California Contractor Disciplinary Bond: A Comprehensive Guide

November 10th, 2020

This guide provides information for insurance agents to help contractors on California Contractor Disciplinary bonds

At a Glance:

• Average Cost: 3% – 8% of the bond amount per year, based on the business owner’s credit and the type of disciplinary action
• Bond Amount: $15,000 – $150,000, determined at the discretion of the CLSB
• Who Needs It: Contractors in California who have had their contractor license suspended due to disciplinary action
• Purpose: To ensure the public will receive compensation for any damages should the contractor fail to comply with contractor licensing law
• Who Regulates Contractors in California: The California Contractors State Licensing Board (CSLB)

Background

California BPC 7071.8 requires contractors who have had their contractor’s license suspended due to disciplinary action to obtain a Contractor’s Disciplinary Bond with a limit between $15,000 to $150,000. The California legislature enacted licensing laws and regulations to ensure that contractors engage in ethical business practices. Suspended contractors will need to submit the disciplinary surety bond to reinstate their license.

What is the Purpose of the California Contractor Disciplinary Bond?

California requires contractors who have had their license suspended due to disciplinary action to purchase the Contractor’s Disciplinary Bond to reinstate their license. The bond ensures that the public will receive compensation for financial harm if the contractor fails to comply with the licensing regulations. The bond provides additional consumer coverage above the normal $15,000 contractors’ license bond.

What Other Bonds Do California Contractors Need?

In addition to the disciplinary bond, contractors in California may need to purchase additional bonds based on the structure of their business:

• $15,000 Contractor License Bond – Required for all licensed contractors
• $12,500 Qualifying Individual Bond – Required if the qualifying individual does not own 10% or more of the contractor business
• $100,000 LLC Employee Worker Bond – Required for all contractors organized as an LLC

How Can an Insurance Agent Obtain a California Contractor Disciplinary Bond?

BondExchange makes obtaining a California Contractor Disciplinary Bond easy. Simply login to your account and use our keyword search to find the “contractor” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensure that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

Is a Credit Check Required for the California Contractor License Bond?

Yes, surety companies will run a credit check on the owners of the company to determine eligibility and pricing for the California Contractor Disciplinary bond.

Contractors with excellent credit and work experience can expect to receive the best rates. Contractors with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the contractor’s credit.

How Much Does the California Contractor Disciplinary Bond Cost?

The California Contractor Disciplinary surety bond can cost anywhere between 3% to 8% of the bond limit per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500.

What Situations Can Lead to Disciplinary Action Against California Contractors?

Any violation of licensing rules and regulations can result in disciplinary action by the CSLB. The following situations are the most common reasons for disciplinary action:

• Poor workmanship or code violations
• Use of false, misleading, or deceptive advertising
• Failure to repair any and all damages caused to homeowners’ property
• Engaging, or allowing representatives of the business to engage, in any acts of fraud
• Failure to pay subcontractors, suppliers, or employees

What is the Disciplinary Process for the California Contractor License?

Page 57 of the California Contractors License Law and Reference Book lays out the process the CSLB will take when determining whether to discipline a contractor’s license. Below is a summary of the CSLB’s disciplinary process:

Step 1 – Determine Jurisdiction

When a complaint is filed against a contractor, the CSLB will determine whether or not the alleged wrongdoing falls within the CSLB’s jurisdiction. For example, criminal violations may be referred to the courts.

Step 2 – Conduct Mediation

The CSLB will encourage both the contractor and claimant to resolve the dispute amongst themselves and will even conduct mediation between the two parties if asked

Step 3 – Conduct an Investigation

If the CSLB believes the contractor may have violated state licensing law, they will conduct an investigation which can include interviews of the contractor and claimant, and often involves the surety bond company.

Step 4 – Administer Disciplinary Action

If the license violation is minor in nature, the CSLB might only issue a warning to the licensee. Serious violations can result in a formal citation being issued against the contractor which would require them to perform corrective action and pay a civil penalty of up to $5,000.

Step 5 – Conduct a Hearing

Contractors will have the opportunity to contest all citations. The CSLB will hold an informal hearing to attempt to resolve the issue. If the matter is not resolved at this hearing. the contractor may present their case before an administrative judge for a final ruling on the matter.

Step 6 – Issue Punishment

The CSLB will take one or more of the following actions against a contractor if it has been determined the contractor violated the terms of their license:

• • Revocation of the License – The contractor can no longer operate as a contractor in the State of California. The contractor may have their license reinstated after a period of 1-5 years if they purchase a disciplinary bond.
  • Suspension of the License – The contractor will not be allowed to conduct business during the period of suspension and will need to purchase a disciplinary bond.
  • Probation – The contractor will be put on probation and will have to abide by certain terms and conditions to prevent their license from being suspended or revoked.
  • Recovery of Investigation/Enforcement Costs – The CSLB may determine the contractor must pay all investigation costs to keep their license.
  • Criminal Injunction/Charges – The CSLB will go to court to obtain an injunction against the contractor if they are in blatant violation of any laws. The CSLB will also refer the complaint to the office of the district attorney.

How is the Contractor’s Disciplinary Bond Amount Determined?

The CSLB has the discretion to determine the bond amount. However, the bond amount must be a minimum of $15,000 and cannot exceed $150,000. The following factors are considered when determining the limit of a disciplinary bond:

• The severity of the offense
• The actual or potential harm caused to the public
• Work performed that was hazardous to public health
• The contractor’s prior disciplinary record
• Number of violations committed
• Mitigation and rehabilitation evidence
• Compliance with all court orders

How Do Contractors File the Disciplinary Bond with the CSLB?

Most surety companies will file the bond electronically with the CSLB on behalf of the contractor. When completing the bond form, the surety company should include the following information:

• Legal name, license number, and address of entity/individual(s) buying the bond
• Premium on the bond
• Surety company’s name, address, and phone number
• Bond amount
• Date the bond goes into effect

After the bond has been filed, contractors can check their license and bond status on the CSLB website.

What Other Insurance Products Can Agents Offer Contractors in California?

California requires all contractors with employees to obtain worker’s compensation insurance and LLC owners to obtain liability insurance. Bonds are our only business at BondExchange, so we do not issue any form of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for California Contractor Customers?

California conveniently provides a public database to search contractors in the state. The database can be accessed here. Contact BondExchange for additional marketing resources.