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.
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.
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 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
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.
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:
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.
Claims against a contractor bond can be made by the following parties:
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.
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
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.
California’s contractor license bonds must adhere to stringent requirements set by the Contractors State License Board (CSLB). These include:
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.
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
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.
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.
California places a strong emphasis on protecting consumers and employees. The contractor license bond covers:
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.
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!
