At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Washington contractor license bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.
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A Washington contractor license bond is a type of surety bond that provides financial protection for the state of Washington against liability for financial harm caused by a state-licensed contractor’s unlawful and/or unethical business practices. The bond requires the contractor to operate in accordance with the laws governing construction in Washington. Any violation that causes a financial loss to the state can result in a claim for monetary damages being filed against the contractor’s license bond.
Who Needs One?
In Washington, all contractors must be registered with the state’s Department of Labor & Industries (L&I). Purchasing a contractor license bond is a mandatory step in the licensing process.
General contractors must furnish a $12,000 bond, while the required bond amount for specialty contractors is $6,000. There must be an active bond continuously in place to avoid license suspension or revocation.
How Does a Contractor License Bond Work?
There are three parties to a Washington contractor license bond: the obligee, the principal, and the surety.
Upon receipt of a claim, the surety conducts an investigation to determine whether the claim is valid. By law, the principal is obligated to pay all valid claims. But unless the principal can make a payment right away, the surety will pay the claim on the principal’s behalf and be repaid later.
The reason for this arrangement is that the surety, in guaranteeing the bond, has agreed to extend credit to the principal if the principal lacks sufficient cash to pay it immediately. The surety’s payment to the claimant is actually a loan to the principal. As is the case with any loan, it’s a debt that must be repaid to avoid legal action.
Washington contractor license bonds are sold for an annual premium that is a small percentage of the $6,000 or $12,000 bond amount. That percentage, the premium rate, is determined through the surety’s underwriting process.
The primary underwriting objective is to assess the risk of the principal incurring claims and not repaying the surety for claims paid on the principal’s behalf. That risk can be inferred from the principal’s personal credit score. A high score suggests low risk, and a low score signals higher risk. Low risk earns the principal a low premium rate while higher risk warrants a higher premium rate.
A well-qualified principal usually pays a premium rate between 1% and 3%.
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