Contractor License Bonds are required by most states to guarantee that a general contractor will operate their business in compliance with the rules and regulations pertaining to their specific contractor license. Ultimately, these bonds exist to protect the public from fraudulent practices or from being ripped off by a contractor. S Philips Surety & Insurance Services offers numerous CLB programs designed to get all types of contractors approved at excellent rates, in all 50 states.
It is important to understand that Contractor License Bonds are NOT the same as Bid and Performance Bonds, which is a common misconception. They guarantee the compliance with a state or local contractor’s license, where as most performance bonds guarantee that obligations of a contract are fulfilled.
Application: Call underwriter for appropriate application at 1-818-715-7133
FAQs About Our Contractor License Bond Options
We want you to feel comfortable working with our surety bond company and realize you may still have questions. Our FAQ section below will help you understand more about our business and what we do. Let’s learn more!
What Are Contractor License Bonds from a Surety Company?
- The construction professional purchasing the contractor license bond (principal)
- The surety company issuing the bond amount, guaranteeing the contractor’s obligation
- The entity requiring a contractor to be bonded (obligee)
If the contractor doesn’t fulfill the terms of the surety bond, the obligee can make claims against the contractor’s bond to gain compensation for damages. However, the surety company doesn’t just absorb the loss. Surety underwriters consider their policies to be no-risk, while traditional insurance company policies assume there will be losses.
If a claim gets made against the contractor’s bond, the contractor must reimburse the surety for the money it pays as it settles the claim.
Who Will a Contractor Bond Protect?
A license bond protects the public and guarantees that the construction professional adheres to the stipulations found in the bond’s legal language. When purchasing contractor bonds, construction professionals must agree to work and perform certain things, protecting consumers from financial damages and loss.
What Surety Bond Amount is Necessary?
Overall, the California Contractors License Board regulates over 284,000 contractors in California. They’re required to carry the California contractor license bond from a reputable surety company.
It’s important to go to your contractor’s state license board to determine what amount you need for your contractor bond. Once you’ve done that, we, as your surety company, can help you stay compliant within your state.
For example, California contractor license law requires you to have $25,000 in a contractor bond right now. This amount can change at any time, so it’s wise to stay updated. In many cases, you can visit your contractors’ state license board to learn more.
What Does the contractor Bond Amount Mean?
If you violate the California contractors’ license bond, you could be subjected to a disciplinary bond, which is separate. That amount and time are unique to each person’s situation.
Overall, it’s best to work within the law for contractors’ bond amounts to avoid higher costs associated with various penalties. Likewise, you may have your license suspended and be unable to work while paying the penal sum.
Is a Surety Bond Different Than Insurance?
Bond pricing is generally based on your individual credit history. This is because the contractor is held liable for those actions and must repay the surety company if a claim is paid out.
However, when claims are paid out from an insurance company through an active policy, the carrier doesn’t expect a payment from the policyholder.
Does an Insurance Company Issue the Surety Bond?
How Do Contractor Bonds from an Insurance Company Work?
Overall, we provide the CSLB with a guarantee that the vendors, customers, employees, and suppliers of the licensed contractor will get payment for any financial damages caused by a violation of the contractor license law. The limit is set at $25,000 in California, though it can vary. This is often the bond amount or penal sum.
Likewise, the bond company receives the public’s claims and determines their validity. Contractors are then responsible for their own actions and are required to reimburse the company for payments made under that bond. If they don’t, they could face license suspension indefinitely.
Violations that could trigger a bond payout include:
- A contractor fails to pay vendors or employees.
- A contractor abandons a job before completion.
- A contractor fails to repair their own poor workmanship.
Is a Bond of Qualifying Individual the Same as a Contractor's Bond?
It’s generally required when the license is qualified by an RME (responsible managing employee) or when it’s qualified by an RMO (responsible managing officer) who doesn’t own 10 percent of the voting stock within the corporation. They can submit an exemption certification if they own over 10 percent of the voting stock within the corporation.
If the license has multiple RMOs and RMEs qualifying the license, each one has to comply with the bonding requirements set forth in their state. These requirements include:
- The bond has to be written by a licensed surety company.
- It has to be at least $25,000.
- The license number, business name, and qualifying individual’s name must correspond with the CSLB records.
- The bond requires the signature of the surety company’s attorney-in-fact.
- The bond form must be approved by the AG’s (Attorney General’s) office.
- The bond has to be received by the CSLB within 90 days of the bond’s effective date.
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