Surety Bonds for Washington Contractors: A Step-by-Step Guide to Compliance

If you want to work as a contractor in Washington State, you need a surety bond. There is no exception, no workaround, and no alternative. The Department of Labor & Industries (L&I) requires every contractor to have an active surety bond on file before they can register, and your registration is automatically suspended the moment your bond lapses. Whether you are a general contractor running a crew of twenty or a sole proprietor handyman working alone, the bond requirement applies to you.

Despite being a universal requirement, surety bonds remain one of the most misunderstood aspects of contractor compliance in Washington. Many contractors confuse bonds with insurance, do not understand who the bond actually protects, or are unaware of the personal financial liability they accept when they purchase a bond. This guide walks through everything Washington contractors need to know — what a surety bond is, what the state requires, how to get bonded, what it costs, and how to maintain your bond over time.

What Is a Surety Bond?

A surety bond is a three-party financial guarantee. It is not insurance. Understanding this distinction is critical because it changes how you think about bonds, how you manage your obligations, and what happens if a claim is filed.

The three parties in a surety bond are:

• Principal: The contractor who purchases the bond. You are the principal. You are promising to fulfill your contractual and legal obligations.
• Obligee: The entity requiring the bond. In Washington, the obligee is the Department of Labor & Industries, acting on behalf of consumers and the public.
• Surety: The bonding company that issues the bond. The surety guarantees to the obligee that if you fail to meet your obligations and a valid claim is filed, the surety will pay the claim — up to the full bond amount.

Here is the critical difference between a bond and insurance: when an insurance claim is paid, you owe nothing beyond your deductible. When a bond claim is paid, you owe the surety company the full amount they paid out, plus any legal and administrative costs. A surety bond is essentially a line of credit backed by your personal guarantee. The surety fronts the money to the consumer, and then you must repay the surety.

This means that a $30,000 bond claim can become a $30,000-plus personal debt that you are legally obligated to repay. Bond claims can result in collection actions, damage to your credit, and difficulty obtaining bonds in the future.

Washington State Bond Requirements

Washington's contractor bond requirements are established under RCW 18.27 (Registration of Contractors) and are administered by L&I.

Bond Amounts

• General contractors: $30,000 surety bond
• Specialty contractors: $15,000 surety bond

The bond amount was increased effective July 1, 2024. Prior to that date, the requirements were $12,000 for general contractors and $6,000 for specialty contractors. If you obtained your bond before the increase, you were required to update your bond amount at renewal.

Who Must Be Bonded

The bond requirement applies to virtually all contractors performing construction, alteration, repair, demolition, or improvement of buildings, highways, roads, and other structures in Washington. This includes:

• General contractors
• Subcontractors
• Specialty contractors (electrical, plumbing, HVAC, roofing, painting, landscaping, concrete, etc.)
• Sole proprietors with no employees
• Out-of-state contractors performing work in Washington

The only entities generally exempt are property owners performing work on their own property, public agencies, and some agricultural operations.

What the Bond Covers

The contractor surety bond protects consumers and workers — not the contractor. Valid bond claims can be filed for:

• Failure to complete contracted work: A homeowner who paid you for a project that you abandoned or failed to complete as agreed
• Defective workmanship: Work that does not meet the standards specified in the contract or required by building codes
• Unpaid suppliers and subcontractors: Material suppliers or subcontractors who were not paid for work or materials provided on your projects
• Wage claims: Employees or workers who were not paid wages owed to them
• Violations of consumer protection laws: Deceptive business practices, failure to provide required disclosures, or other violations of Washington consumer protection statutes

Claims are filed with L&I and investigated. If a claim is found valid, the surety pays the claimant up to the bond amount, and the contractor becomes liable to the surety for the full amount paid.

Types of Contractor Bonds in Washington

While the L&I contractor surety bond is the primary bond requirement, Washington contractors may encounter several other bond types depending on their work.

L&I Contractor Surety Bond

This is the mandatory bond required for contractor registration. Every contractor must have this bond active to legally perform work in Washington.

Bid Bonds

Required on many public works projects, a bid bond guarantees that if you are the winning bidder, you will enter into the contract at the price you bid. Bid bonds are typically 5% to 10% of the bid amount and are required at the time of bid submission.

Performance Bonds

A performance bond guarantees that you will complete the project according to the contract terms. If you fail to complete the work, the surety is obligated to either find another contractor to finish the project or pay the project owner the cost of completion, up to the bond amount. Performance bonds are commonly required on public works projects and large commercial projects.

Payment Bonds

A payment bond guarantees that you will pay your subcontractors, suppliers, and laborers. This protects the project owner from mechanic's liens filed by unpaid parties. On Washington public works projects over $150,000, a payment bond is required under RCW 39.08.

Maintenance Bonds

Some project owners require a maintenance bond that covers defective workmanship for a specified period after project completion — typically one to two years. This provides the owner with financial recourse if defects emerge after the warranty period of the performance bond expires.

How to Get Bonded: Step by Step

Step 1: Determine Your Bond Amount

Determine whether you are registering as a general contractor ($30,000 bond) or a specialty contractor ($15,000 bond). If you are unsure which category applies to your work, L&I's contractor registration team can advise you. In general, if you perform work in two or more unrelated trades, you are likely a general contractor. If you work exclusively in one trade, you are likely a specialty contractor.

Step 2: Choose a Surety Company

Surety bonds are issued by surety companies, which are typically divisions of insurance companies. You can purchase a bond directly from a surety company or through a surety bond agent or broker. Working with an agent who specializes in contractor bonds in Washington can simplify the process, especially if your credit or financial history presents challenges.

Look for a surety company that is licensed to do business in Washington and has an A.M. Best rating of A- or better. L&I maintains a list of approved surety companies.

Step 3: Complete the Application

The surety company will require information about you and your business, including:

• Personal information (name, address, Social Security number)
• Business information (business name, structure, UBI number)
• Financial information (credit history, assets, liabilities)
• Construction experience and history
• Claims history

For bonds under $50,000 — which includes both the $30,000 general contractor bond and the $15,000 specialty contractor bond — most surety companies offer simplified underwriting that relies primarily on your personal credit score. Full financial statements are typically not required for bonds of this size.

Step 4: Receive Your Bond

Once approved, the surety company issues your bond document. This document identifies you as the principal, L&I as the obligee, and the surety company. It states the bond amount and the effective dates.

Step 5: File with L&I

Submit your bond to L&I as part of your contractor registration application (or renewal). L&I will verify the bond and, once all other registration requirements are met (general liability insurance, UBI number), will issue or renew your contractor registration.

Step 6: Maintain Your Bond

Your bond must remain active for the entire duration of your contractor registration. Most bonds have annual terms and must be renewed each year. If your bond lapses, L&I automatically suspends your registration, and you cannot legally perform work until the bond is reinstated.

Bond Costs and Factors

The cost of a surety bond is expressed as a percentage of the bond amount, called the premium rate. You pay the premium annually for as long as the bond is active.

Typical Costs

• Good credit (700+): 1% to 3% of bond amount. For a $30,000 general contractor bond, that is $300 to $900 per year.
• Average credit (600-699): 3% to 5% of bond amount. For a $30,000 bond, $900 to $1,500 per year.
• Poor credit (below 600): 5% to 15% of bond amount. For a $30,000 bond, $1,500 to $4,500 per year.

Factors That Affect Your Premium

Personal credit score. This is the single most important factor for bonds under $50,000. A higher credit score gets you a lower premium rate.

Claims history. Any prior bond claims, even on bonds in other states, will increase your premium or potentially make you ineligible for standard bonding.

Financial stability. While full financial statements are not usually required for smaller bonds, some surety companies consider your overall financial stability, including assets, debts, and bankruptcy history.

Industry experience. Contractors with more years of experience and a clean track record are viewed as lower risk and receive better rates.

Business structure. Corporations and LLCs may receive different treatment than sole proprietorships, depending on the surety company's underwriting guidelines.

Bonds vs. Insurance: Key Differences

Many contractors mistakenly believe their surety bond provides the same type of protection as insurance. It does not. Understanding the differences prevents costly confusion.

| | Surety Bond | Insurance | |---|---|---| | Protects | The public / consumers | The contractor (policyholder) | | Claims paid by | Surety, then contractor reimburses | Insurer (no reimbursement) | | Purpose | Financial guarantee of contractor's obligations | Risk transfer for covered events | | Required by | L&I for contractor registration | L&I for registration + clients contractually | | Cost basis | Percentage of bond amount, based on credit | Premium based on risk, payroll, revenue |

The most important distinction: when an insurance claim is paid, you owe nothing beyond your deductible. When a bond claim is paid, you owe the surety company the full amount. A bond is not free money — it is a personal financial guarantee.

Common Bond Claims and How to Prevent Them

Failure to complete work. Complete every project you start. If circumstances genuinely prevent completion, communicate with the client in writing and negotiate a resolution before the client files a claim. Abandoning a project is the fastest path to a bond claim.

Unpaid suppliers and subcontractors. Pay your suppliers and subcontractors on time and in full. Disputes over payment are common in construction, but an unpaid supplier who files a bond claim creates a liability that you must ultimately repay.

Defective workmanship. Build to code and to the contract specifications. When warranty issues arise after project completion, address them promptly. A homeowner who cannot get a callback from their contractor is far more likely to file a bond claim than one whose contractor responds and resolves the issue.

Wage disputes. Pay your employees correctly and on time. In Washington, wage claims can be filed with both L&I and against your surety bond. Prevailing wage violations on public works projects are aggressively pursued and can result in bond claims, fines, and registration suspension.

Maintaining Your Bond

Renew on time. Set a reminder at least 60 days before your bond expiration date. If your bond lapses, your contractor registration is automatically suspended. Working without active registration is illegal and subjects you to fines and penalties.

Monitor your credit. Since your personal credit score directly affects your bond premium, maintaining good credit saves you money on your bond renewal every year. Pay bills on time, keep credit utilization low, and address any errors on your credit report promptly.

Avoid claims. Every bond claim increases your future premiums and can make it difficult to obtain bonding at all. The best bond management strategy is the simplest: fulfill your obligations, pay your people, and do quality work.

Keep your surety informed. If your business undergoes significant changes — new partners, change in business structure, expansion into new markets — inform your surety company. Changes that affect your risk profile can affect your bond terms.

Get Your Contractor Insurance in Order

Your surety bond and your general liability insurance are both required for contractor registration in Washington, but they serve different purposes. The bond protects consumers. Insurance protects you. SmartInsured specializes in contractor insurance for Washington businesses, helping you meet L&I requirements and protect your business with the right coverage. Get a quote today and make sure both sides of your compliance are covered.

For a detailed walkthrough of the full Washington contractor registration process, including bonding, insurance, and L&I filing, see our Washington Contractor Registration Guide.