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Oles Morrison

Uncertainty in Contractor’s Registration Statute places Contractors at Risk

Fri Dec 31, 2010

For suits against a contractor’s registration bond, the contractor’s registration statute (RCW 18.27.040) has long required that the plaintiff serve a summons and complaint on the Washington Department of Labor & Industries (“L&I”), who in turn mails a copy of the summons and complaint to the contractor and surety on the bond. Unlike in most suits where the summons and complaint have to be served on the defendant in person by a process server, for registration bond claims L&I simply mails the summons and complaint to the contractor’s most recent address on file with L&I. 

In almost all suits against a contractor’s registration bond, the plaintiff will also file a companion claim against the contractor for breach of contractor. In such cases, it had long been understood that the plaintiff had to serve the contractor through L&I for the registration bond claim, and by personal in-hand service for the breach of contract claim. However, due to some ambiguity in a 2007 amendment to the contractor’s registration statute, some now believe that service on L&I constitutes service on the contractor for both the registration bond claim and the breach of contract claim. Thus far, Washington trial courts have issued conflicting rulings as to whether service on L&I is sufficient for all claims, or just the registration bond claim.

This issue should be of major concern in the construction industry. L&I receives and serves approximately 3,000 summons and complaints each year. Unlike in most lawsuits where the summons and complaint are served on a defendant by a process server in-hand, L&I serves the summons and complaint by simply mailing the documents to the contractor’s most recent address on file. If a contractor’s address on file is incorrect, then L&I cannot complete service (or the documents are delivered but go unclaimed), and L&I will take no further action to attempt alternative service on the contractor. Therefore, if a contractor’s address on file is incorrect, it may lose a lawsuit by default without ever knowing it has been sued. This can lead to serious civil and criminal repercussions for the contractor. As a consequence of a default judgment against its registration bond, the contractor’s registration may be suspended without any warning. And, it is a gross misdemeanor to “advertise, offer to do work, submit a bid, or perform any work as a contractor when the contractor’s registration is suspended” (RCW 18.27.020). Furthermore, if a contractor contracts or commences to perform work with a suspended contractor’s registration and is not paid for that work, the contractor may be barred from suing for breach of contract or unjust enrichment (RCW 18.27.080). Also problematic is that service through L&I is considered complete on the date when L&I receives the summons and complaint, not the date when the contractor receives the summons and complaint. So, even if the contractor is served by L&I, the contractor will have less time to respond to the suit than a typical defendant would.

Fortunately, the Washington Court of Appeals will be hearing oral argument on this issue in September 2010, and hopefully will clarify the ambiguity in the statute. In the meantime, contractors should be extremely diligent in updating their contact information with L&I. If L&I has the wrong address on file, a contractor should take steps to update this information (the address change form is available on L&I’s website at http://www.lni.wa.gov/forms/pdf/F625-108-000.pdf).

On the flip-side, plaintiffs who file claims against a contractor for breach of contract and against the contractor’s registration bond should not feel comfortable by just serving the contractor and surety through L&I. It is likely that the Court of Appeals will hold that this type of service is insufficient for breach of contract claims.  A plaintiff who chooses to risk it and just serve L&I risks having any subsequent judgment against the contractor vacated for insufficient service of process – where service of process is defective (and that defect is not waived by the defendant) any subsequent judgment against the defendant is void. At best, the plaintiff will have wasted time and money, and will have to start its lawsuit all over again. At worst, the statute of limitations for some or all of the plaintiff’s claims may have expired in the interim and the plaintiff may be unable to re-file its lawsuit.

It should be noted that contractors who are licensed solely as electrical contractors are immune from this service issue. Electrical contractor license bonds are covered by a different statute (RCW 19.28.071) and service is not provided by L&I.