Payment and Performance Bonds on GC/CM Projects

Typically, on a public works project, a public agency will obtain from the contractor a Payment and Performance Bond for the full contract award amount, including sales tax (RCW 39.08.030).

However, for a GC/CM (General Contractor/Construction Manager) project, the Payment and Performance Bond should be only for an amount equal to what is termed the Total Contract Cost, which does not include sales tax. GC/CM is, of course, one of three alternative public works contracting procedures authorized by the Washington State Legislature (chapter 39.10 RCW).

RCW 39.10.370 (1) states that "The maximum allowable construction cost shall be used to establish a total contract cost for which the general contractor/construction manager shall provide a performance and payment bond."

RCW 39.10.010 (4) defines what composes the Total Contract Cost: "The total contract cost includes the fixed amount for the detailed specified general conditions work, the negotiated maximum allowable construction cost, the negotiated support services, and the percent fee on the negotiated maximum allowable construction cost."

Prior to July 1, 2007 when the Legislature amended the GC/CM law (SSHB 1506), the definition of what was then called the Guaranteed Contract Cost (instead of Total Contract Cost) included sales tax as a component. That has now changed so that a public agency managing a GC/CM project should obtain a Payment and Performance Bond for the Total Contract Cost - not including sales tax.

From the perspective of protecting a public agency, it seems to me that the amount of the Payment and Performance Bond should include sales tax, and perhaps the GC/CM law should be amended accordingly. We do know there are various inconsistencies in the law that need to be corrected and perhaps this is one of those areas.