CONTRACTOR LICENSE BONDS
Contractors are required to maintain a surety bond for the benefit of consumers who may be damaged as a result of defective construction or other license law violations and for the benefit of employees who have not been paid wages that are due to them.
The Contractor’s Bond and Bond of Qualifying Individual
A surety bond is usually a three-party agreement between a surety, the contractor, and a project owner. (See Chapter 6 for a description of these bonds.) The contractor's license bond is different from most other surety bonds. The contractor's bond is executed by a surety in favor of the State of California for the benefit of specific categories of people damaged by a contractor's violation of the Contractors' License Law. The list of beneficiaries can be found in Business and Professions (B&P) Code Section 7071.5.
Before an active contractor's license can be issued or renewed, or an inactive license made active, the licensee must have a current contractor's bond, or an approved alternative to the bond (see below), on file with CSLB. The contractor's bond shall be in the amount of $10,000 for all classifications. The contractor's bond is scheduled to be increased to $12,500 on January 1, 2007. In addition, a qualifying individual must carry a $7,500 bond, or an approved alternative to the bond, on file for each responsible managing employee (RME). You must also have a $7,500 bond of qualifying individual on file for each responsible managing officer (RMO) unless the RMO owns 10 percent or more of the voting stock of the corporation. Like the contractor's bond, the qualifying individual's bond is scheduled to be increased to $12,500 on January 1, 2007.
If the license is inactive, neither the contractor's bond nor the bond of qualifying individual is needed.
After a firm's license has been revoked for a violation of the Contractors' License Law, the firm must file a disciplinary bond with the Registrar if the license is to be reinstated or reissued or if the firm seeks to have a new license issued. (See B&P Code Section 7071.8.) Disciplinary bonds are subject to the following requirements:
The Registrar determines the bond amount, which is based on the seriousness of the violations. The amount may not be less than $15,000 nor greater than ten times the amount of the contractor’s bond; (See B&P Code Section 7071.8);
Approved Alternatives to Contractor’s Bonds
Instead of filing a surety bond with CSLB, a contractor may prefer to use one of the following approved alternatives for filing a security deposit. (See Code of Civil Procedures Section 995.710.)
NOTE: All alternatives to bonds are retained by the Board for three years after the end of the license period that they cover. If the board is notified of a complaint relative to a claim against the deposit, the deposit shall not be released until the complaint has been adjudicated.
NOTE: It is the contractor's responsibility to make sure the alternative in lieu of a required bond is timely and meets the Board's requirements. Failure to have a required bond or an alternative on file may result in license suspension and a gap in licensure.
Certificate of Deposit
In order for the Board to accept certificates of deposit in lieu of a contractor's bond, the certificate must meet the Board's requirements. As noted above, it is the contractor's responsibility to make sure the financial institution issuing the certificate provides a timely certificate that meets the following requirements:
Bank Savings Account, Savings and Loan Investment Certificate or Share Account, Credit Union Certificate for Funds or Share Account
It is the contractor's responsibility to make sure the assignment of these accounts or certificates meets the following requirements:
A licensee may choose to make a cash deposit with CSLB instead of filing a bond. The cash deposit must be in the form of a cashier’s check or a bank-certified check payable to the Contractors State License Board. A cashier’s check must show the name of the purchaser and must be deposited with CSLB. Cash deposited with CSLB does not earn interest.
These bonds must meet the following requirements:
- They must be issued by the U.S. Government or by the State of California;
- They must be delivered to a bank in Sacramento, California, and have a market value equal to or greater than the amounts prescribed in B&P Code Sections 7071.6 and 7071.9 of the Business and Professions Code or as fixed by the Registrar, as provided for in B&P Code Section 7071.8 of the Business and Professions Code (Also see California Code of Regulations [CCR] Section 856 (c)(3));
- The bank, as agent for the applicant or licensee, will, on order of the Registrar, deliver the bonds to the Treasurer of the State of California. Under no circumstances are bearer bonds to be delivered to CSLB or the Registrar.
General Requirements for Bonds and Bond Alternatives
The following requirements must be met before your bond (or a bond alternative) can be accepted:
- Bonds are not transferable—do not attempt to transfer a bond from one license to another or from one qualifying individual to another;
- The business name and the license number on the bond must correspond exactly to the information in the records of CSLB;
- The license number on the bond of a qualifying individual must match that of the firm for whom the individual is to serve as the qualifying individual;
- Contractor’s bonds must be in the correct amount of $10,000;
- A bond of a qualifying individual must be in the correct amount of $7,500;
- The bond must have the signature of the attorney-in-fact;
- Bonds must be filed with CSLB within 90 days of the effective date of the bond.
The contractor's bond and the qualifying individual's bond are scheduled to be increased to $12,500 each on January 1, 2007.
If you are submitting a bond alternative and the bond alternative is returned for correction, take it and the letter of correction to the issuing entity for correction as soon as possible. Return the corrected document to CSLB as soon as possible.
The Registrar may reinstate your license following a suspension for failing to have a required bond (or bond alternative). The suspension may result in a gap in licensure, however.
The following guidelines will help you to avoid problems with the bonds filed for your license:
Renew your bonds promptly. To avoid a period of suspension, make sure that the effective date of the new bond is the same as the cancellation date of the old bond. To allow for processing time, arrange for a new bond four weeks before your old one expires;
Keep accurate records on your agent, surety company, bond numbers, effective dates, and terms of the bonds.
Your license will be suspended if any of the following bond-related conditions occur:
The voting stock of the responsible managing officer for a corporate license is no longer at least 10 percent of the total voting stock of the corporation. (See B&P Code Section 7071.9.) Suspension is effective from the date ownership terminated unless a bond of qualifying individual, backdated to the date his or her percentage of the stock fell below 10 percent, is filed;
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