CONTRACTOR LICENSE BONDS

Most people are confused by contractor license bonds, thinking they protect the contractor from being liable for any damages. While bonds often get issued by the insurance company, surety bonds are different than traditional policies.

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.

Each state license board has specific surety bond amount options that licensed contractors must have. For example, the California contractor license bond has increased from $15,000 to $25,000.

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.

The contractors’ state license board will determine the contractor bond amount you require from the surety company. This isn’t per project; instead, it’s for the total number of jobs the contractor takes on during the effective contractor bond term.

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.

Contractors often confuse license bonds with California contractors’ insurance, but there’s a significant difference between them.
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.

An insurance company can issue contractor bonds, and we are one of them.

A contractor’s bond is issued by an insurance company like ours. The insurance company issuing the surety bond is often called a bond company or surety company. Regardless, contractor license bonds call the contractor the principal, the CSLB (contractors’ state license board) is the obligee, and the surety bond company is the obligor.

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.

No. A bond of qualifying individual is often added to a contractor bond and might be required to issue an active license, reactivate a license, and maintain a renewed license.

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.