AN ACT Relating to contractors; amending RCW 18.27.040, 18.27.060, 18.27.080, and 18.27.114; adding new sections to chapter 18.27 RCW; and making an appropriation.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. (1) A person injured by a registered contractor's act, representation, transaction, or conduct, in violation of this chapter or the rules adopted under this chapter, or by negligent or improper work or breach of contract, including but not limited to failure to pay persons, firms, or corporations supplying materials, equipment, or labor in the performance of the contract, in the conduct of the contracting business by a registered contractor may recover as provided in section 4 of this act from the contractors' recovery fund established in section 2 of this act. No award from the contractors' recovery fund may exceed six thousand dollars, if a general contractor, or four thousand dollars, if a specialty contractor, for any claim with respect to any residence or any injured person. Recovery from the fund is limited to the actual damages suffered by the injured person, including court costs and fees, and reasonable attorneys' fees as determined by a court.

(2) For purposes of this section and sections 2 through 6 of this act, "person injured" means and is limited to:

(a) An owner or lessee of a private residence, including a condominium or cooperative unit, who has contracted with a registered contractor for the repair of, or the construction of improvements or alterations to, the owner's or lessee's own private residence or appurtenance to the residence; and

(b) A person, firm, or corporation furnishing labor, materials, or equipment to a registered contractor in the performance of a contract between the contractor and an owner or lessee as described in (a) of this subsection.

NEW SECTION. Sec. 2. The contractors' recovery fund is created in the custody of the state treasurer. All assessments collected under section 3 of this act shall be deposited in the fund and shall be held for carrying out the enforcement and education purposes of this chapter. Disbursement from the fund shall be on the authorization of the director or director's designee as provided in sections 3 and 4 of this act. No appropriation is required for disbursement from the fund.

NEW SECTION. Sec. 3. (1) Every contractor subject to the requirements of this chapter, when renewing his or her certificate of registration after the effective date of this act, shall pay, in addition to the renewal fee, a fee of two hundred fifty dollars for deposit in the contractors' recovery fund.

(2) On or after the effective date of this act, any person applying for a certificate of registration under this chapter shall pay, in addition to the issuance fee, a fee of two hundred dollars for deposit in the contractors' recovery fund. If the department does not issue the registration, the recovery fund fee shall be returned to the applicant.

(3) Beginning on June 30, 1992, if on June 30 of any year, the balance of the contractors' recovery fund is less than three million dollars, every registered contractor shall pay an assessment into the fund in an amount determined by the department. In determining the amount of the assessment, the department shall consider the actuarial projection of anticipated claims and the anticipated annual inflation rate. The department shall suspend a contractor's registration for failure to pay the required assessment until the amount owed is paid in full.

(4) Beginning on June 30, 1992, if on June 30 of any year the balance of the contractor's recovery fund is greater than three million dollars, the director shall transfer any amount in excess of three million dollars to the state's general fund until any amount appropriated to the fund has been repaid.

NEW SECTION. Sec. 4. (1) An action for judgment that may subsequently result in an order of collection from the contractors' recovery fund shall not be commenced later than one year from the accrual of the cause of action. When an injured person commences an action for a judgment that may result in a collection from the contractors' recovery fund, the injured person shall notify the department in writing at the time of the commencement of the action. The department shall be served with all pleadings in the action. The department may at any time intervene in and defend the action.

(2) The contractors bonding review advisory board is established in the department. Administrative staff and assistance is provided by the construction division of the department.

(3) The members of the board are appointed by the director and shall include:

(a) Two members from the construction industry;

(b) Two members from labor;

(d) One supplier of construction materials; and

(e) One ex officio member from the office of the attorney general.

(4) The contractors bonding review advisory board may, upon the request of the director, make policy recommendations and participate in investigations of matters of importance to the department and the advisory board.

(5) If the department pays any amount from the contractors' recovery fund in settlement of a claim or toward satisfaction of a judgment against a registered contractor, the registration of the contractor shall be suspended automatically upon the issuance of a court order authorizing payment from the contractors' recovery fund. No contractor shall be eligible to receive a new certificate of registration, or retain another existing certificate of registration, until the contractor has repaid in full, plus interest at the rate of ten percent per year, the amount paid from the contractors' recovery fund on the contractor's account. A discharge in bankruptcy shall not relieve a contractor of the penalties and disabilities provided in this subsection.

(6) The liability of the contractor's recovery fund shall not exceed seventy-five thousand dollars for any one registered contractor. If claims against the fund on behalf of any one registered contractor exceed seventy-five thousand dollars, the claims shall be paid in order of the date of entry of the order of the court, and the court entering an order for payment after the sum of seventy-five thousand dollars has been paid from the fund shall modify the order indicating that no further recovery from the fund shall be allowed.

(7) If, at any time, the money deposited in the contractors' recovery fund is insufficient to satisfy all or part of any duly authorized claim, the department shall, when sufficient money has been deposited in the contractors' recovery fund, satisfy the unpaid claims in the order that the claims were originally filed.

(8) If under a contract for the repair of, or construction of improvements or alterations to, the owner's residence or appurtenance to the residence, the owner has paid a registered contractor in full, and, because of the contractor's default, a mechanics' or materialmen's lien is enforced against the property pursuant to chapter 60.04 RCW, the court hearing the enforcement action shall award the owner or the owner's assigns a valid judgment against the contractor in an amount equal to the amount of the lien together with reasonable attorney's fees as determined by the court. The judgment shall include an order directing payment out of the contractors' recovery fund, subject to the limitations of section 1 of this act. The owner or the owner's assigns need not meet any other requirements of this section to secure payment from the contractors' recovery fund, except that notice of the lien enforcement hearing shall be given to the department so that it may appear pursuant to this section.

(9) The failure of an injured person to comply with all of the provisions of this section relating to a claim for recovery from the contractors' recovery fund shall constitute a waiver of the injured person's rights under sections 1 through 6 of this act.

NEW SECTION. Sec. 5. When, on court order, the department has paid from the contractors' recovery fund any sum to an injured person, the department shall be subrogated, to the extent of the payments made, to all of the rights of the injured person. The injured person shall assign all the injured person's right, title, and interest in the judgment to the department. Any amount and interest recovered by the department on the judgment shall be deposited in the fund.

NEW SECTION. Sec. 6. Sections 1 through 5 of this act shall not limit the authority of the department to take action against any contractor for a violation of any of the provisions of this chapter or of the rules adopted under this chapter; nor shall the repayment in full of all obligations to the contractors' recovery fund by a contractor nullify or modify the effect of any other proceeding brought under this chapter or the rules adopted under this chapter.

Sec. 7. Section 4, chapter 77, Laws of 1963 as last amended by section 1, chapter 139, Laws of 1988 and RCW 18.27.040 are each amended to read as follows:

(1) The department may allow each applicant ((~~shall, at the time of~~)) applying for or renewing a certificate of registration((,)) on or after the effective date of this section to file with the department a surety bond issued by a surety insurer who meets the requirements of chapter 48.28 RCW. If the applicant chooses this option, the bond shall be in a form acceptable to the department running to the state of Washington if a general contractor, in the sum of six thousand dollars; if a specialty contractor, in the sum of four thousand dollars, conditioned that the applicant will pay all persons performing labor, including employee benefits, for the contractor, will pay all taxes and contributions due to the state of Washington, and will pay all persons furnishing labor or material or renting or supplying equipment to the contractor and will pay all amounts that may be adjudged against the contractor by reason of negligent or improper work or breach of contract in the conduct of the contracting business. A change in the name of a business or a change in the type of business entity shall not impair a bond for the purposes of this section so long as one of the original applicants for such bond maintains partial ownership in the business covered by the bond. The department, in exercising its discretion under this section, shall at a minimum take into consideration the applicant's financial condition and experience in the field.

(2) Any contractor, validly registered as of the effective date of this ((~~1983 act~~)) section, who maintains such registration in accordance with this chapter shall be in compliance with this chapter until the next annual renewal of the contractor's certificate of registration. At that time, the contractor shall pay the contractors' recovery fund fee and, at the contractor's option, provide a bond, cash deposit, or other security deposit as required by this chapter and comply with all of the other provisions of this chapter before the department shall renew the contractor's certificate of registration.

(3) Any person, firm, or corporation having a claim against the contractor for any of the items referred to in this section may bring suit upon such bond or deposit in the superior court of the county in which the work was done or of any county in which jurisdiction of the contractor may be had. The surety issuing the bond shall be named as a party to any suit upon the bond. Action upon such bond or deposit shall be commenced by filing the summons and complaint with the clerk of the appropriate superior court within one year from the date of expiration of the certificate of registration in force at the time the claimed labor was performed and benefits accrued, taxes and contributions owing the state of Washington became due, materials and equipment were furnished, or the claimed contract work was completed. Service of process in an action against the contractor, the contractor's bond, or the deposit shall be exclusively by service upon the department. Three copies of the summons and complaint and a fee of ((~~ten~~)) twenty-five dollars to cover the handling costs shall be served by registered or certified mail upon the department at the time suit is started and the department shall maintain a record, available for public inspection, of all suits so commenced. Service is not complete until the department receives the ((~~ten-~~)) twenty-five dollar fee and three copies of the summons and complaint. Such service shall constitute service on the registrant and the surety for suit upon the bond or deposit and the department shall transmit the summons and complaint or a copy thereof to the registrant at the address listed in his application and to the surety within forty-eight hours after it shall have been received.

(4) The surety upon the bond shall not be liable in an aggregate amount in excess of the amount named in the bond nor for any monetary penalty assessed pursuant to this chapter for an infraction. The liability of the surety shall not cumulate where the bond has been renewed, continued, reinstated, reissued or otherwise extended. The surety upon the bond may, upon notice to the department and the parties, tender to the clerk of the court having jurisdiction of the action an amount equal to the claims thereunder or the amount of the bond less the amount of judgments, if any, previously satisfied therefrom and to the extent of such tender the surety upon the bond shall be exonerated but if the actions commenced and pending at any one time exceed the amount of the bond then unimpaired, claims shall be satisfied from the bond in the following order:

(a) Labor, including employee benefits;

(b) Claims for breach of contract by a party to the construction contract;

(d) Taxes and contributions due the state of Washington;

(e) Any court costs, interest, and attorney's fees plaintiff may be entitled to recover.

(5) In the event that any final judgment shall impair the liability of the surety upon the bond so furnished that there shall not be in effect a bond undertaking in the full amount prescribed in this section, the department shall suspend the registration of such contractor until the bond liability in the required amount unimpaired by unsatisfied judgment claims shall have been furnished. If such bond becomes fully impaired, a new bond must be furnished at the increased rates prescribed by this section as now or hereafter amended.

(6) In lieu of the surety bond required by this section the contractor may file with the department a deposit consisting of cash or other security acceptable to the department.

(7) Any person having filed and served a summons and complaint as required by this section having an unsatisfied final judgment against the registrant for any items referred to in this section may execute upon the security held by the department by serving a certified copy of the unsatisfied final judgment by registered or certified mail upon the department within one year of the date of entry of such judgment. Upon the receipt of service of such certified copy the department shall pay or order paid from the deposit, through the registry of the superior court which rendered judgment, towards the amount of the unsatisfied judgment. The priority of payment by the department shall be the order of receipt by the department, but the department shall have no liability for payment in excess of the amount of the deposit.

(8) The director may promulgate rules necessary for the proper administration of the security.

Sec. 8. Section 6, chapter 77, Laws of 1963 as last amended by section 19, chapter 2, Laws of 1983 1st ex. sess. and RCW 18.27.060 are each amended to read as follows:

(1) A certificate of registration shall be valid for one year and shall be renewed on or before the expiration date. The department shall issue to the applicant a certificate of registration upon compliance with the registration requirements of this chapter.

(2) If the department approves an application, it shall issue a certificate of registration to the applicant. The certificate shall be valid for:

(a) One year;

(b) Until the bond, if any, expires; or

(c) Until the insurance expires, whichever comes first. The department shall place the expiration date on the certificate.

(3) A contractor may supply a short-term bond or insurance policy to bring its registration period to the full one year.

(4) If a contractor's surety bond or other security has an unsatisfied judgment against it or is canceled, or if the contractor's insurance policy is canceled, the contractor's registration shall be automatically suspended on the effective date of the impairment or cancellation. The department shall give notice of the suspension to the contractor.

Sec. 9. Section 8, chapter 77, Laws of 1963 as last amended by section 2, chapter 285, Laws of 1988 and RCW 18.27.080 are each amended to read as follows:

No person engaged in the business or acting in the capacity of a contractor may bring or maintain any action in any court of this state for the collection of compensation for the performance of any work or for breach of any contract for which registration is required under this chapter without alleging and proving that he was a duly registered contractor and held a current and valid certificate of registration at the time he contracted for the performance of such work or entered into such contract. For the purposes of this section, the court shall not find a contractor in substantial compliance with the registration requirements of this chapter unless: (1) The department has on file the information required by RCW 18.27.030; (2) the contractor has paid all fees and assessments for the contractors' recovery fund and has a current bond or other security as required by RCW 18.27.040; and (3) the contractor has current insurance as required by RCW 18.27.050. In determining under this section whether a contractor is in substantial compliance with the registration requirements of this chapter, the court shall take into consideration the length of time during which the contractor did not hold a valid certificate of registration.

Sec. 10. Section 1, chapter 419, Laws of 1987 as amended by section 1, chapter 182, Laws of 1988 and RCW 18.27.114 are each amended to read as follows:

(1) ((Until July 1, 1989, any contractor agreeing to perform any contracting project: (a) For the repair, alteration, or construction of four or fewer residential units or accessory structures on such residential property when the bid or contract price totals one thousand dollars or more; or (b) for the repair, alteration, or construction of a commercial building when the bid or contract price totals one thousand dollars or more but less than sixty thousand dollars, must provide the customer with the following disclosure statement prior to starting work on the project:

~~@bc"notice to customer@ec~~

This contractor is registered with the state of Washington, registration no. ......, as a general/specialty contractor and has posted with the state a bond or cash deposit of $6,000/$4,000 for the purpose of satisfying claims against the contractor for negligent or improper work or breach of contract in the conduct of the contractor's business. This bond or cash deposit may not be sufficient to cover a claim which might arise from the work done under your contract. If any supplier of materials used in your construction project or any employee of the contractor or subcontractor is not paid by the contractor or subcontractor on your job, your property may be liened to force payment. If you wish additional protection, you may request the contractor to provide you with original "lien release" documents from each supplier or subcontractor on your project. The contractor is required to provide you with further information about lien release documents if you request it. General information is also available from the department of labor and industries."

~~(2) On and after July 1, 1989,~~)) Any contractor agreeing to perform any contracting project: (a) For the repair, alteration, or construction of four or fewer residential units or accessory structures on such residential property when the bid or contract price totals one thousand dollars or more; or (b) for the repair, alteration, or construction of a commercial building when the bid or contract price totals one thousand dollars or more but less than sixty thousand dollars, must provide the customer with the following disclosure statement prior to starting work on the project:

@bc"notice to customer@ec

This contractor is registered with the state of Washington, registration no. ......, as a general/specialty contractor ((and has posted with the state a bond or cash deposit of $6,000/$4,000 for the purpose of satisfying claims against the contractor for negligent or improper work or breach of contract in the conduct of the contractor's business)). The expiration date of this contractor's registration is .......... . ((~~This bond or cash deposit may not be sufficient to cover a claim which might arise from the work done under your contract.~~)) Under Washington law, those who work on your property or provide materials and are not paid have a right to enforce their claim for payment against your property. If any supplier of materials used in your construction project or any employee of the contractor or subcontractor is not paid by the contractor or subcontractor on your job, your property may be liened to force payment, even if you have paid the contractor in full. If you wish ((~~additional~~)) protection, you may request the contractor to provide you with original "lien release" documents from each supplier or subcontractor on your project. The contractor is required to provide you with further information about lien release documents if you request it. General information is also available from the department of labor and industries."

((~~(3) On and after July 1, 1989,~~)) A contractor subject to this section shall notify any consumer to whom notice is required under subsection ((~~(2)~~)) (1) of this section if the contractor's registration has expired or is revoked or suspended by the department prior to completion or other termination of the contract with the consumer.

((~~(4)~~)) (3) No contractor subject to this section may bring or maintain any lien claim under chapter 60.04 RCW based on any contract to which this section applies without alleging and proving that the contractor has provided the customer with a copy of the disclosure statement as required in subsection (1) ((~~or (2)~~)) of this section.

((~~(5)~~)) (4) This section does not apply to contracts authorized under chapter 39.04 RCW or to contractors contracting with other contractors.

((~~(6)~~)) (5) Failure to comply with this section shall constitute an infraction under the provisions of this chapter.

((~~(7)~~)) (6) The department shall produce model disclosure statements, and public service announcements detailing the information needed to assist contractors and contractors' customers to comply under this section. As necessary, the department shall periodically update these education materials.

NEW SECTION. Sec. 11. Sections 1 through 6 of this act are each added to chapter 18.27 RCW.

NEW SECTION. Sec. 12. The sum of two million dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1991, from the general fund to the department of labor and industries for the purpose of funding the contractors' recovery fund created in section 2 of this act.