Washington Amends Rules for Small Contractors’ Performance and Payment Bonds

Published: May 10, 2019
performance and payment bonds

 

In April 2019, the state of Washington passed a new bill that aims to modernize and increase the efficiency of local government procurement procedures. Senate Bill 5418 was passed in the Senate on April 23rd and is soon to be signed into law by Governor Jay Inslee.

One of the effects of the newly introduced legislation is that small-scale contractors will now benefit from easier stipulations, and have better opportunities for participating in state and local contracting jobs. They would be able to get a waiver for providing contract bonds, such as performance and payment bonds, and retainage for contractors of higher amounts. In addition, small contractors would also be able to get contracts through a small works roster in larger amounts as well.

The details of the bill that affect small contractors are explained in the sections below.

The new rules on performance and payment bonds waivers

Previously, the maximum contract amount for which small businesses could get a waiver for performance and payment bonds and retainage required on state and local contracts within the limited public works project procedures was $35,000. The new law increases this amount to $50,000. The immediate impact of this rule is that small contractors now have easier access to public contracts in these higher amounts, as the requirement to provide security instruments is relaxed.

The purpose of performance bonds in construction contracts is to guarantee that the contractor will fulfill their obligation on the project. They ensure completion of the work in a timely manner and up to a set of quality standards. As for payment bonds, they ensure that the main contractor on a project will make all due payments to subcontractors, suppliers, and workers.

These two types of contract bonds are often required on public projects. They are used as security mechanisms that protect project owners against contractor default, as well as business partners and employees against non-payment. A claim against the surety bond of the contractor can be made in cases when they fail to abide by their obligations under the project’s contract.

Under the current law, in cases when the performance, payment bonds, and the retainage are waived for a small contractor, the public owner of the project assumes liability instead in those cases when the contractor fails to make due payments.

The changes in small works roster contract amounts

Washington Senate Bill 5418 brings changes to the size of public works contracts which small contractors can access through the Small Works Roster Program. Previously, the maximum contract amount was $300,000.

The Small Works Roster Program allows public contracts to be offered directly to members of the program without a public invitation for bid submission. The new bill increases the contract amount to $500,000. This creates larger possibilities for small contractors to expand their activities, and work on higher stakes project through the Program.

The requirements towards contractors still remain, which is why they have to be properly qualified in order to participate in the above-mentioned program. This includes having relevant licensing, legal certification, bonding, and appropriate insurance.  

Are you required to obtain a performance or payment bond to participate in construction project bidding? Don’t hesitate to contact our bonding specialists at 877.514.5146.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.

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