The Contractor Registration Act requires general and specialty contractors to register with the Department of Labor and Industries (Department).  A general contractor works in more than one building trade or craft in a single job, project, or building permit, whereas a specialty contractor works in one trade or craft.  To register as a general or specialty contractor, an applicant must submit an application, file a bond and proof of insurance, and pay a fee.

Application information.  An application for contractor registration must include the following information:  (1) employer social security number; (2) unified business identifier number; (3) evidence of workers' compensation coverage meeting specified requirements; (4) Employment Security Department number; (5) type of contracting activity; and (6) the name and address of each partner if the applicant is a firm or partnership, the name and address of the owner if the applicant is an individual proprietorship, the name and address of the corporate officers and statutory agent if the applicant is a corporation, or the name and address of all members of other business entities. 

Contractor bonds.  The required bond amount is $12,000 for a general contractor and $6,000 for a specialty contractor.  The bond is conditioned upon the contractor paying persons performing labor for the contractor, persons furnishing material or renting or supplying equipment to the contractor, amounts adjudged against the contractor for breach of contract, and taxes due to the state.

A contractor may file an assigned savings account in lieu of a bond.  A person with a claim against a contractor may bring a lawsuit against the contractor and the bond in superior court.  If claims exceed the amount of the bond, the claims are satisfied in the following order:

1. employee labor;
2. breach of contract;
3. subcontractors, material, and equipment;
4. taxes; and
5. any court costs, interest, and attorneys' fees.

One-half of the bond amount is protected for residential homeowners.  For a claim against a specialty contractor, the protected amount is one-half the bond amount or $4,000, whichever is greater.  If a residential homeowner prevails in a claim for breach of contract, the homeowner is entitled to costs, interest, and reasonable attorneys' fees.

Applicants with prior judgments.  The Department is required to deny an application for registration under certain circumstances, including for example, when the applicant has an unsatisfied final judgment against him or her relating to work governed under the Contractor Registration Act or when the applicant owes the Department money for penalties resulting from a final judgment.  Further, the Department may require an applicant applying to renew, reinstate, or apply for a new registration to file a bond of up to three times the normal amount if it determines that the applicant, or a previous registration of a corporate officer, owner, or partner of a current applicant, has had a final judgment involving a residential single-family dwelling on two or more different structures in the previous five years.

Fees and penalties.  The Department is required to charge fees for issuance, renewal, and reinstatement of certificates of registration, among other transactions under the Contractor Registration Act.  The Department sets the amount of the fees by rule.  Revenues from those fees and other charges, excluding penalties, pertaining to contractor registration and other programs are deposited into the Construction Registration Inspection Account.  Revenues from the Construction Registration Inspection Account are used for administering those related programs; however, until July 1, 2023, 7 percent of the revenues are transferred into the State General Fund.

Certain penalties apply for violations of the Contractor Registration Act.  The Department must assess a fine within a range of $1,000 to $5,000 for failure to register as a contractor.  However, the Department may reduce the fine to $500 for a first violation if the person registers within 10 days of receiving notice.  For other violations of the Contractor Registration Act, the Department must assess a penalty within a range of $200 to $5,000.  This includes, for example, violations involving:  (1) advertising, offering to do work, submitting a bid, or performing any work as a contractor without being registered or with a suspended registration; (2) transferring valid registration to an unregistered contractor or allowing an unregistered contractor to work under a registration issued to another contractor; or (3) using an unregistered subcontractor.  Revenues from penalties are deposited into the State General Fund.

Several changes are made to the Contractor Registration Act.

Application information.  An applicant may provide an individual taxpayer identification number, in lieu of a employer social security number, with his or her application for contractor registration.

Contractor bonds.  For initial registrations and renewal contractor registrations occurring on or after July 1, 2024, the required bond amount is increased to $30,000 for general contractors and $15,000 for specialty contractors.  One-half of the bond amount is protected for residential homeowners.  

Applicants with prior judgments.  The Department is required to deny an application for registration when the applicant is a successor to a business entity with an unsatisfied final judgment against it relating to work governed by the Contractor Registration Act, or a business entity that owes the Department money for penalties assessed or fees as a result of a final judgment.  A "successor" means an applicant operating with all or part of the assets of another entity previously registered as a contractor, where the applicant is under substantially common ownership, management, or control of the other entity.  There is a rebuttable presumption that a successor knew or should have known of the relevant unsatisfied final judgment.  If a successor demonstrates by a preponderance of the evidence that he or she did not know of the unsatisfied final judgment, by having exercised due diligence and timely verifying with the Department that the other contractor was in good standing, then the Department may grant the application for registration.  The Department must adopt rules for the purposes of implementing this provision.

 
The Department is also required to deny an application for registration when the applicant is under 18 years old at the time of the application.

Fees and penalties.  Beginning June 30, 2023, 3.5 percent of the revenues from the Construction Registration Inspection Account must be transferred to the State General Fund on an ongoing, quarterly basis.

Beginning July 1, 2024, the fine for failure to register as a contractor is increased to a range of $1,200 to $10,000.  The Department may reduce the fee to no less than $600 for a first violation if the person registers within 10 days of receiving notice.  The maximum penalty for other violations of the Contractor Registration Act is increased to $10,000.

The Homeowner Recovery Account is established.  Revenues from all fines and penalties collected by the Department under the Contractor Registration Act must be transferred into the Homeowner Recovery Account.  Expenditures from the Homeowner Recovery Account may only be used for the Homeowner Recovery Program.  

Homeowner Recovery Program.  Subject to a specific appropriation, the Homeowner Recovery Program (Program) is created and administered by the Department.  Beginning July 1, 2026, a person is eligible to recover from the Program, provided that each of the following conditions is satisfied:

• the applicant is a claimant with a final judgment in a court of competent jurisdiction against a registered contractor on his or her primary residence;
• the judgement specifies the actual damages suffered as a consequence of the claim;
• the claimant has proceeded against any existing bond covering the contractor;
• the judgment has not been satisfied in full; and
• an application for recovery under the Program is made within 90 days after the conclusion of any civil action.

Payments for an eligible application are made from the Homeowner Recovery Account.  Payment is limited to actual damages awarded in a final judgment after recovery against the bond.  Payments for other costs related to or pursuant to civil proceedings, such as attorneys' fees, court costs, or punitive damages, are prohibited.  Payments may not exceed $25,000 per contractor per parcel, or the amount unpaid on the judgment, whichever is less.  If a claimant is issued payment, the claimant must assign his or her right, title, and interest in any final judgment to the Department to the extent of such payment.  The Department may pursue reimbursement from the contractor, the insurer, or any third party for the amount paid from the Homeowner Recovery Account.  The Department may establish reimbursement payment plans up to 36 months, but any payment plan longer than 12 months must assess interest.  Reimbursements must be deposited into the Homeowner Recovery Account.

The priority of payment for eligible applications is by the order of receipt by the Department.  Total payments from the Homeowner Recovery Account for a fiscal year may not be greater than 80 percent of the account balance calculated at the end of the previous fiscal year.  The Department must create and maintain a waitlist for any eligible applications unpaid due to insufficient funds in the Homeowner Recovery Account.  The waitlist must preserve the order of receipt.

Eligibility under the Program does not create a right to payment under the Program, and payments under the Program are discretionary.  The bill does not create an entitlement to payment or services, and does not create a right of action.

From 2024 through 2030, the Department must submit to the Legislature an annual report on the total applications to and payments made under the Program and the status of any waitlist and the solvency of the Homeowner Recovery Account.  From 2035 onward, the Department must report to the Legislature if it finds there is a significant waitlist or there is insufficient funds to sustain the Program.