On February 10, 2023, contractors must post a $25,000 license bond or equivalent as part of the licensing or reactivating process. This requirement was put in place by CSLB to protect customers against contractors’ negligence.
Construction professionals should strive to communicate and resolve disputes with their customers promptly in order to prevent bond claims. Doing this will enable them to build stronger relationships with clients and prevent any potential misunderstandings from arising.
- Increased Rates for Qualifying Individual Bonds
California contractors must post surety bonds to safeguard consumers and employees against unsatisfactory work or dishonest conduct. These cover any claims that the Contractors State License Board (CSLB) may decide to file against a licensed contractor.
Qualifying individual bonds are now available with premium rates ranging from 1% to 5%, depending on the credit history of the applicant. Those with excellent credit and significant industry experience may see quotes starting around 1%; however, pool and roofing contractors, those needing a disciplinary bond, and those with less-than-perfect credit will face higher costs.
Additionally, qualifying individual bonds will be offered with longer term options than usual – typically between one year and five years.
This new rate is due to the fact that these types of bonds are considered riskier by surety companies, leading them to be costlier than other legal paperwork if the contractor has more than a few years’ experience.
These are also underwritten based on the contractor’s credit history and overall business financials. This type of underwriting is sometimes referred to as credit-based or reinsurance-based underwriting.
It is because when a claim is filed against a bond, the contractor must reimburse the surety company for any losses they suffered as a result of that claim. Conversely, the surety company also has an obligation to cover any resulting costs paid out to customers.
- Increased Rates for License Bonds
The California Contractors State License Board (CSLB) requires professionals to post a license bond in order to be granted their state license. The amount depends on several factors, including the contractor’s debt and the value of their contracts.
This is issued by a surety guarantees that the principal will abide by all state regulations regarding construction. Furthermore, it pays out any money lost due to violations of those same rules by the contractor. The amount paid out may be set by statute but may exceed what was originally guaranteed as part of the bond amount.
Some bonds are issued for terms of up to five years, while others only last one year. Regardless, contractors must requalify for the contractor bond before it expires in order to guarantee its continued validity. CSLB requires disciplinary bonds if a company’s license has been revoked due to violating state contractor licensing laws. These cannot substitute or be combined with other mandatory bonds.
In 2023, California construction professionals must pay a minimum license bond amount of $255,000 instead of $15,000. This shift in premiums could affect both owners and workers alike.
- Increased Rates for Minimum Disciplinary Bonds
If you have been disciplined by the California State License Board (CSLB) for breaking state law, then you may need to purchase a disciplinary bond. This bond allows your license to be reinstated or reissued and it can last up to two years.
Disciplinary bonds are required by the California Contractors License Board to guarantee contractors adhere to California Contractors License Law. You can visit this site for more information about this law. This includes preventing poor workmanship, failure to acquire a building permit, and misappropriation of funds on projects.
The bond serves to safeguard the public by guaranteeing that contractors will abide by the law and pay out all monies owed to anyone. It’s essential to note that unlicensed contractors are not protected by this bond, meaning they could face heavy fines, penalties, or suspension of their licenses.
Disciplined contractors must purchase a disciplinary bond in addition to their standard contractor’s license bond. The amount varies based on the severity of the violation.
Before the 2023 CSLB bonding requirements takes effect, you should explore your bonding options. While this may take more time, it’s worth the investment to protect yourself financially in case of a large financial loss and potential disciplinary action by the CSLB.
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