Contractors are required to file a $15,000 contractor license bond with the California Contractors State License Board (“CSLB”) to maintain an active license. The bond protects the CSLB by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from a licensed business breaking California’s Contractor License Law.
How much does a Contractor License Bond cost in California?
California contractor license bonds cost between $69 and $350 depending on the personal credit, license history and classification of the contractor.
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Why is the California Contractor’s License Bond required?
Contractors are required to purchase and file a $15,000 license bond with the California Contractors State License Board (“CSLB”) to activate their contractor license, which is necessary to advertise and perform contracted work in excess of $500. The California contractor bond protects the CSLB by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from the failure of a licensed contractor to comply with the provisions of Division 3, Chapter 9 (commencing with Section 7000) of the California Business and Professions Code (“California Contractor License Law”).
How does a California Contractor Bond work?
The contractor's bond must be issued by an insurance carrier admitted by the California Department of Insurance. The insurance company issuing any surety bond, such as a California contractor license bond, will also be referred to as the “surety company” or the “bond company”. Contractor license bonds refer to the contractor 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 will receive payment for financial damages due to a violation of California Contractor License Law up to a limit of $15,000 (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, contractors 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 indefinite license suspension.
Contractor license bond violations triggering a bond payout may include a contractor failing to pay employees or vendors, abandoning an uncompleted job or failure to repair faulty workmanship.
Is a Credit Check Required for California Contractor License Bonds?
Surety carriers will run a credit report as part of underwriting because the contractor ultimately must reimburse the surety bond company for any claims made on a contractor license bond. California Contractors Insurance Services works with several surety bond 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 the wording of the California Contractor License Bond form impact the cost of the bond?
The California contractor license bond 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 contractor license bond contains a $15,000 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 from the contractor on bond payouts.
How to check a California contractor’s license and bond.
Contractors in California are licensed and regulated by 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 other types of surety bonds are required of contractors in California?
While all licensed California contractors are required to carry a $15,000 contractor license bond, certain contractor licenses may require a $12,500 Bond of Qualifying Individual, a $100,000 LLC Employee/Worker Bond, or a Disciplinary Bond depending on their license status. 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 California Contractor License Bond 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 bond requirements.