A Contractor Disciplinary Bond, a type of surety bond, is required when a contractor licensee, Qualifying Individual, or primary owner or manager of a licensee that has been subject to a Contractor State License Board (“CSLB”) disciplinary action for a violation of Contractor’s License Law resulting in suspension or revocation of the licensee’s license is seeking a new license, or continuation, renewal, or restoration of a license.
How much does a Contractor Disciplinary Bond cost in California?
The cost of a Contractor Disciplinary Bond ranges from $150 up to $10,000 or more and is calculated by the surety company as a percentage of the penalty sum set by the CSLB. Such percentage is based upon the personal credit of the owner(s), license history, license classification, personal financials of the owner(s) and prior business financial reports.
Contractor Disciplinary Bond Cost*
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*Prices shown are for a one year term and are based on several factors including personal credit of the owner(s), license history, license classification, personal financials of the owner(s) and prior business financials. Not all available pricing tiers are shown. Rates do not constitute an offer of bonding and are subject to change at any time. Contractor Disciplinary Bond rates are dependent and will vary based on the penalty sum amount.
Why is the Contractor Disciplinary Bond required?
A Contractor Disciplinary Bond is required when a licensee, Qualifying Individual, or primary owner or manager of a licensee has been subject to a CSLB disciplinary action resulting in suspension or revocation of the license. In order to reinstate or apply for a new license, the disciplined person must file a Contractor Disciplinary Bond.
The California legislature has determined that a Contractor Disciplinary Bond is necessary because a person with a prior California Contractor License Law violation poses a greater risk to the public. The Registrar of the CSLB can set the bond amount based on the seriousness of the violation and the perceived risk to consumers.
How does a Contractor Disciplinary Bond work?
The bond limit of a Contractor Disciplinary Bond is set by the CSLB based on the seriousness of the violation with a minimum of $15,000 up to ten times that amount i.e. $150,000. The bond must be filed in addition to any other bonds required to maintain an active contractor’s license. The bond will remain on file with the CSLB for at least two years and for any additional time that the CSLB determines. The bond period runs only while the license is current, active, and in good standing, and is extended until the license has been current, active, and in good standing for the required period.
The Contractor Disciplinary Bond must be issued by an insurance carrier admitted by the California Department of Insurance. The insurance carrier issuing a surety bond, such as a Contractor Disciplinary Bond, will also be referred to as the “surety company” or the “bond company”. Contractor Disciplinary Bonds refer to the disciplined person 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, and suppliers and employees of a licensed contractor will receive payment for financial damages due to a violation of California Contractor License Law up to the limit provided by the CSLB. The surety 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.
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. In addition to the $15,000 Contractor’s Bond, a $12,500 Bond of Qualifying Individual may be required if the Qualifying Individual for a contractor license application is a Responsible Managing Employee, or Responsible Managing Owner/Manager/Member holding less than 10% voting stock/membership interest of the entity seeking licensure. Contracting businesses structured as a limited liability company are required to purchase a $100,000 LLC Employee/Worker 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.