Having your contractor bond suspended can be stressful and detrimental to your business. A contractor license bond, also known as a surety bond, is required by many states and municipalities to ensure contractors meet their legal and financial obligations. If your bond is suspended, you will be prohibited from taking on new contracts until the issue is resolved.
Every month, hundreds of contractors in California have their licenses suspended by the Contractor State Licensing Board for not having a valid Contractor License Bond (or an alternative bond guarantee) required by CSLB, making it illegal for the contractor to work until the situation is resolved. This situation can be frustrating for contractors who are surprised by the situation they find themselves in, but often the problem is relatively easy to fix once the root cause of the problem is known.
What is a contractor bond suspension, and how does it work? In this article, we'll tell you what causes a contractor bond suspension, how to avoid a contractor bond suspension and what to do in the event of one.
Suspension of a contractor's bond can occur for a variety of reasons, but it is most often due to the CSLB not receiving a new bond to replace an expired bond, or the contractor's failure to pay the existing bond in installments, resulting in the guarantor issuing a termination notice to the CSLB. However, bond suspensions may also occur for other reasons, such as if the guarantor fails to cancel or renew the existing bond for actuarial reasons or if the policyholder does not receive a new bond within the allotted period. Some contractors who no longer intend to continue in business intentionally revoke their security deposits, but many unknowingly cancel them.
Below, you'll find some vital information on the bond suspension policies outlined by the CSLB.
All actively renewed licenses must comply with the bond requirements. If any violations of these requirements occur, your license will be placed under bond suspension, according to the CSLB website:
One important thing to note is that you must notify the CSLB of any change to your license within 90 days of the change (Business and Professions Code, Section 7083).
The CSLB will lift your bond suspension when you send one of the following documents to the CSLB's Headquarters Office, and they are determined to be acceptable:
Note that the bond coverage must be continuous to avoid an unbonded period in licensing time.
If the bond was canceled due to a judgment or payment of claim, filing a new bond will lift the bond suspension but not a judgment or payment of claim suspension.
If a bond is not received within 90 days of the bond effective date, the bond may be accepted, and the bond suspension lifted after the fact if failure to have the bond on file with the CSLB was due to circumstances beyond the licensee's control (Business and Professions Code 7071.7). If this condition exists, you must do the following:
Complete a "Request for 7071.7 Bond Acceptance" form (13B-31) explaining the circumstances. This form can be obtained by calling the CSLB at 1-800-321-CSLB (2752).
Send the completed bond acceptance form and the original bond to the CSLB's Headquarters Office.
To avoid a bond suspension, contractors must verify that their licensing information is correct. First, make sure your CSLB online profile and the addresses and phone numbers listed with your bond broker or guarantor are up to date. Another tip is to make sure your bonds are renewed before you go on long vacations or take breaks, since your current bonds could expire during these breaks.
Lack of good recordkeeping or business controls can also cause or contribute to having a bond suspension issue. As such, it’s important to develop a plan to prevent similar problems in the future. Examples include scheduling regular project audits, maintaining detailed financial records, and closely managing change orders and payables. Proving your determination to run a tighter ship will help convince the surety company that problems will not resurface.
The timing of filing a bond is also important. In general, the CSLB will not issue Notes before the Effective Date. Therefore, if a contractor's new bond does not appear on the CSLB website on the same day that the old bond expires, there may be a problem, or it may be the result of a delay in publication time. This is not a big deal as long as the CSLB holds the bond before the current bond expires. Depending on the season and amount of work, the CSLB needs to catch up on updating new bonds, but the CSLB provides an online release schedule to let contractors know when they are working.
Provided that a new deposit has been submitted to the CSLB and that there are no other outstanding issues related to the contractor's license status (for example, if you have a renewal fee or an industrial accident certificate), your license suspension will be lifted relatively quickly. If the issue is urgent, the contractor can contact the CSLB staff to help expedite the process.
Having a contractor bond suspended can significantly impact your business, but taking quick and thorough action can get it reinstated. Resolving outstanding issues, strengthening financials, and improving business controls will show the surety company you are ready to move forward. With their approval, you can restart bonded work and rebuild a positive relationship. Staying in close communication with the surety company throughout the process is key to lifting the suspension efficiently.