The California Contractors State License Board or CSLB requires a $15,000 contractor’s license bond to protect the general public from unfinished or unsatisfactory work. The contract is also in place to ensure that everyone follows the state laws regarding the activities they conduct in their businesses.
The CSLB requires any applicant or contractor to obtain an equivalent of a $15,000 bond before getting their license. This is specifically outlined in the California Business & Professions code, which most benefits customers by preventing them from experiencing financial loss because of a contractor’s actions.
This is where surety companies are working hard to simplify the overall process. Many companies can get quotes online without filling in a lot of paperwork for applications. Fortunately, today, you can visit a surety company’s website like contractorbond.org and obtain quotes and information. These are the ones that know the laws in California and make sure that you get a valid bond so you can bid on the government or private homeowners’ projects.
Why You Need to Get a Bond
The bonds are legal contracts that essentially protect the homeowners and the public by guaranteeing that the company will adhere to the rules and regulations set by the California Business & Professions Code. If they leave any work unfinished or if everything is unsatisfactory, they are essentially risking a bond payout which can result in disciplinary actions given by the board and a significant financial loss.
Most consumers don’t choose unlicensed companies because they typically don’t have any bonds. They can’t provide the same level of protection to the consumers or promise high-quality work. Each year, the CSLB receives many complaints from the unlicensed contractors because they often leave their clients in a difficult situation. This is where they tend to conduct regular sting operations to prosecute any offender caught in the act or investigate a company.
There are three parties involved when you decide to get the bond. There’s the principal or the construction company, the entity requiring this specific contract or the obligee, and the surety. This is the insurance company that writes the stipulations and inclusions of the bond. The surety will generally provide financial assistance and guarantees to the obligee, and the principal promises to obey the laws to decrease the risk of a payout.
The contractors will reimburse most payouts to the surety companies. Aside from that, as a contractor, you need a company that’s part of the list in the approved carrier set by the California Department of Insurance. This information is available on the CSLB on its website, and you need to check this out before taking out anything so you can be confident that the surety company is legitimate.
How the License Bonds Work
The contractors’ bonds will generally provide a financial guarantee in the entire state of California to make sure that a construction company is operating legally and ethically. If the consumer or homeowner had been financially harmed because of a violation of the state laws, the claim could start, and a payout may occur.
For example, the client has requested a new kitchen renovation, and there’s a contract that outlines everything. If the company fails to finish the work or there are some inconsistencies, the customer may file a claim against the bond.
However, things are not easy because the surety will conduct a thorough investigation of the matter and determine the validity. Most of the time, the surety investigates in conjunction with the CSLB to cover every critical point. If there’s a payout, the contractor will be responsible for the repayment of the bond amount plus other legal expenses. This is often different from typical insurance coverage. To avoid these situations from happening, most companies are highly-advised to resolve any disputes and communicate with their customers to do repairs.
How Much Does a Bond Cost?
The surety and packages can vary, but different proprietary factors are sometimes used to determine the overall costs. The premium will depend on the applicant’s credit score, where the average rate is under $100. If you’re applying for a license, then the surety will require a credit report, and in most cases, even those with a bad rating can still get bonded.