Construction Law Alert: New Amendment to Washington's Contractor Registration Act

A recent legislative amendment to the Washington Contractor Registration Act (the “CRA”) underscores the need for residential property developers to assess whether the development activities they perform on their Washington projects constitute those of a “contractor” and thus require registration with the Department of Labor and Industries. On April 22, 2015, Washington Governor Jay Inslee approved House Bill 1749, amending the definition of “contractor” in RCW 18.27.010. The new law becomes effective July 24, 2015. Prior to this legislation, the statute’s broad language required any person or entity, other than a residential homeowner, involved in improving property, at any level and in essentially any capacity (including acts to “construct, alter, repair, add to, subtract from, improve, develop, move, wreck, or demolish”), to be registered as a “contractor.” The statutory definition of “contractor” also included any consultant, such as a construction manager, acting as a general contractor (which, under RCW 18.27.010(5), includes anyone whose business operations require the use of more than one trade and anyone who superintends or consults on, in whole or in part, the work falling within the broad definition of “contractor”).

Additionally, “contractor” was defined in the statute to include those who offer “to sell their property without occupying or using the structures, projects, developments, or improvements for more than one year from the date . . . [same] was substantially completed or abandoned.” RCW 18.27.010(1).

This registration requirement imposed an onerous, likely unintended burden on residential developers or “house flippers” to register as “contractors,” and applied regardless of whether such persons or entities actually hired a registered contractor to perform the improvement work on their property. Consequently, this broad statutory definition of “contractor” impacted developers and other persons or entities not performing any of the actual construction work, notwithstanding that a general contractor may have been retained to perform the work. The existing RCW 18.27.010, along with the legislative amendment, can be found here.

The case of Hinton v. Johnson, 87 Wn. App. 670 (1997), is illustrative of the far-reaching scope of Washington’s CRA. There, James Hinton, an unregistered contractor, entered into an oral contract with Keith Johnson to work on Johnson’s large residential real estate development. Id. at 671. When Johnson refused to pay Hinton for work performed on the project, Hinton filed a lien and a lien foreclosure and breach of contract action against Johnson. Id. at 672. Johnson moved for summary judgment, asserting that the claims were barred because Hinton was an unregistered contractor. The trial court dismissed the claims based on the bar against claims by unregistered contractors under the CRA (RCW chapter 18.27). Id.

On appeal, the trial court’s decision was overturned. The Washington Court of Appeals found that Johnson operated as a “contractor” under the CRA insofar as he hired between eight and sixteen different trades to work on the project (eight of which were registered)¹ and had been routinely engaged in such development activities since 1954. Thus, Johnson could not use the CRA as a shield against Hinton’s claims, because the supreme court has held that the CRA does not bar a claim by an unregistered subcontractor against a prime contractor. Id. at 673 (citing Bremmeyer v. Peter Kiewit Sons Co., 90 Wn.2d 787, 791 (1978)).

The new contractor registration statute reorganizes the applicable legal definitions and amends the original language by specifically excluding from the definition of “contractor” anyone contracting directly with a general contractor and not superintending the work. More specifically, the revised statute adds the express exemption that “[a] person, firm, corporation, or other entity is not a contractor under this subsection (1)(c) if the person, firm, corporation, or other entity contracts with a registered general contractor and does not superintend the work.”

Additional exemptions under the CRA include acts comprising property maintenance activities. For instance, RCW 18.27.090(12) provides an exemption for any person working on his or her own property or personal residence, whether or not the person occupies or owns the property. This exemption does not apply, however, “to any person who performs the activities of a contractor on his or her own property for the purpose of selling, demolishing, or leasing the property.” Id. Nonetheless, if an owner performs maintenance, repair and alteration work on his or her own property or uses his or her own employees to do such work, then the exemption will apply.

Based on the breadth of the original statute, as construed by the Washington appellate court in the Hinton case, and notwithstanding the new statutory amendment, it is still advisable that real estate developers in Washington contract with a single registered general contractor who is responsible for all facets of managing, overseeing and superintending the work.

An interesting twist is created for developers who routinely contract with different trades as multiple prime contractors to perform work on Washington projects. While it seems absurd, it is at least possible that a court would not allow the hiring of multiple primes to satisfy the new statute’s literal wording, which requires the hiring of “a general contractor.” Moreover, assuming multiple primes were found to satisfy the new statute, and assuming each prime was registered under the CRA, the developer would also still be required to retain one of those primes or a third party (either a general contractor or construction manager) that is registered under the CRA to coordinate and superintend the work of all other primes (and itself!). Otherwise, developers engaging in a “multi-prime” scheme run the risk of operating as a “contractor” under Washington law without the required registration, which could result in serious penalties.

For more information on this topic, please contact Bart Reed.

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¹ The court cited RCW 18.27.010(1) as including within the definition of “contractor” one “who, to do similar work upon his own property, employs members of more than one trade upon a single job or project or under a single building permit except as otherwise provided [in the CRA].”