If you are new to California or new to the contracting business, you may be unsure of the bond requirements and the different types of bonds that may be required when working on a project. We’ve listed below some of the most common questions with answers to help you become familiar with the bond requirements in the state of California.
Q. Why must I get bonded as a California Contractor?
A. In the state of California, any individual or company who contracts to perform work (can be verbal or written agreement) on a project that will be valued at $500 or more, for materials and labor, must hold a current license from the Contractors State Licensing Board (CSLB). The contractors license will not be issued by the state unless a Contractor’s Bond in the amount of $12,500 for individuals or $15,000 for a business.
Q. What is the reason for the bond?
A. The state of California wants to make certain that consumers are protected from a contractor
who does not perform adequate work or commits other license law violations. The bond also protects employees of the contractor in the event they are not paid wages due to them.
Q. Where can I get a Contractor’s Bond?
A. The contractor’s bond can be purchased through a local insurance agency and must be issued by a surety company that is licensed in the state of California.
Q. What is a Disciplinary Bond?
A. When a contractor’s CSLB license is revoked by the licensing board for a violation, the contractor (licensee) must obtain a Disciplinary Bond, which will be determined by the Registrar, in order to qualify for reinstatement or reissuing of the license. The amount of the Disciplinary Bond may not be less than $15,000 or greater than ten times that amount.
Q. What are the other types of bonds a Contractor may be required to Purchase?
A. There are three other types of bonds that may be required depending on the size and scope of the project:
- Bid Bond – Bid Bonds are not required by the CSLB, but they are frequently requested to be included with financial proposals when bidding on a project. In some cases, project managers will require contractors to obtain a bid bond before they accept a bid or award a construction contract. The bond will guarantee that the bidding contractor will fulfill the terms of the bid if awarded the contract.
- Payment Bond – As a result of the Miller Act, contractors are required to furnish payment and performance bonds prior to being awarded any contract exceeding $100,000. A Payment Bond is also required any time a publicly funded project requires the repair or alteration of a building that costs more than $100,000. The purpose of the bond is to make certain that subcontractors and suppliers get paid and keeps the project owner from assuming these costs if the contractor cannot pay.
- Performance Bond -The performance bond is used to protect the project owner from financial loss in the event the contractor does not perform according to industry standards by doing shoddy work. It is also available for the project owner if the construction is not completed in a timely manner. If the claim is determined valid by the Surety Company, the bond amount can be used to compensate the project owner because the contractor failed to uphold the terms of the contract.
Fairbanks Insurance Brokers represents many of the highly-rated insurance carriers and will develop the insurance plan that will best mitigate your risks.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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For more information and a free commercial insurance quote, contact an insurance professional at Fairbanks Insurance Brokers at (949) 595-0284.