that plumbing contractors may not possess. I typically see general contractors performing the water line upgrades and/or fire service line installations, as they can coordinate the various trades involved, or even self-perform some of the work.
I hope this helps,