The Washington Contractor Bond and the Work It Protects

A contractor bond is an agreement between three parties, including the contractor, a surety company, and a customer. This is like insurance for the customer, where is contractor doesn’t fulfil their contract, then the customer can suit a file in the court. This article will provide you step-by-step with how you can hire and what their costings are. 

Contractor Bond Basics

The Purpose of Contractor Bonds

Contractor bonds can be used for many different objectives, including, but not limited to:

• Registering as a contractor
• Command on specific jobs or projects
• Preserving an active contractor’s license

Contractor agreements are required in certain situations as a financial way to ensure that contractors will comply with all licensing/registration requirements. Builder bonds may also protect project owners/customers financially if a contractor:

• Fails to complete a project
• Leaves a project
• Fails to make required corrections on a project
• Fails to pay subcontractors/laborers/suppliers
• Causes financial damages through illegal or unlawful acts

Contractor association, in most cases, protects the project owner/customer if a bonded contractor fails to stick to all terms of a contract or agreement. If a project owner/customer has an authorized claim against a contractor, the deposit company will first investigate the claim. If the claim is found to be lawful, the surety company will typically pay the claim (up to the bond amount); however, the secured contractor will still be financially responsible to the deposit company. This is one of the major differences between a surety bond and a responsibility insurance policy; learn more from this source.

Main Types of Contractor Bonds

Registration Bonds

A builder registration bond (sometimes referred to as a contractor license bond) is mandatory, in some cases, for a contractor to legally do business. These types of bonds are generally required before a contractor’s license/registration application can be approved or revived. A registration/license bond financially protects the consent agency if the contractor doesn’t stand by specific laws/regulations about the contractor’s line of work.

Project-Specific Bonds

Three main types of contractor agreements are project/job specific: bid, performance, and payment bonds.

• Bid bonds: financially support a contractor’s bid/proposal by ensuring that the contractor will enter into a contract if granted the job/project
• Performance bonds: secure that a contractor will stick to all terms/conditions of a contract and complete the job/project adequately
• Payment bonds: guarantee that a contractor will pay subcontractors, laborers and/or suppliers

Contractors may be required to have more than one type of customized bond on a particular job/project.

Washington Bond Requirements

Details Contractors Need to Verify

Contractors should note Washington contractor bond requirements beside the project or job bid, contract, contractor registration application, and instructions provided by the Washington bonding organization to identify the specific agreement details they need to check. These requirements may include:

• Bond amount: this is the maximum amount that can be paid out in assets and should not be confused with the bond premium (cost)
• Contractor’s name: the name of the Washington contractor/business utilizing the bond needs to match the name used on the registration application/project contract directly
• Obligee’s name: this is the name of the Washington agency, customer, or project owner that’s requesting the bond. Special naming instructions should be followed accordingly
• Term/length of the bond: some contractor bonds are purchased for a particular length of time while others must be kept in effect as long as the contractor’s license/registration is functioning
• Special forms: sometimes Washington licensing agencies or project owners/customers provide special bond forms. These forms typically cannot be modified in any way
• Cancellation provisions: some Washington contractor bonds must be revoked with advance notice

Contractors should pay special attention to agreement requirements. An incorrectly completed bond form or Washington builder registration application could result in delays or even disclaimer of the registration/application. Common bond/registration application mistakes include missing signatures, incorrect legal object type, using an older edition of a registration application/bond form, etc.

What Do Contractor Bonds Cost?

Contractor bond premiums (costs) are determined based on several different factors: Washington contractor’s personal/business credit, financial strength/constancy, Washington contractor bonding claims history, industry expertise, available working capital, amount of the bond required, etc. Contrary to popular conviction, the amount of the bond required does not compare to the cost of the bond. Instead, the Washington contractor is only required to pay a small percentage of the total bond amount (referred to as the premium/cost of the bond).

Claims Prevention and Business Changes

Avoiding Bonding Claims

• Keep thorough documentation: preserve organized files about each job/project. Items to consider including in the file may include: signed contracts, change orders, invoices, proof of payment, photographs, inspection reports, customer/seller communications, etc.
• Respond to all bonding claims promptly: responding to an adherence claim promptly doesn’t mean the Washington builder will automatically have to pay the claim; however, it will demonstrate to the surety that the contractor is conscientious and interested in resolving the issue quickly. Failing to respond to a bonding claim may intensify an otherwise resolvable situation.

Renewal and Application Details

Bond Terms and Renewals

Most Washington contractor bonds must be renewed previous to the expiration date noted on the face of the agreement. Some Washington contractor bonds refresh automatically, some require a new application for bonding, some require updated financials, etc. Washington contractors should check with their agent/surety to determine the renewal process/timeline to avoid any coverage error.

Reasons Bonds Are Required

Washington contractor bonds may be prescribed for a host of reasons: obtain/maintain a professional Washington license/registration, offer on a public/commercial project, comply with state/city & county proclamations/regulations, etc.

Steps Before Requesting a Quote

• Resolve the type of contractor bond required: amount, term, etc. (note: for Washington contractor registration bonds, the required amount/term is usually noted on the Washington license/registration application; for specialized Washington contractor bonds, the bond requirement/amount/term, etc. will most likely be explained in the invitation to bid/contract documents).
• Gather financial evidence: depending on the amount/type of Washington contractor agreement required, financials may be required. Gathering the documentation in advance can save the Washington contractor a great deal of inconvenience on the road.
• Allow ample time for underwriting: for customized Washington contractor bonds, Washington contractors should expect a degree of financing/review by the surety before bonding. Planning will help avoid zero-hour issues.
• After receiving the Washington builder bond: keep a copy with your license/registration (Washington contractor registration bonds) or in the project file (project specialized Washington contractor bonds). Take note of the expiration date (if applicable) as well as the revocation provision(s).

FAQs

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