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April 19, 2004

Cities, counties urged not to issue building permits to illegal contractors

TUMWATER — The Department of Labor & Industries (L&I) has sent a letter to the state’s building officials urging that local governments not issue building construction permits for work that is to be done by unregistered contractors.

The letters went out Thursday and are part of a campaign by L&I to eliminate fraud and abuse in the state’s workers’ compensation system. L&I’s investigations routinely find that unregistered contractors frequently avoid paying other types of business taxes and often aren’t insured or bonded. The lack of insurance and a bond puts consumers at risk should the contractor fail to pay his bills. And when employees of an unregistered contractor file an injury claim, the cost of that claim is borne by employers and workers who pay into the insurance system.

General contractors also have been warned by L&I not to hire subcontractors who aren’t paying workers’ compensation premiums. General contractors can be held financially responsible for premiums not paid by their subcontractors.

In the case of cities and counties, they can be fined $5,000 for each permit they issue on a construction project where an unregistered contractor is doing the work.

“It is not our intent to punish local governments and general contractors,” said L&I Director Paul Trause. “But we do intend to do everything in our power to bring contractors into compliance with the law. It’s a matter of fairness. Legitimate contractors shouldn’t have to compete for business against contractors who cheat the system.”

Washington’s workers’ compensation system provides industrial insurance benefits to about 1.9 million workers and more than 155,000 employers. Premiums are based on the relative risk of the job and how the employer’s claims history stacks up against other employers in that line of work. Premiums are paid based on the number of hours reported. Washington is the only state in the nation where workers also pay into the system.

At a series of statewide rate hearings held over the past two years, employers urged L&I to be more aggressive in pursuing workers who file fraudulent claims and companies that operate in the underground economy. Based on feedback from its customers and its own employees, L&I set out to improve its management of the workers’ compensation system. The agency established five high-priority projects. All are designed to hold down costs by reducing the number of workplace injuries, eliminating fraud, speeding up the processing of claims and making sure injured workers go back to work as soon as they are medically able.

L&I has long had a program to fight fraud and abuse of the workers’ compensation system. But it has been staffed with too few auditors and investigators to effectively detect fraud early and respond to reports of fraud. In March, the Legislature took steps to change that when it authorized L&I to hire 10 additional investigators and transfer 10 other positions to the fraud unit. The 20 new auditors and fraud investigators will be spread throughout the state. The legislation also will make it easier for L&I to prove fraud in court. The bill has been signed by Gov. Gary Locke and will take effect June 10.

However, the agency isn’t waiting for that date to get started. For the first time ever, it recently took steps to suspend the registration of six contractors for nonpayment of premiums. Three worked out settlement agreements and kept their registration. Three others were suspended. Since then, one of the contractors, from Port Angeles, has signed a settlement agreement and is back in business.

About 20 other suspensions are pending.

Local building officials and contractors can quickly verify a framer’s status online by going to L&I’s web site, www.lni.wa.gov/TradesLicensing/Contractors/ContractorDatabase/


Media contact: Robert T. Nelson, L&I public affairs, 360-902-6043 or nelq235@lni.wa.gov

Broadcast version:

The agency that runs Washington’s workers’ compensation system has warned the state’s building officials to not issue building permits to contractors who aren’t registered and paying premiums.

The Department of Labor & Industries says city and county building departments can be fined $5,000 for every permit they issue to an unregistered contractor. The agency also has told contractors not to hire unregistered contractors as their subs, warning that they could be held liable for unpaid industrial insurance premiums.

L&I Director Paul Trause says the notification to building officials and contractors is part of the agency’s stepped up effort to eliminate fraud and abuse of the workers’ compensation system. Trause said L&I is in the process of hiring 10 additional fraud investigators and auditors and reassigning 10 other positions to fight fraud and abuse.

The anti-fraud campaign is one of L&I’s five high-priority projects. All are designed to eliminate unnecessary delays in the system, reduce injuries and get injured workers back on the job as soon as they are medically ready.


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