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Washington Contractors: Anticipate Bond Increases in 2024

February 22, 2024

Cecilia De La Rosa

Cecilia De La Rosa

In the dynamic world of the construction industry, Washington State is implementing crucial measures to boost consumer protection and uphold the integrity of its contractors. Recent legislative updates have made adjustments to contractor licensing and bonding requirements, affecting general and specialty contractors throughout the state. These adjustments, including a significant Washington bond increase, are aimed at responding to the changing needs and concerns within the construction sector, thereby offering enhanced protection and support for contractors and consumers under the law.

2023 update on Washington bond Increase regulations

In 2023, Washington bond increase initiatives became a key focus as the Department of Labor & Industries (L&I) led the revision of contractor registration rules. This overhaul includes updates to definitions, penalties, bond amounts, and fees for both general and specialty contractors. Driven by recent legislative actions and the necessity to cover the Contractor Registration program’s operational costs, these changes aim to enhance the program’s capacity to safeguard stakeholders effectively.

Legislative Changes Affecting Contractors

Two pieces of legislation are particularly influential in the current rulemaking process:

  • 2023's Second Substitute House Bill 1534 (2SHB 1534): This law strengthens construction industry consumer protections by increasing contractors' fines, penalties, and bond amounts. Its provisions are set to take effect on July 1, 2024.
  • 2019's Senate Bill 5795 (SB 5795): Enacted to increase contractor bond requirements, this law allows L&I to demand up to three times the average bond amount following a court judgment against a contractor for issues involving a residential single-family dwelling. It took effect on July 28, 2019.

Proposed Rule Amendments

The rule amendments aim to align with these legislative changes and address the program’s financial sustainability. Key proposals include:

  • Adjusting fees in line with the fiscal growth factor.
  • Increasing surety bond amounts for general and specialty contractors.
  • Raising monetary penalty amounts for contractor infractions.
  • Updating bond requirements for final judgments to reflect SB 5795’s stipulations.

Preparing for the New Requirements

  1. Financial Preparation: Adjust your budget to account for higher bond premiums and aim to build a reserve fund to cover unexpected costs.
  2. Compare Bonds: Shop around for bond rates from different surety companies to find the best deal, considering both cost and terms.
  3. Maintain Records: Keep detailed records of all projects and financial transactions to aid in compliance and dispute resolution.
  4. Quality Control: Implement strict quality control measures to reduce the risk of claims against your bond.

Implications for Contractors and Consumers

For contractors, these changes necessitate reassessing their business practices, ensuring compliance with increased bonding requirements and potentially higher operational costs. Conversely, consumers benefit significantly from strengthened protections, including enhanced financial security and contractor accountability measures.

How this increase affect the Construction Landscape

  1. Contractor Behavior: Contractors will need to adopt better financial practices and focus on high-quality work to meet the new requirements. This could lead to a more reliable and professional industry.
  2. Industry Dynamics: The higher bond costs might consolidate the industry, with smaller firms facing challenges. This could also raise barriers to entry for new firms but encourage innovation and efficiency among existing ones.
  3. Consumer Protection: Consumers will benefit from greater financial protection and potentially higher quality work. However, these benefits may come with increased project costs due to the higher expenses passed on by contractors.

The upcoming changes to contractor licensing and bonding requirements in Washington signify a crucial advancement in consumer protection and industry standards. Contractors and consumers must stay informed and prepared as these adjustments take shape. The enhancements to the regulatory framework promise a more secure and reliable construction industry for Washington state.

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