As of the date of this blog, there are over 280,000 contractors in the state of California. The public can search for actively licensed contractors at their site. With so many operating contractors, California like many states requires contractors to be licensed and provide a surety bond to protect the general public. A California contractor bond is a three-party guarantee between a surety company, contractor and the State of California. It protects consumers from construction defects and other license law violations. It also protects construction employees for wages they are owed. To avoid disciplinary action against the license, contractors must abide by the rules and regulations that were created by the Contractor State License Board. If a contractor doesn’t comply with the state law, claims may be filed with the surety company by an employee, supplier, or customer.
Who Needs a Bond?
A bond must be in place before the Contractor State License Board will issue or renew a license. Therefore, most contractors operating in the state of California will need this bond.
How to Apply for a Contractor Bond
A California Contractor Bond is easily obtainable through MG Surety Bonds. We simply need the following:
- Name and address of the business and owner
- Social Security Number (so we can run credit)
- License Number or Application Number – Contractors can look up their status here
- Phone Number and Email
Once approved, we need a signed application that includes an indemnity agreement and that’s it. Most applications are approved and issued in minutes. In some cases, the bond can even be filed with the state electronically. We work with 25+ bond companies and have options for all circumstances.
Newly Licensed California Contractors
There is also a license bond program specifically for newly licensed California contractors. This program will still run the contractor’s personal credit but it allows contractors with credit blemishes to obtain bonding at a reasonable price. To qualify, a contractor has to apply within the first 12 months of receiving their approved application. A contractor will need their application number to qualify for this program.
How Much Do Contractor Bonds Cost?
A California Contractor Bond is priced based on the personal credit of the application. For applicants with great credit, a one-year bond costs as little as $90. For those with less than perfect credit, these bonds are still easily obtainable at higher rates. Discounts are also available for purchasing multiple years up front. The longer the prepaid term, the larger the potential discount. MG Surety Bonds has the best rates in the business and will work to get each contractor the bond at the lowest cost.
Requirements of a Valid Contractors Bond
To be acceptable to the CSLB, several requirements must be met. Requirements for this bond include:
- Amount must be $15,000
- Must be written by a California Department of Insurance licensed surety company
- The signature of the surety company’s attorney-in-fact must be present
- The license number and business name on the bond must match the license number and business number in the CSLB’s record exactly.
- An Attorney General’s Office approved form must be used for the bond.
- The bond has to be turned in at the CSLB’s Headquarters Office within a 90-day period from the effective date of the bond in question.
Be careful to make sure your surety and broker meet these requirements. Unfortunately, there are fraudulent bond companies that will take your money and not meet the state’s requirements.
Other Related Bonds
In addition to the Contractor Bond, related bonds may be required by the Contractor Licensing Board. These include a Bond of Qualifying Individual and a Disciplinary Bond.
A Bond of Qualifying Individual (BQI) is required, in addition to the Contractor Bond, if the qualifier is a responsible managing employee (RME). A BQI is also required if the qualifier is a responsible managing officer, responsible managing manager, or responsible managing member with less than 10 percent ownership of the voting stock or equity of the corporation or limited liability company (LLC) for which he/she is qualifying. Contractors can read more about the requirement here. The bond amount required is $12,500. These bonds are easily obtainable and priced based on the credit of the individual.
A Disciplinary Bond is required when a license has been revoked for violation of the Contractors’ License Law. This bond is needs to be filed before the license can be reinstated. Contractors can read more about the requirements here. This bond is required to be in place for a minimum of two years. It may not be less than $15,000 the Registrar will determine the bond amount. Contractors that are required to post a Disciplinary Bond will still need a Contractor Bond as well.
The Basics of the Contractors Bond
The contractors (principals) of a surety bond agree to comply with the provisions set by Division 3, Chapter 9 found in the Business and Professions Code. The purpose of the bond is to provide protection for harmed parties from a financial loss up to the total amount of the bond if the principal doesn’t comply with the law and the surety bond agreement.
The bond will remain in effect until they are canceled. The surety has the right to cancel the bond according to Sections 996.310 of the Code of Civil Procedure. More information can be found here.
Keep in mind that these bonds are required by the state for licensing. This does not mean that additional bonds will not be needed. Many municipalities will still be required contractors to post bonds for work done in their jurisdictions. Contractors may also need other bonds such as bid bonds, performance bonds and payment bonds. MG Surety can help navigate and get contractors what they need. We have the best rates, terms and expertise. We want to be your bond broker for life! Contact us today.