Contractor Compliance Hub

Prime contractors performing 'retail construction' services for consumers are generally taxed under the Retailing B&O tax classification. This includes constructing, repairing, or improving real property for a consumer. (Source: Revised Code of Washington, RCW 82.04.050)

Subcontractors performing work for other contractors (who then resell those services to a final consumer) are taxed under the Wholesaling B&O tax classification. To qualify, the subcontractor must obtain a valid reseller permit from the prime contractor. (Source: Revised Code of Washington, RCW 82.04.060)

A business must file Form 1099-NEC if they paid an unincorporated subcontractor $600 or more for services rendered during the tax year. This form must generally be provided to the recipient and the IRS by January 31st. (Source: Internal Revenue Code, 26 USC § 6041A)

Retail contractors generally do not pay sales tax to vendors on materials that become part of the finished structure; instead, they use a reseller permit and charge the end customer sales tax on the total contract price. However, the contractor must pay sales or use tax on tools and supplies not incorporated into the project. (Source: Washington Administrative Code, WAC 458-20-170)

Any person or entity that offers to undertake, submits a bid, or performs any construction work must register with the Department of Labor & Industries. This includes general contractors and specialty contractors, and failure to register can lead to substantial fines and loss of lien rights. (Source: Revised Code of Washington, RCW 18.27.020)

General contractors must provide a $12,000 surety bond, while specialty contractors must provide a $6,000 bond; both must also carry general liability insurance of at least $250,000 for public liability and property damage. These financial protections are mandatory for maintaining an active license. (Source: Revised Code of Washington, RCW 18.27.040)

Under Section 179, construction businesses can elect to deduct the full purchase price of qualifying equipment, such as heavy machinery or vehicles, up to specific annual limits. The equipment must be placed in service during the tax year the deduction is claimed. (Source: Internal Revenue Code, 26 USC § 179)

Bonus depreciation allows businesses to immediately deduct a percentage of the cost of eligible property with a recovery period of 20 years or less. For property placed in service after 2022, the allowable percentage begins to phase down annually. (Source: Internal Revenue Code, 26 USC § 168(k))

If a construction business owner expects to owe $1,000 or more in federal tax for the year, they are generally required to make quarterly estimated tax payments. These payments cover income tax and self-employment tax obligations. (Source: IRS Publication 505, Tax Withholding and Estimated Tax)

Contractors are generally subject to 'nexus' rules, meaning they must pay income or gross receipts tax in any state where they have a physical presence or perform work. This often requires apportioning income between Washington and the other states involved. (Source: Washington Administrative Code, WAC 458-20-19401)

Public Road Construction involves building or repairing roads owned by the federal government or municipal corporations, and it is taxed under the Public Road Construction B&O classification. Unlike retail construction, the contractor is the consumer of all materials and must pay sales or use tax on them. (Source: Washington Administrative Code, WAC 458-20-171)

If a contractor acquires equipment outside of Washington without paying sales tax and brings it into the state for use, they must pay use tax based on the value of the article at the time of first use in Washington. (Source: Revised Code of Washington, RCW 82.12.020)

If a subcontractor fails to provide a valid Taxpayer Identification Number (TIN), the paying contractor must withhold federal income tax at the current backup withholding rate from the subcontractor's payment. (Source: Internal Revenue Code, 26 USC § 3406)

Speculative builders, who perform construction on land they own, are not subject to B&O tax on the value of the construction but must pay sales or use tax on all materials and subcontractor labor. The eventual sale of the real estate is subject to Real Estate Excise Tax (REET) rather than B&O tax. (Source: Washington Administrative Code, WAC 458-20-170(2)(a))

The de minimis safe harbor allows contractors to expense items costing $2,500 or less per invoice (or $5,000 with an applicable financial statement) rather than capitalizing them. This applies to tools, small equipment, and supplies commonly purchased on construction projects.

Mobilization costs—moving equipment, setting up temporary facilities, and initial site preparation—are generally capitalized as part of the project cost under IRC §263A uniform capitalization rules. They cannot be immediately deducted as current expenses.

Warranty reserves are not deductible when accrued under the all-events test. Contractors can only deduct warranty costs when they are actually incurred (paid or become fixed and determinable), per the economic performance requirement of IRC §461(h).

The completed contract method (CCM) defers all income and expenses until the contract is complete, while percentage-of-completion (PCM) recognizes income proportionally as work progresses. Contractors with average annual gross receipts under $29 million (2024) may elect CCM for contracts expected to be completed within 2 years.

For tax year 2024, contractors can deduct up to $1,220,000 of qualifying equipment under Section 179. The deduction phases out dollar-for-dollar when total equipment purchases exceed $3,050,000. Qualifying property includes tangible personal property like excavators, trucks, and tools used in the trade.

Construction companies generally do not need to file Form 8027, as it applies to large food and beverage establishments. However, if a contractor operates a commissary or food service facility for workers that meets the threshold (more than 10 employees on a typical business day), filing may be required.

Bid and proposal costs for construction contracts are generally deductible as ordinary and necessary business expenses under IRC §162. If the bid is successful, some costs may need to be capitalized as part of the contract cost under the uniform capitalization rules of IRC §263A.

Contractors using the percentage-of-completion method for contracts exceeding 2 years must file Form 8697 to compute look-back interest. This compares estimated income reported each year to actual income at contract completion and calculates interest owed to or from the IRS on any differences.

In Washington, contractors are generally considered consumers of materials they install. They must pay sales tax when purchasing materials (retail sales tax) or use tax if purchased out of state. The contractor does not separately charge sales tax to the customer on installed materials—it is included in the contract price.

Yes, performance bond premiums paid by contractors are deductible as ordinary and necessary business expenses under IRC §162. They are considered a cost of doing business in the construction industry and can be deducted in the year paid or incurred.

Construction equipment depreciation is calculated using either the Modified Accelerated Cost Recovery System (MACRS) for tax purposes or straight-line depreciation for financial reporting. Under MACRS, most construction equipment falls under 5-year or 7-year property classes. Heavy machinery like excavators and cranes typically qualifies for 5-year depreciation. Section 179 allows immediate expensing up to $1,160,000 (2024), and bonus depreciation allows 60% first-year deduction. Consult a construction bookkeeping specialist like Scaffold Bookkeeping for optimal tax strategy. (Source: IRC §168, IRS Publication 946)

Construction companies can deduct: vehicle and equipment costs (Section 179 and MACRS depreciation), job materials and supplies, subcontractor payments, insurance premiums (general liability, workers comp, surety bonds), tool and equipment purchases, fuel and vehicle expenses, home office deduction for qualifying contractors, employee wages and benefits, professional services (accounting, legal), and continuing education. The key is proper documentation and job-cost allocation. Scaffold Bookkeeping helps contractors maximize deductions through proper categorization and record-keeping. (Source: IRC §162, IRS Publication 535)

Most contractors benefit from an LLC taxed as an S-Corp once net income exceeds $60,000-$80,000 annually. This provides liability protection, pass-through taxation, and self-employment tax savings of $10,000-$15,000+ per year (Source: IRC §1366-1368).

Contractors can immediately expense up to $1,220,000 (2024 limit) in qualifying equipment placed in service before December 31, instead of depreciating it over multiple years (Source: IRC §179).

IRS penalties scale with lateness: $60/form if 1-30 days late, $120/form if 31 days to August 1, and $310/form for intentional disregard. With 20 subcontractors, penalties can reach $6,200+ (Source: IRC §6721-6722).

The Davis-Bacon Act requires that all contractors and subcontractors performing work on federal or District of Columbia contracts in excess of $2,000 pay their laborers and mechanics no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. (Source: United States Code, 40 USC §3142)

For every week in which any contract work is performed, contractors must submit a certified payroll report to the contracting agency within seven days after the regular payment date of the payroll period. (Source: Code of Federal Regulations, 29 CFR §5.5(a)(3)(ii)(A))

Before any payment can be made to a contractor for work performed on a public works project, the contractor and each subcontractor must submit a 'Statement of Intent to Pay Prevailing Wages' that is approved by the industrial statistician of the Department of Labor and Industries. (Source: Revised Code of Washington, RCW 39.12.040)

To be exempt from mandatory coverage, a worker must meet a specific seven-part test, which includes being free from control or direction over the performance of the service and maintaining an investment in the business that is independent of the contractor. (Source: Revised Code of Washington, RCW 51.08.181)

Under the Fair Labor Standards Act, covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay. (Source: Code of Federal Regulations, 29 CFR §778.107)

Every employer shall preserve for at least three years payroll records containing information such as name, social security number, occupation, and total daily or weekly earnings. (Source: Code of Federal Regulations, 29 CFR §516.2)

The IRS evaluates the degree of control and independence through three categories: behavioral control, financial control, and the type of relationship between the parties. (Source: IRS Publication 15-A, section 2)

A contractor found to have violated prevailing wage laws is subject to a civil penalty of $5,000 or 20% of the total prevailing wage violation (whichever is greater), and maybe barred from bidding on any public works contract until the penalty is paid. (Source: Revised Code of Washington, RCW 39.12.050)

The prevailing wage is the sum of the basic hourly rate of pay and the amount of the cost of providing bona fide fringe benefits such as medical care, pensions, and life insurance. (Source: United States Code, 40 USC §3141(2))

Employers are required to post several notices, including 'Job Service Center/Unemployment Benefits,' 'Your Rights as a Worker,' and the 'Notice to Employees' regarding industrial insurance. (Source: Washington Administrative Code, WAC 296-126-080)

Individuals whose duties are primarily administrative, executive, or clerical in nature, rather than those of a laborer or mechanic, are generally not covered by the prevailing wage requirements. (Source: Code of Federal Regulations, 29 CFR §5.2(m))

Travel time and expenses must be paid if the employee is required to report to a central dispatch point and is then transported to the job site, or if the employee is required to move between sites during the workday. (Source: Washington Administrative Code, WAC 296-127-018)

Employers who misclassify employees may be subject to a fine of up to $1,000 to $10,000 per misclassified worker, in addition to back taxes and interest for unpaid industrial insurance premiums. (Source: Revised Code of Washington, RCW 51.48.020)

Overtime must be calculated based on the basic hourly rate of pay (the 'regular rate'), excluding the amount paid for fringe benefits. (Source: Code of Federal Regulations, 29 CFR §5.32)

Upon completion of a public works project, the contractor and each subcontractor must file an 'Affidavit of Wages Paid' to certify that all workers have been paid in accordance with prevailing wage laws before the final retainage can be released. (Source: Revised Code of Washington, RCW 39.12.040)

Certified payroll (WH-347) is a federal requirement for prevailing wage projects that includes worker classifications, hourly rates, fringe benefits, and a signed compliance statement. Standard payroll only requires reporting gross wages, deductions, and net pay. Certified payroll must show that workers are paid at least the prevailing wage rate for their craft.

Fringe benefits on certified payroll can be paid as cash wages, contributed to bona fide benefit plans, or a combination. They must be reported separately on the WH-347 form. In Washington, the prevailing wage rate includes both the base hourly rate and the fringe benefit rate, and contractors must demonstrate compliance with both components.

Washington imposes penalties including back taxes, penalties of up to $5,000 per violation, and potential criminal charges for willful misclassification under the Independent Contractor Fraud Prevention Act (RCW 49.44.170). Employers may also owe back benefits, workers' comp premiums, and unemployment insurance contributions.

Yes. Under RCW 49.46.210, all Washington employers, including construction companies, must provide paid sick leave. Employees accrue at least 1 hour of paid sick leave for every 40 hours worked. This applies to all employees, including temporary and part-time construction workers.

The ABC test presumes a worker is an employee unless the hiring entity proves: (A) the worker is free from control and direction, (B) the work is outside the usual course of business, and (C) the worker is customarily engaged in an independent trade. Washington uses the economic reality test which is similar but considers additional factors.

In Washington, the prevailing wage rate in effect at the bid date applies for the duration of the contract. However, if the contract extends beyond the original completion date due to contractor delays, updated rates may apply. Federal Davis-Bacon rates are updated periodically through wage determinations and apply to the contract based on the determination included in the bid specifications.

Washington public works contracts over $1 million require contractors to employ apprentices at a ratio of at least 15% of labor hours. Apprentices must be registered with the Washington State Apprenticeship and Training Council (WSATC). Contractors must submit apprenticeship utilization plans before starting work.

Federal law (FLSA) does not require premium pay for weekend work specifically. Overtime at 1.5x the regular rate is required only when total hours exceed 40 in a workweek. Washington follows the same rule under RCW 49.46.130. However, union agreements (CBAs) may require premium rates for weekend or holiday work.

Under FLSA and Washington law, employers must retain payroll records for at least 3 years, including: employee name, address, SSN, hours worked each day, total weekly hours, pay rate, total wages, deductions, and net pay. For prevailing wage projects, certified payroll records must be kept for 3 years after project completion.

Contractors with crews working across state lines must withhold income taxes based on each state's rules—some use days worked, others use a percentage of income earned. Workers' compensation must be carried in each state where work is performed. Washington requires registration with L&I and payment of state industrial insurance premiums for any work performed in the state.

Under RCW 18.27, all construction contractors in Washington must register with the Department of Labor & Industries before advertising or performing work. Requirements include: (1) a $12,000 surety bond (or $24,000 for general contractors), (2) proof of liability insurance, (3) proof of workers compensation coverage through L&I, (4) a UBI number from the Department of Revenue, and (5) passing any required trade-specific examinations. Operating without registration can result in fines up to $10,000 per infraction. Scaffold Bookkeeping helps Washington contractors maintain compliance with all state registration and financial requirements. (Source: RCW 18.27; WAC 296-200A)

Labor burden is the true cost of an employee beyond base wages. It includes employer FICA (7.65%), FUTA (0.6%), SUTA (1-5%), workers' comp (5-15%), health insurance, and paid leave—adding 30-45% on top of base wages (Source: IRC §3101-3102).

Certified payroll using Form WH-347 is required weekly on federal-funded projects under the Davis-Bacon Act (Source: 29 CFR §5.5) and on Washington State public works projects under RCW 39.12.

Any person furnishing labor, professional services, materials, or equipment for the improvement of real property shall have a lien upon the improvement for the contract price of labor, services, materials, or equipment furnished at the instance of the owner, or the agent or construction agent of the owner. (Source: Revised Code of Washington, RCW 60.04.021)

Subcontractors providing materials or services to an owner-occupied single-family residence must provide a 'Notice to Owner' in writing to the owner to protect their right to claim a lien if they are not paid. For new construction of single-family residences, the notice must be given no later than 10 days after the date materials or services were first furnished. (Source: Revised Code of Washington, RCW 60.04.031)

A Claim of Lien must be recorded in the county where the subject property is located no later than 90 days after the person has ceased to furnish labor, professional services, materials, or equipment or the last date on which employee benefit contributions were due. (Source: Revised Code of Washington, RCW 60.04.091)

A Conditional Lien Waiver should be used when a payment is pending but has not yet cleared the bank. This document waives lien rights only on the condition that the specified payment is actually received and processed. (Source: AIA Document G706A-1994, Contractor's Affidavit of Release of Liens)

A Progress Waiver releases lien rights for a specific period of time or dollar amount through a specific date, whereas a Final Waiver is used at the end of a project to permanently release all lien rights once the final payment is received. (Source: AIA Document G702, Application and Certificate for Payment)

No lien shall bind the property subject to the lien for a period longer than eight calendar months after the claim of lien has been recorded unless an action is filed by the lien claimant within that time in the superior court in the county where the subject property is located. (Source: Revised Code of Washington, RCW 60.04.141)

On federal construction contracts valued over $100,000, the prime contractor must furnish a payment bond for the protection of all persons supplying labor and material in carrying out the work provided for in the contract. (Source: 40 US Code, 40 USC §3131)

A subcontractor who has not been paid in full within 90 days after the day on which the last of the labor was done or material was furnished may bring a civil action on the payment bond. The action must be brought no later than one year after the day on which the last of the labor was performed or material was supplied. (Source: 40 US Code, 40 USC §3133)

State agencies and local governments must pay for progress payments within 30 days of receipt of a proper invoice, or interest will accrue at the rate of one percent per month. Subcontractors must be paid by the prime contractor within 10 days of the prime contractor receiving payment. (Source: Revised Code of Washington, RCW 39.76.011)

Washington law requires that when a prime contractor receives payment from an owner, they must pay their subcontractors within 10 calendar days of receipt. If payment is delayed, the subcontractor is entitled to interest at the rate of one percent per month. (Source: Revised Code of Washington, RCW 39.04.250)

No, any contract provision that purports to waive the right to file or enforce a lien under RCW 60.04 is void and unenforceable as against public policy. Lien rights can only be waived after work has been performed. (Source: Revised Code of Washington, RCW 60.04.071)

If a court finds a lien to be frivolous and made without reasonable cause, or clearly excessive, the court shall release the lien and may award reasonable attorneys' fees and costs to the party prevailing in the motion to show cause. (Source: Revised Code of Washington, RCW 60.04.081)

A construction lien has priority over any lien, mortgage, or other encumbrance which attached to the land after the commencement of labor or furnishing of materials. The 'start date' for priority is the first day of work on the project. (Source: Revised Code of Washington, RCW 60.04.061)

A conditional lien waiver becomes effective only when payment is actually received, protecting the contractor if a check bounces or payment fails. An unconditional lien waiver is effective immediately upon signing, regardless of whether payment has cleared. Best practice is to use conditional waivers until payment is confirmed, then provide unconditional waivers.

In Washington, a contractor or subcontractor must record a construction lien within 90 days after the last date they provided labor, materials, or equipment to the project. The lien must be recorded with the county auditor in the county where the property is located.

Yes. Under RCW 60.04.031, subcontractors and material suppliers who do not have a direct contract with the property owner must provide a "Notice to Owner" within 60 days of first furnishing labor or materials. Without this notice, they lose the right to file a construction lien.

No. Construction liens (mechanics' liens) cannot be filed against public property in Washington. Instead, contractors and suppliers on public works projects must file a claim against the contractor's retainage or payment bond under RCW 39.08 within 30 days of project acceptance.

A valid lien claim must include: the lien claimant's name and address, the property owner's name, a description of the labor/materials furnished, the contract amount or amount owed, a legal description of the property, and the date the claimant last provided labor or materials. It must be signed and notarized.

A construction lien in Washington must be enforced by filing a foreclosure action within 8 months after the lien is recorded. If no lawsuit is filed within this period, the lien expires automatically and is no longer enforceable.

Yes. Under RCW 60.04.161, a property owner can petition the court to have a construction lien released by posting a bond equal to the lien amount plus attorneys' fees and costs (typically 1.5x the lien amount). This removes the lien from the property while preserving the claimant's right to payment.

If a conditional lien waiver was signed, it is not effective until payment clears, so the contractor retains lien rights. If an unconditional waiver was signed, the contractor has waived lien rights regardless of payment. This is why contractors should never sign unconditional waivers before confirming payment has cleared their bank account.

Washington does not statutorily require lien waivers for progress payments, but they are standard industry practice. Most general contractors and owners require conditional lien waivers from subcontractors as a condition of releasing each progress payment. This protects the owner from double-payment risk.

Washington's trust fund statute (RCW 60.04.011) provides that payments received by a contractor from an owner for construction work are held in trust for the payment of subcontractors, laborers, and material suppliers. Diverting these funds for other purposes can result in personal liability for the contractor.

A conditional lien waiver only takes effect once payment is actually received, protecting the signer from waiving rights before funds clear. An unconditional lien waiver takes effect immediately upon signing, regardless of whether payment has been received. Contractors should always use conditional waivers for progress payments and only sign unconditional waivers after confirming funds have cleared their account. (Source: AIA Document G706A; various state lien waiver statutes)

Construction lien waiver requirements vary by state but generally involve four types: conditional waiver on progress payment, unconditional waiver on progress payment, conditional waiver on final payment, and unconditional waiver on final payment. Many states like California (Civil Code §8132-8138) mandate statutory forms. Washington State requires compliance with RCW 60.04 for construction lien rights. Contractors should consult their state's specific requirements before signing any waiver. (Source: RCW 60.04; California Civil Code §8132-8138)

Subcontractors can prevent payment disputes by: (1) executing detailed written contracts specifying payment terms, retainage, and change order procedures, (2) filing preliminary notices to preserve lien rights, (3) using conditional lien waivers only, (4) maintaining detailed daily logs and documentation, (5) sending prompt pay act demand letters when payments are late, and (6) understanding their state's mechanics lien deadlines. Washington's Prompt Pay Act (RCW 39.04.250) requires payment within 30 days on public projects. Scaffold Bookkeeping helps subcontractors maintain the documentation needed to protect their payment rights. (Source: RCW 39.04.250; RCW 60.04)

You must file within 90 days of the date you last furnished labor or materials to the project (Source: RCW 60.04.091). Missing this deadline means losing your strongest collection remedy.

To be registered as a general contractor in Washington, you must file a surety bond with the Department of Labor and Industries in the amount of $12,000. This bond is primarily for the protection of persons who perform labor, provide materials, or have a breach of contract claim against the contractor. (Source: Revised Code of Washington, RCW 18.27.040(1))

Specialty contractors are required to maintain a surety bond in the amount of $6,000. The bond must be issued by a surety company authorized to do business in the state of Washington and is a prerequisite for legal operation. (Source: Revised Code of Washington, RCW 18.27.040(1))

Washington law requires performance and payment bonds for all public works contracts with the state, county, municipality, or other public body. For contracts exceeding $150,000, a bond for the full contract price is mandatory to ensure the completion of the work and payment of all laborers and suppliers. (Source: Revised Code of Washington, RCW 39.08.010)

Yes, a contractor may file with the department a cash deposit or other negotiable security instead of a surety bond. This deposit is held by the department to satisfy the same claims and obligations as a standard surety bond. (Source: Revised Code of Washington, RCW 18.27.040(6))

Surety companies typically require financial statements prepared in accordance with GAAP to assess a contractor's prequalification. Under ASC 606, contractors must recognize revenue from contracts with customers based on the transfer of control, which significantly impacts the balance sheet and bonding capacity. (Source: FASB Accounting Standards Codification, ASC 606)

Insurance premiums, including Builders Risk, that are ordinary and necessary expenses of carrying on a trade or business are generally deductible. However, if the insurance relates to the construction of a self-produced asset, costs may need to be capitalized under the Uniform Capitalization (UNICAP) rules. (Source: Internal Revenue Code, 26 USC § 263A)

The Miller Act requires a prime contractor on federal construction contracts exceeding $100,000 to post both a performance bond for the protection of the government and a payment bond for the protection of subcontractors and material suppliers. (Source: United States Code, 40 USC § 3131)

Yes, to register as a contractor in Washington, an applicant must provide evidence of public liability and property damage insurance. The minimum limits required are $20,000 for property damage and $50,000 for injury or death to one person (or $100,000 for more than one person). (Source: Revised Code of Washington, RCW 18.27.050)

General Liability covers bodily injury and property damage, while Professional Liability (Errors & Omissions) covers financial losses resulting from professional negligence, such as design errors. Standard AIA contracts often specify that design-build contractors must maintain professional liability insurance. (Source: AIA Document A201-2017, Section 11.1)

The cost of performance and payment bonds is typically classified as a direct job cost and recognized in the period it is incurred or over the life of the contract. Under GAAP, these costs are part of the total estimated contract costs used to calculate the percentage of completion. (Source: FASB Accounting Standards Codification, ASC 606-10-25-27)

Action upon a contractor's bond must be commenced by filing a complaint in superior court within one year from the date the claimed labor was performed and assistance rendered or materials and equipment furnished. (Source: Revised Code of Washington, RCW 18.27.040(3))

Virtually all employers in Washington must provide industrial insurance (Workers' Comp) coverage for their employees. This is managed through the state fund, and failure to maintain coverage can lead to the suspension of the contractor's registration. (Source: Revised Code of Washington, RCW 51.12.020)

When a loss occurs, insurance proceeds should be recognized as a gain in the period the recovery becomes probable. This gain is typically offset against the recognized loss of the asset or the cost of repairs incurred to date. (Source: FASB Accounting Standards Codification, ASC 450-30)

Washington's version of the federal Miller Act, found in RCW 39.08, requires contractors on public works to provide a bond to protect against non-payment of subcontractors and suppliers. For projects under $150,000, the public entity may allow the contractor to retain 10% of the contract amount in lieu of a bond. (Source: Revised Code of Washington, RCW 39.08.010)

Washington contractors typically need three types: a license bond (required for contractor registration under RCW 18.27), a bid bond (5-10% of bid amount for public works), and performance/payment bonds (required on public works over $150,000 under RCW 39.08). The license bond amount is $12,000 for general contractors and $6,000 for specialty contractors.

Surety bond premiums typically range from 1-3% of the contract amount. The rate depends on the contractor's financial strength, credit history, work experience, and project complexity. Premiums are usually calculated on a sliding scale—higher percentages for the first $100K, lower for amounts above. The premium is a tax-deductible business expense.

SDI is an alternative to traditional surety bonds where the general contractor self-insures against subcontractor default. The GC pays premiums to an insurer and manages subcontractor risk directly. SDI typically covers the cost to complete work, correct defective work, and recover delay damages. It is most common on large commercial projects.

All Washington construction employers must carry workers' compensation through the Washington State Fund (administered by L&I) unless they qualify as a self-insurer. There is no option for private insurance in Washington (it is a monopolistic state fund). Premiums are based on classification codes, payroll amounts, and experience modification rates.

Yes. The SBA's Surety Bond Guarantee Program helps small and emerging contractors who cannot obtain bonds through regular channels. The SBA guarantees 80-90% of the bond, reducing the surety's risk. Eligible contracts must not exceed $6.5 million ($10 million for federal contracts). Contractors apply through an SBA-approved surety company.

Builder's risk insurance covers property damage to a structure under construction, including materials, fixtures, and equipment. It typically covers perils like fire, wind, theft, and vandalism. Coverage begins at project start and ends at substantial completion or occupancy. It does not cover general liability, workers' comp, or damage from faulty workmanship.

An OCIP, or "wrap-up" policy, is a consolidated insurance program purchased by the property owner that covers all contractors on a project. It typically includes general liability, workers' comp, and excess liability. Contractors must remove their own insurance costs from bids when enrolled in an OCIP. Common on projects exceeding $50 million.

The EMR compares a contractor's actual workers' comp claims to expected claims for their industry. An EMR of 1.0 is average; below 1.0 means fewer claims (lower premiums), above 1.0 means more claims (higher premiums). A high EMR can also disqualify contractors from bidding on certain projects. In Washington, EMR is calculated by L&I.

While not legally required, most general contractors and project owners require subcontractors to carry umbrella/excess liability coverage of $1-5 million. This coverage sits above the primary general liability and auto liability policies. It is essential for contractors working on commercial, multi-family, or public works projects.

An occurrence policy covers claims for incidents that happen during the policy period, regardless of when the claim is filed. A claims-made policy only covers claims filed during the policy period. Occurrence policies are standard for construction general liability because construction defects may not be discovered for years after completion.

To obtain a performance bond for public works projects, contractors must: (1) demonstrate financial stability through CPA-prepared financial statements, (2) provide a strong work history and project references, (3) maintain good personal credit (typically 680+), (4) show adequate working capital (usually 10% of bond amount), and (5) apply through a surety company or bond agent. The Miller Act (40 USC §3131) requires performance bonds on federal projects over $150,000, and most states have similar requirements. A construction bookkeeper like Scaffold Bookkeeping can prepare the financial documentation sureties require. (Source: 40 USC §3131, Miller Act)

Surety companies give higher bond limits to well-structured entities. C-Corps with retained earnings get the highest limits. S-Corps and LLCs with clean financials and strong working capital can qualify for $1M-$10M+ bond programs (Source: 40 USC §3131, Miller Act).

Surety companies typically want a current ratio (current assets ÷ current liabilities) of 1.3 to 2.0. Below 1.3 signals liquidity risk that may limit your bonding capacity (Source: 40 USC §3131, Miller Act).