A Bond of Qualifying Individual (“BQI”) must be filed with the California Contractor State License Board (“CSLB”) on behalf of a contracting business lacking an owner with the required experience of any classifications listed on the license. Such a business must appoint a Responsible Managing Employee or Officer (RME/RMO) as its qualifying individual on the license and post a BQI in the name of the RME or RMO.
How much does a Bond Of Qualifying Individual cost in California?
Bonds of Qualifying Individual costs between $75 and $350 depending on the personal credit, license history and classification of the qualifier.
|Price Tier||Bond Cost*|
*Prices shown are for a one year term and are based on several factors including personal credit, license history, years in business and active licensing and bonding of the qualifier. Not all available pricing tiers are shown. Rates do not constitute an offer of bonding and are subject to change at any time.
What is a Qualifying Individual?
The Contractor State License Board requires every contractor's licensee to designate a Qualifying Individual, the person that meets the experience and examination requirements of the license and is responsible for exercising direct supervision and control of the contractor businesses’ operations (“the qualifier”). The qualifier is usually an owner of the business, but when a business does not have an owner that meets the requirements of a qualifier, the business must name a Responsible Managing Employee (RME) or Responsible Managing Officer (RMO) with the relevant experience in the trade (“RME/RMO qualifier”).
Why is the Bond Of Qualifying Individual required?
California Contractor License Law requires RME/RMO qualifiers to file a Bond of Qualifying Individual with the CSLB because the California legislature determined that a contracting business requiring a RME or RMO as its qualifier on its license poses a greater risk to the public. The Bond of Qualifying Individual provides the public, and ultimately the state, protection along with the $15,000 contractor license bond required of every licensed contracting business in California.
How does a Bond Of Qualifying Individual work?
The $12,500 Bond of Qualifying Individual must be issued by an insurance carrier admitted by the California Department of Insurance. The insurance carrier issuing a surety bond, such as a Bond of Qualifying Individual, will also be referred to as the “surety company” or the “bond company”. Bonds of Qualifying Individual refer to the qualifier as the “Principal”, the surety bond company as the “Obligor” and the CSLB as the “Obligee”.
The surety company provides the CSLB a guarantee (the surety bond) that the customers, vendors, suppliers and employees of a licensed contractor with a RME or RMO as its qualifier will receive payment for financial damages due to a violation of California Contractor License Law up to a limit of $12,500 (“penal sum” or “bond amount”). The surety company also directly receives claims from the public and determines the validity of claims. Ultimately, licensees and their associated qualifiers are responsible for their actions and required by California Contractor License Law to reimburse the surety company for any payments made under the bond or face license suspension.
Bond of Qualifying Individual violations triggering a bond payout may include a licensee failing to pay vendors, abandoning an uncompleted job or failure to repair faulty workmanship.
What is a Responsible Managing Employee?
A Responsible Managing Employee (RME) is a permanent employee that is not an officer, general partner or sole owner of a licensed contracting business who provides the necessary qualifications of the contractor license classification because the business’ officers or owners cannot meet the criteria of the trade. An RME must have at least 4 years of journeyman-level or higher experience in the classification obtained within the last 10 years and pass the written Law and Business Examination and a specific trade examination, if required, unless the RME meet the requirements for a waiver.
An RME must be actively engaged in the operation for at least 32 hours per week or 80% of the total weekly hours the business is operating and is responsible for the direct supervision and control of the licensed business’ construction operations. The RME may act as the qualifier for up to three firms in any one-year period.
Any license applicant requiring an RME must file a $12,500 Bond of Qualifying Individual, in addition to a $15,000 Contractor License Bond, with the CSLB to be approved for a contractor license.
What is a Responsible Managing Officer?
A Responsible Managing Officer (RMO) is an officer holding less than 10% of the voting rights of a corporation or LLC in California who provides the necessary qualifications of the contractor license classification because the corporation’s other owners do not possess the criteria for the trade. An RMO must have at least 4 years of journeyman-level or higher experience in the classification obtained within the last 10 years and pass the written Law and Business Examination and a specific trade examination, if required, unless the RMO meets the requirements for a waiver.
An RMO is responsible for the direct supervision and control of the licensed business’ construction operations. The RMO may act as the qualifier for up to three firms in any one-year period.
Any license requiring an RMO must file a $12,500 Bond of Qualifying Individual, in addition to a $15,000 Contractor License Bond, with the CSLB to be approved for a contractor license.
What happens to my license if my RME or RMO leaves?
The license belongs to the business, not the qualifier, so the license is not immediately suspended in the event an RME or RMO leaves. However, the licensed contracting business has 90 days to replace an RME or RMO who is no longer employed by the business or no longer qualifies for whatever reason. When the qualifier is replaced, the new RME or RMO must purchase a new Bond of Qualifying Individual, which cannot transfer to another individual or from a qualifier’s prior license, if any. If the RME or RMO is not replaced within 90 days, the license will be suspended for a lack of qualifier.
Is a Credit Check Required for Bonds of Qualifying Individual?
Surety carriers will run a credit report as part of underwriting because the contractor ultimately must reimburse the surety company for any claims made on a Bond of Qualifying Individual. California Contractors Insurance Services works with several surety companies with varying risk appetites allowing contractors with bad credit to purchase the California contractor license bond for the lowest rates available in the marketplace.
How does fine print impact the cost of Bonds of Qualifying Individual?
The Bond of Qualifying Individual is relatively favorable to the surety company, lowering the cost of the bond on balance. As detailed in the broader article on contractor license bonds, the primary text to consider in a contractor license bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses. The California Bond of Qualifying Individual contains a $12,500 aggregate limit, a standard 30 day cancellation provision and does not contain any forfeiture clause. Further, the bond form specifically references California statutes related to contractor licensing clearly granting the surety company the right to recovery bond payouts from the contractor.
How to check a California Bonds of Qualifying Individual?
Contractors in California are licensed and regulated by the Contractors State License Board (“CSLB”), a division of the California Department of Consumer Affairs. To check the status of a contractor’s license and surety bond you can visit the CSLB website and enter the contractor's license number in the “Instant License Check”.
What is the difference between a California Contractor License Bond and a Bond of Qualifying Individual?
The $15,000 Contractor License Bond is required of every business advertising or performing contracted work in excess of $500 in California whereas the $12,500 Bond of Qualifying Individual is required of licensed contracting businesses who lack an individual owner who possesses the qualifications required of the license class. Further, the Contractor License Bond is attached to the business license whereas the Bond of Qualifying Individual requires the Responsible Managing Employee or Officer to be named on the bond. A Bond of Qualifying Individual can neither transfer to a new RME or RMO appointed by the licensed contracting business or transfer to another license with the RME/RMO named on the bond.
|Contractor License Bond||Bond of Qualifying Individual|
|Requirement||Always||If ownership lacks qualifications|
|Attached to...||Business License||RME or RMO|
What other types of surety bonds are required of contractors in California?
All licensed California contractors are required to carry a $15,000 contractor license bond. Contracting businesses structured as a limited liability company are required to purchase a $100,000 LLC Employee/Worker Bond. Contractors who have been subject to a disciplinary action from the Contractor State License Board resulting in suspension or revocation of their license may be required to purchase a Disciplinary Bond. Contractors may also be required by the owner of a project to provide a bid, performance and payment bond, often referred to as Contract Surety Bonds, on a job by job basis.
How can insurance agents obtain a Bond of Qualifying Individual for their customers?
California Contractors Insurance Services works exclusively with contractors for all of their business-related insurance needs.
If you’re an insurance agent looking for an efficient platform to access quotes and purchase bonds for your contractor clients from dozens of surety carriers, we recommend The Bond Exchange. Licensed in 50 states, The Bond Exchange has been helping insurance agents with their surety needs for over 40 years, developing an extensive database of over 10,000 unique surety bond requirements.