Contractors in California are Contractors with any single project more than $500 must have a contractor license in order to operate legally. The license is regulated by the California Contractors State Licensing Board (CSLB), who run monthly sting operations to catch illegal contractors. To obtain a valid state license, contractors need to file $25,000 contractor license bond with the California Contractor State License Board (CSLB). That’s what we’ll be covering in this article today.
The bond exists for a few reasons:
Since 1929, the California Contractor State License Board (CSLB) has regulated more than 300,000 licensed contractors. Compared to states that do not have a contractor license board, Californians feel more confident hiring and working with contractors since they know that the contractors are licensed and bonded with the CSLB. This is ultimately beneficial for the California contractor industry as a whole.
The cost of a California contractor bond is determined by a variety of factors, including the contractor's credit score, years of experience, prior claim history, and the insurance company offering the bond, and the term of the bond. Typically, the bond cost ranges from 0.5% to 6% of the bond amount ($25,000) required by the state.
The higher your credit score, the more years of experience without any prior bond claims, the less expensive your bond would be. In our experience, a California contractor with an outstanding credit score (650+), who has had the license for at least 5 years, who has no claims in the past, can get a contractor bond for around $100.
Apart from the $25,000 Contractor License Bond / CSLB Bond, there are three additional bonds that a contractor should know about. These bonds are only required in specific circumstances, as described below.
A $25,000 Bond of Qualifying Individual (BQI) is required in addition to the contractor license bond if the contractor license is qualified by a Responsible Managing Employee (RME) who owns less than 10% of the corporation's voting stock. This usually happens when the owner of the business does not have the necessary expertise in a specific contracting field.
A $100,000 LLC Employee/Worker Bond is required in addition to the contractor's bond if the business applying for the contractor license is registered as a Limited Liability Corporation ("LLC").
A Disciplinary Bond is also required if a license has been previously revoked. The disciplinary bond has an amount that starts at $25,000. The CSLB determines the exact bond amount.
There are three parties involved in the California contractor license bond: the insurance carrier (the surety), the contractor being bonded (principal), and the obligee (contractor state licensing board). Under a CSLB Bond, the insurance carrier provides a financial guarantee to the contractor state licensing board that the contractor being bonded will perform duties as defined under the licensing law. If any violation is made, the customers, vendors, suppliers, and employees of a licensed contractor could make a claim against the bond. Then the insurance carrier would investigate the claim. If the claim is valid, then the insurance carrier would pay the damage up to the bond amount of $25,000 to the parties that made the claim. However, ultimately, the contractors are required by the California Contractor License Regulations to reimburse the surety company for payment made under the bond. Otherwise, their license could be permanently suspended
There is a physical license card offered by CSLB for $25, but it’s not required. All bonds are electronically kept on record by CSLB, so a physical card is not necessary. If a customer wants to verify your license, you can ask them to look you up on the CSLB’s license check page.
Some bonding agencies tout their own physical cards as a marketing tactic. However, in reality, these cards serve no purpose and have no relation to CSLB. Physical cards also add additional cost to the bonding process, which are often passed on to the contractors. Therefore SuretyNow does not offer physical cards as proof of bonding.
CSLB does enforce the bond actively. Doing paid contract work with more than $500 on a single project without a license can result in fines and imprisonment (Business & Professions Code 7028). CSLB enforces the bond through investigating customer complaints and running monthly sting operations throughout California. CSLB receives roughly 20,000 complaints about unlicensed contractors annually and runs highly effective sting operations to go after these complaints. In June 2019, CSLB ran three undercover sting operations and 46 sweep operations around California which resulted in 169 legal actions against contractors. These investigations are conducted by investigators from CSLB’s Statewide Investigative Fraud Team (SWIFT).
To understand how one could avoid claims on a contractor license bond, let’s look at the most common reasons that claims happen:
Therefore to avoid claims on your contractor license bond, we recommend that contractors:
To file a claim against a bond, a consumer must contact the contractor’s surety company and submit the bond number, a written description of the problem, and a copy of the contract. The surety company will then investigate the claim. If the surety company finds the claim to be valid, they will make a payment to the claimant. Then, the surety company will try to recover the claim loss from the contractor. Let’s illustrate this with an example.
Consumer Kim hired contractor Jason for a major home renovation. They agreed on a $50,000 contract to do an electrical rewiring panel upgrade, whole house copper repipe and kitchen and bathroom remodel. Two months later, Jason declared to Kim that the job was complete. However, in reality, the work was done poorly. Kim found multiple issues with the renovation and even obtained correction notices from the city inspector. However, when she explained the issue to Jason, Jason insisted that the issues were unrelated to his work and were outside the terms of their contract. Kim looked up Jason’s license registration on CSLB and contacted the surety company listed on Jason’s license to file a claim of $30,000. The surety company investigated Kim’s claim and accepted the claim. Then, the surety paid Kim $25,000, which is lower than the claim of $30,000. This was because $25,000 is the maximum amount that could be paid out to a claimant because it’s the amount of the bond. Jason was now liable for repayment of $25,000 to the surety company, otherwise his bond and license would be canceled
Generally speaking, surety brokers (speaking from experience) require the following information is collected in the form to determine the applicant's eligibility and bond price:
Because there have been a high number of claims on this bond in the past, the bond requires a soft credit check to ensure that adequate prices are provided.
Generally speaking, a credit score under 650 is considered “bad credit”. We have several insurance partners that specialize in this market, so if you have a less than perfect credit score, we can help. Give us a call or fill out our form and we’ll shop around to get you the lowest possible quote.
Both the California contractor license bond and bond of qualifying individual coverage were increased to $25,000 on January 1st, 2023 as part of California Senate Bill 607, signed on September 28th, 2021. Prior to the passage of Bill 607, the bond amount required for each was $15,000. The bond amount was increased to provide an extra layer of protections for consumers and to offset rising construction costs.
Consumers can look up a contractor’s bonding status via the check for license page on the official CSLB website. It’s super easy and contractors are searchable either via their first and last name, business name or license number.
Nope, you do not need to file the bond yourself. After you purchase the bond from us, we will e-file the bond on your behalf to CSLB. You can verify that it’s been filed by searching for your license on the CSLB website. We file the bond the same day after issuing your bond and it takes about a week for it to show up on the CSLB website.
Give us a call or email if you need to change your existing bond. We will file what is called a bond rider form on your behalf to the surety company to make changes to the bond.
We’ll send you via email a PDF copy of the bond once it’s been processed. This will serve as proof that you are bonded.