Washington House Bill to Increase Bond Amounts

The new Washington State house bill passed on April 13, HB 1534, increases the required statutory registration bonds. The bill provides additional protection to trade creditors with increased oversight of contractors. "Under the current law, L&I can deny a contractor's application for registration if there is an unsatisfied final judgment against the contractor," said Curtis Welch, special counsel at Sussman LLP (Portland, OR). But with HB 1534, Washington State's Department of Labor & Industries (L&I) will be required to deny a contractor's application for registration as a contractor if the contractor is a successor to a business entity with an unsatisfied final judgment against it for work as a contractor. The increase in the bond amounts is helpful and long overdue, Welch added, "especially since the last change in bonding amounts was in 2001."

Brief Summary of HB 1534

  • Raises the required bond amounts for contractor registration from $12,000 to $30,000 for general contractors and from $6,000 to $15,000 for specialty contractors.
  • Requires the Department of Labor & Industries (L&I) to deny an application for registration when the applicant is a successor to a business entity with an unsatisfied final judgment against it.
  • Raises the fine for failure to register as a contractor from a range of $1,000 to $5,000 to a range of $1,200 to $6,000.
  • Requires fines and penalties collected under the Contractor Registration Act to be deposited into the Homeowner Recovery Account.
  • Establishes the Homeowner Recovery Program for eligible homeowners to receive recovery payments of up to $25,000 from the Homeowner Recovery Account based on unsatisfied final judgments brought against registered contractors, subject to certain requirements and limitations.

Why It Matters

The increase in registration bonds, which takes effect on July 1, 2024, is a helpful tool in the credit and collections process. "I think it's going to be an impactful tool to help collections," said Steven Hopkins, CCE, CCRA, regional credit manager with North Coast Electric Company (Kirkland, WA). "Right now, the bond is only $4,000 but by increasing the bond, creditors will start thinking about how much more credit they can extend."

In fact, HB 1534 took nearly a decade to get passed by legislation but the involvement of credit professionals helped significantly. NACM Business Credit Services President Jon Flora (Burien, WA) led members such as Paulyne VanderSloot, CCE, CICP, credit manager at Mutual Materials Co. (Bellevue, WA) and Heidi Lindgren-Boyce, CCE, senior credit manager at Star Rentals, Inc. (Kent, WA) to do their part in getting the bill passed. "The lobbyists and I can do our part, but it always helps to have NACM members involved," Flora said. "Both of these credit professionals were instrumental at certain times to help with this so I applaud and thank them for it."

The only concern on some creditors' minds is how well this new bill will be regulated. For example, someone can have a $4,000 bond but for a particular reason, you have to sue and collect on that bond. They can easily go to another company and get a new bond for the same amount. "I think there should be some regulation for them not to get a loan for another year or a couple years," Hopkins said. "For the increase in bond amount, it may happen again and I'm not sure if the state is going to regulate it as much."

Regulation falls on the L&I department, Welch explained. "They usually do a good job of regulating, but my only concern is the homeowner recovery account where there's money going to be shoved into it."

Advice for Creditors

Take time to understand the new bill and see if the same rules apply for your customer's contracts. By doing your due diligence, you eliminate extra work needed to collect money or face litigation. "The bond amounts are still insufficient for moderate- to large-sized claims," Welch said. "And trade creditors are advised to continue to use other means to protect their right to payment, including recording construction liens on private projects and filing payment bond claims on public projects."

Stay informed on evolving construction laws by reaching out to our Secured Transaction Services (STS) representatives, Chris Ring and Jocelyn Vanlandingham. You also can purchase the latest edition of the Manual of Credit and Commercial Laws Volume III: Construction Issues through NACM's bookstore, Kindle, Google Play and Nook.

-Jamilex Gotay, editorial associate

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Saturday, 13 April 2024

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