In the state of California, contractors must get a contractors license bond to renew, reactivate, or get a new contractor’s license from the Contractors State License Board (CSLB). These bonds are required to protect consumers and employees from faulty work or dishonest conduct.
Previously, contractors could provide alternative methods to financially cover the costs of a surety bond. However, this changed on January 1, 2019 as a result of Assembly Bill 3126. Contractors cannot use credit union certificates, savings and loan association investment certificates, savings account passbooks, or certificates of deposits in lieu of filing any required bonds.
In addition to a contractors license bond, you may need to file other bonds like the bond of qualifying individual or a disciplinary bond. To help you navigate these bond requirements, we put together a guide on what you need to know about getting the California contractor license bond.
How much does a California contractor license bond cost?
The cost of a California contractor license bond is a percentage of the required bond amount, typically 1-10%. You pay this as an annual premium. The exact amount you pay for your premium depends on a variety of financial factors. For example, your personal credit score and financial statements impact the cost of your surety bond.
You can learn more about how surety bond costs work to see how your cost can vary and other factors to consider beyond cost.
How does a California contractor license bond work?
A California contractor license bond is an agreement between the surety, the state of California, and the contractor. Here is how this agreement works among the three parties:
- The principal is the person who needs the bond. In this case, it is the contractor.
- The obligee is the entity requiring the bond. The CSLB is the obligee in this case. They require contractors to get bonds to issue a license.
- The surety is the entity who is issuing the bond. By providing a bond, the surety is guaranteeing that the principal will follow all laws and requirements by the obligee. If the principal fails to follow these requirements, then the surety also agrees to fully cover the costs of damages up to the bond amount. Any costs paid out by the surety must be repaid in full to the surety by the principal.
You can look through our surety bond guide to learn more about how surety bonds work.
What does this bond cover?
A California contractor bond covers any damages caused by the principal. For example, if you don’t complete a construction project per the terms of your contract, the client can place a claim on your bond to cover the damages. Unlike insurance, you’ll need to fully repay any claims paid out by the surety.
What are the requirements for a contractor license bond in California?
A contractor license bond in California must be in the amount of $15,000, written by a surety company that is licensed through the California Department of Insurance, and written on an approved form by the Attorney General’s Office.
Below, we’ve laid out all of CSLB’s requirements for contractor license bonds:
- The bond must be $15,000.
- The bond must be written by a surety company that is licensed through the California Department of Insurance.
- The Bond is written on an approved form from the Attorney General’s Office.
- The business name and license number on the bond exactly match the information on file with the CSLB.
- The bond must have the surety company’s attorney-in-fact signature.
- The bond is received by CSLB’s Headquarters Office within 90 days of the effective date of the bond.
All of these requirements should be easily met if you work with a good surety bond agency. Working with the wrong surety bond agency can cost time and money. For example, they may not have experience in the specific surety bond you need. Others may take a long time to process applications and delay your ability to work.
Take a look at our guide to picking a surety agency to learn about the things to look out for when you’re applying for your surety bond.
What other types of surety bonds do California contractors need?
California contractors may need a bond of qualifying individual or a disciplinary bond depending on the scenario. We’ll go into each bond in-depth below.
Bond of Qualifying Individual (BQI)
The CSLB requires contractors to get a bond of qualifying individual if an applicant’s license is qualified by a Responsible Managing Employee (RME) or a Responsible Managing Officer (RMO) who doesn't own at least 10% of voting stock in the corporation. RMOs who own more than 10% must submit a BQI exemption certification. Each qualifier must comply with bonding requirements if there are more than one.
You may need a qualifying individual if you don't meet the requirements of your license. The qualifying individual has direct control and supervision over your business operations. All of these requirements are set forth by the Business and Professions Code Section 7071.9.
A BQI follows the same requirements as a contractor license bond with a couple of differences:
- The BQI amount must be $12,500.
- The business name, license number, and the qualifier’s name on the bond must match exactly what’s on file with the CSLB.
The CSLB requires disciplinary bonds if your license was previously revoked for breaking Contractors’ License Law. You can find these requirements under Business and Professions Code 7071.8.
A disciplinary bond has some overlapping requirements with contractor license bonds, but has additional requirements:
- The registrar determines the bond amount based on the seriousness of violation. It cannot be less than $15,000 or greater than ten times the amount of the contractors’ bond.
- The disciplinary bond is filed in addition to other required bonds and cannot take the place of or be combined with other bonds.
- The company’s license must remain current and active while the disciplinary bond is one file.
- The disciplinary bond must remain on file and current with the Registrar for at least two years. The registrar may require a longer filing period.
After you get these bonds and your contractor license, you’ll also need additional surety bonds to pursue construction projects. For example, you’ll need a bid bond before you can bid on public projects. Look into these construction bonds ahead of time so that you’re prepared to start on jobs after you complete your licensing requirements.