A California Contractor License Bond Guide: What You Need to Know

In California, all businesses or individuals who construct or alter any building, highway, road, parking facility, railroad, excavation, or other structure must be licensed by the California Contractors State License Board (CSLB) if the total cost exceeds $500. One important aspect of this is obtaining a contractor license bond. This article will review the basics and FAQs of contractor licensing bonds in California, including the requirements, new Senate mandates, and an overview of how claims can be filed against this bond.

What is a contractor license bond?

In order to obtain a contractor license in California, contractors are required to submit either a surety bond or cashier's check to the CSLB (Contractors State License Board). This bond or check is meant to protect consumers who may suffer from faulty construction or violations of state license laws by contractors, as well as employees who have not been paid their wages.

Typically, contractors opt for a surety bond, also known as a "contractor license bond," where a surety company guarantees payment of damages if the contractor breaks state license laws. Additionally, contractors who have faced disciplinary actions may need to obtain a separate bond referred to as a "disciplinary bond." Some license qualifiers, including responsible managing employees, must also have a $25,000 bond on record with the CSLB, called the Bond of Qualifying Individual.

What are the requirements for a contractor license bond in California?

According to the CSLB, a contractor license bond must meet all of the following state requirements.

• The bond must be written by a surety company licensed through the California Department of Insurance.
• The bond must be in the amount of $25,000.
• The business name and license number on the bond must correspond exactly with the business name and license number on the CSLB's records.
• The bond must have the signature of the attorney-in-fact for the surety company.
• The bond must be written on a form approved by the Attorney General's Office.
• The bond must be received at the CSLB's Headquarters Office within 90 days of the effective date of the bond.

Who needs a contractor license bond?

Any contractor who wishes to obtain a license, reactivate a previous license, or renew their existing license must obtain a contractor license bond in the state of California.

What happens if I don’t obtain a license (or a license bond)?

Contracting without a license in California is illegal and can result in misdemeanor charges, up to six months in jail, and/or a $5,000 fine. In addition, they could also face administrative fines of $200 to $15,000

What is the required bond amount?

The current mandated bond amount for contractor licenses has now been increased to $25,000. This bond amount was instated on January 1, 2023, due to the Senate Bill 607.

It is important to note that this amount is not per project but the total sum available to cover any damages incurred across multiple jobs during the bond's validity. Once the bond is depleted, contractors must obtain a new one to maintain their license.

What happens if I purchased my contractor license bond before January 1, 2023?

According to the CSLB, contractors with a license bond on file are responsible for making sure that their contractor bond is adjusted to the new, increased amount.

There are two scenarios:

1. If you have a cashier’s check in lieu of a surety bond:

Contact Licensing@cslb.ca.gov about increasing your bond.

2.  If you already have a contractor’s bond through a surety company

Contact your surety about increasing your bond. However, if the surety company you have already purchased your bond from is included in the list below, your bond amount will be increased automatically to $25,000, as per the CSLB regulations.

Sureties under which your contractor license bond has increased automatically (list is current as of Feb. 10, 2023:

• Allegheny Casualty Company
• American Alternative Insurance Corporation
• American Casualty Company of Reading, Pennsylvania
• American Contractors Indemnity Company
• American States Insurance Company
• Arch Insurance Company
• Argonaut Insurance Company
• Aspen American Insurance Company
• Atlantic Specialty Insurance
• Berkley Insurance Company
• Berkley Regional Insurance Company
• Berkshire Hathaway Specialty Insurance Company
• Bond Safeguard Insurance Company
• Business Alliance Insurance Company
• Capitol Indemnity Corporation
• Cincinnati Insurance Company (The)
• Colonial Surety Company (only the contractor bond endorsement)
• Continental Casualty Company
• Continental Insurance Company (The)
• Contractors Bonding and Insurance Company
• Employers Mutual Casualty Company
• Endurance Assurance Corporation
• Everest Reinsurance Company
• Federal Insurance Company
• Fidelity and Deposit Company of Maryland
• Financial Pacific Insurance Company
• First National Insurance Company of America
• Granite Re, Inc dba Granite Surety Insurance Company
• Gray Casualty & Surety Company (The)
• Gray Insurance Company (The)
• Great American Insurance Company
• Great Midwest Insurance Company
• Hanover Insurance Company (The)
• Harco National Insurance Company
• Hartford Fire Insurance Company
• Hartford Insurance Company of the Midwest
• Hudson Insurance Company
• Jet Insurance Company
• Lexon Insurance Company
• Liberty Mutual Insurance Company
• Markel Insurance Company
• Merchants Bonding Company (Mutual)
• National Fire Insurance Company of Hartford
• Nationwide Mutual Insurance Company
• Navigators Insurance Company
• Old Republic General Insurance Corporation
• Old Republic Surety Company
• Pacific Indemnity Company
• Philadelphia Indemnity Insurance Company
• Platte River Insurance Company
• RLI Insurance Company
• Safeco Insurance Company of America
• State Farm Fire and Casualty Company
• St Paul Fire and Marine Insurance Company
• SureTec Insurance Company
• Swiss Re Corporate Solutions America
• Swiss Re Corporate Solutions Premier
• The Guarantee Company of North America USA
• The North River Insurance Company
• The Ohio Casualty Insurance Company
• Travelers Casualty and Surety Company
• Travelers Casualty and Surety Company of America
• Trisura Insurance Company
• United Fire & Casualty Company
• United States Fire Insurance Company
• United Surety Insurance Company
• Universal Surety of America
• US Specialty Insurance Company
• Vigilant Insurance Company
• Wesco Insurance Company
• Westchester Fire Insurance Company
• Western National Mutual Insurance Company
• Western Surety Company
• XL Specialty Insurance Company
• Zurich American Insurance Company

How much do I have to pay for a contractor bond in California?

The cost of a contractor license bond depends on two numbers: 

• The bond amount, which is $25,000 in California
• The premium rate, is a personalized percentage of the bond amount that a contractor must pay to obtain the bond. This premium rate is often determined by multiple factors, the most important being the contractor’s credit score.

To get a contractor license bond, a contractor does not need to pay the full bond amount, but rather only the premium, which is calculated as: 

Premium = Bond Amount ($25,000) * Premium Rate

In California, the premium rates for the contractor license bond range from 0.5% to 5%, depending on the bondseeker's creditworthiness. This translates to a range of premiums between $125 to $1,250 per year, renewed annually. 

Who can make a claim against a contractor bond?

Claims against a contractor bond can be made by the following parties:

• Homeowners who have entered into agreements for home renovations or construction of single-family dwellings that have been damaged due to violations of state license laws by the licensed contractor.
• Individuals who have suffered damages as a direct result of intentional and deliberate violations of state license laws or fraudulent activity committed by the licensee during the execution or performance of a construction contract.
• Employees of the licensed contractor who have not been paid their owed wages.
• Any person or entity that has suffered damages due to the contractor's failure to provide eligible employees with fringe benefits.

How does a consumer file a claim against a bond?

To file a claim against a bond, consumers should contact the contractor's surety company and provide a comprehensive written description of the issue, along with supporting documents such as the contract and any other pertinent information. If the consumer is not satisfied with the surety company's response, they have the option to take the contractor to small claims court for amounts up to $10,000. Claims exceeding $10,000 must be filed in a superior court.

What should a contractor do if a claim is filed against their bond?

If a contractor receives notification from their surety company regarding a filed claim against their bond, it is crucial to promptly respond to the surety. Contractors should provide a detailed explanation of their position and submit all relevant documentation. Additionally, if a complaint has been lodged with the CSLB, contractors should respond fully and promptly, providing the board with all requested information for the duration of the investigation.

The surety company will conduct its own investigation into any claims filed against the bond, while the CSLB will investigate any complaints against the contractor's license. Often, the issues involved in these two matters are interconnected. Both the surety company and the CSLB will independently address and resolve the respective issues within their jurisdictions.

Unique Aspects of Contractor License Bonds in California

Contractor license bonds are essential for maintaining the integrity of the construction industry and offering protection to consumers, employees, and the public. While these bonds are a common requirement across many states, California's regulations have several unique characteristics that set them apart — which are important to understand to 

1. Mandated Bond Amount

California's mandated bond amount for contractors is $25,000, as stipulated by Senate Bill 607, effective January 1, 2023. This amount is designed to provide sufficient coverage for claims against contractors. In contrast, states like Texas require only a $10,000 bond for most contractors, reflecting a significant difference in the consumer protection offered. The higher bond amount in California ensures a more substantial financial safety net for stakeholders.

2. Comprehensive Coverage Requirement

California’s contractor license bonds must adhere to stringent requirements set by the Contractors State License Board (CSLB). These include:

• Issuance by a surety company licensed through the California Department of Insurance.
• Exact matching of the business name and license number with CSLB records.
• Use of a bond form approved by the Attorney General's Office.
• Submission to the CSLB's Headquarters Office within 90 days of the bond’s effective date.

Other states often have less rigorous requirements. For example, in Florida, the bond requirements do not mandate an Attorney General-approved form, simplifying the process for contractors. California's detailed requirements ensure higher standards of accuracy and compliance.

3. Dual Bonding Requirements for Certain Contractors

California imposes additional bonding requirements for specific contractors. Those facing disciplinary actions must obtain a separate disciplinary bond, and certain license qualifiers like Responsible Managing Employees (RME) or Responsible Managing Officers (RMO) must secure a $25,000 Bond of Qualifying Individual. In contrast, states like Nevada do not have separate bonding requirements for license qualifiers, highlighting California's thorough approach to ensuring accountability at multiple levels

 4. Automatic Adjustment Provisions

California's automatic adjustment provisions are unique. Contractors who purchased their bonds before January 1, 2023, must adjust their bond amounts to the new $25,000 requirement. The CSLB has coordinated with surety companies to automatically increase bond amounts, easing compliance for contractors. In comparison, states like Georgia require contractors to manually adjust their bonds to meet new requirements, which can be cumbersome. California’s proactive measures streamline the compliance process and reduce administrative burdens.

 5. Stringent Claim Filing and Resolution Processes

California’s claim filing and resolution processes are notably stringent. Claimants must provide detailed written descriptions and supporting documentation, and the surety company conducts a thorough investigation. If dissatisfied with the surety’s response, claimants can pursue matters in small claims or superior courts, depending on the claim amount. In Arizona, for example, the claim process is less rigorous, and small claims court is often the only recourse, which may not fully address larger claims. California’s dual recourse options ensure comprehensive protection and resolution mechanisms.

6. Enhanced Consumer and Employee Protections

California places a strong emphasis on protecting consumers and employees. The contractor license bond covers:

• Substandard or incomplete work.
• Violations of building codes and state regulations.
• Non-payment of wages.
• Failure to pay subcontractors and suppliers.

In contrast, states like New York have less extensive bond coverage, focusing primarily on consumer protection without explicitly covering employee wages or subcontractor payments. California’s broad coverage ensures a wide range of stakeholders are protected, reinforcing ethical practices in the industry.

These unique aspects reflect California’s commitment to maintaining a robust and ethical construction industry. Contractors operating in California must understand these distinctive requirements to navigate the regulatory landscape successfully and maintain compliance.

Conclusion

To sum it up, the California Contractor License Bond is a requirement for all contractors looking to get licensed in the state. It is important for bond seekers to understand the pricing, where to get a surety bond, and the requirements set forth by the CSLB. Finding a reputable and knowledgeable surety broker specializing in contractor license bonds is crucial in obtaining the right bond for the contractor’s needs. SuretyNow is here to help if you run into any questions. Happy contracting!