Contractors’ Guide to Claims on Your Statutory Bond

All construction contractors are required to register with the Washington State Department of Labor and Industries (L & I). RCW 18.27.020(1)WAC 296-200A-025.

A contractor failing to register may be charged with a gross misdemeanor which, if convicted, is punishable by up to one year in jail and a maximum $5,000 fine. RCW 18.27.020(2).  Additionally, a contractor working without registering can be liable for engaging in a deceptive or unfair act or practice under Washington's Consumer Protection Act. RCW 18.27.350. RCWA Ch. 19.86.

In order to register with L & I, a contractor must – among other requirements – obtain a bond or post cash security to assure performance of work and the payment of obligations.

A general contractor's surety bond must be for $12,000, and a specialty contractor must be for $6,000. RCW 18.27.040WAC 296-200A-030. L&I can suspend a contractor's registration for failing to maintain the required bonds. RCW 18.27.040WAC 296-200A-040(1)(a)WAC 296-200A-040(1)(b).

There are four classes of claimants on a private contractor's bond: (1) laborers; (2) a party to a construction contract claiming breach; (3) suppliers and equipment venders; and (4) the State of Washington claiming tax obligations. RCW 18.27.040(1).

A claimant can make a claim on your contractor's bond by filing a lawsuit against the contractor and the bonding company (surety) in the superior court where the project is located or where venue is otherwise proper. A residential homeowner claiming breach of contract has two years to file a lawsuit starting from the earlier of substantial completion or the date they claim project abandonment, while all other claimants have one year to file suit from the date services or material was provided to the contractor. RCW 18.27.040(3).

Once filed, service of process on the contractor and the surety can only be accomplished by serving L & I with three copies of the summons and complaint. These documents will then be transmitted by L & I to the contractor and the surety within two days of being received. Any contractor who receives a copy of the summons and complaint should contact their bonding company to request a tender of defense. This means that the contractor would prefer to find a lawyer to defend the claim for the contractor and the surety.

Whenever a contractor applies for a bond, the surety will insist that the contractor sign an indemnity agreement which essentially requires the contractor to pay the bonding company's legal fees in addition to any judgment entered against the bonding company resulting from a bond claim.

If a contractor neglects to request or accept a tender of defense, then the contractor runs the risk of having to pay the surety's legal fees while losing the ability to control the fees and costs incurred by the surety in defending the bond claim.

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