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. As such, anyone who wants to become a serious contractor must obtain a California contractor license to practice. One important aspect of this is obtaining a contractor license bond. This article will go over the basics and FAQs of contractor licensing bonds in California, including the requirements, new Senate mandates, and an overview on how claims can be filed against this 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, are also obligated to have a $25,000 bond on record with the CSLB, called the bond of qualifying individual.
According to the CSLB, a contractor license bond must meet all of the following state requirements.
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.
Contracting without a license in California is illegal. According to the CSLB, those who are caught contracting without a license will likely have to appear before a Superior Court judge. They will face misdemeanor charges, which in many cases can carry a potential sentence of up to six months in jail and/or a $5,000 fine. In addition, perpetrators may be subject to an administrative fine of $200 to $15,000.
The current mandated bond amount for contractor licenses is now increased to $25,000. This bond amount was instated on January 1, 2023, as a result of the Senate Bill 607.
It is important to note that this amount is not per project, but rather 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.
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:
Contact Licensing@cslb.ca.gov about increasing your bond.
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:
The cost of a contractor license bond depends on two numbers: the bond amount, which is $25,000 in California, and the premium rate, which 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 ranges 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.
Claims against a contractor bond can be made by the following parties:
To file a claim against a bond, consumers should reach out to 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.
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.
To sum it up, the California Contractor License Bond is a necessary 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 who specializes in contractor license bonds is crucial in obtaining the right bond for the contractor's needs, and SuretyNow is here to help if you run into any questions. Happy contracting!