Why should California contractors purchase a contractors license bond? According to state law, all licensed contractors in California are required to maintain a $15,000 license bond with the Contractors State License Board (CSLB) as a condition for maintaining an active license (or post cash in lieu of a bond). (Business and Professions Code Section 7071.6) The purpose of the bond is to benefit consumers who have been financially harmed as a result of a contractor’s work, or a contractor’s employees who may be owed unpaid wages. While the current benefit amount of the bond is $15,000, the bond amount is generally increased periodically by the state.
It’s important to note that unlike insurance, contractors license bonds in California are fully indemnified, meaning if a claim is paid out by a surety on behalf of a contractor, the contractor is responsible for repaying the surety the amount of the claim as outlined in the terms of the bond indemnity agreement.
Bond of Qualifying Individual (BQI)
In addition to the regular bonding requirements, a Bond of Qualifying Individual (BQI) may be required if the license is qualified by a Responsible Managing Employees (RME) or Responsible Managing Officer (RMO) for corporations. A BQI is only required if an RMO does not own at least 10% of the voting stock of a corporation. In which case, the contractor will need to complete an exemption form located here. Also, more than one BQI may be required if there are multiple RME’s or RMO’s on a license.
How Much Does A Contractors License Bond Cost?
California contractors license bond premiums are for the most part based on credit as well as other rating factors such as a contractors license history. HCC surety currently offers a bond that will not take credit into account for the first year if the contractor meets certain criteria. To qualify, the newly licensed contractor must not have a roofer or a pool classification and cannot have been associated with another license in the past. Depending on one’s credit, the current cost of a license bond generally varies from around $100 per year with good credit and license history, to well over $1300 per year for those with poor credit or other detrimental factors such as a license complaint, bankruptcy, prior bond claim or liens on file. Some contractors with several of the above detrimental factors may find it difficult to obtain a license bond at any price. As an alternative, contractors can post $15,000 cash with the state in lieu of a license bond.
For more information on California contractors license bonding requirements, please feel free to call us at 1-800-682-1552 or visit the CSLB website located here.
By Jeremy Schaedler