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Contractors who wish to operate in California must go through a licensing process with the State Contractors Licensing Board. This process involves providing a bond of $ 15,000.
Recent legislation, Senate Bill 610, may result in changes in licensing and bonding requirements for contractors. The bill was introduced in February 2019 and is now in motion. It has already left the Senate committee and is the subject of hearings. If introduced as law, it would require the board of directors to conduct a study to determine whether the current amount of the contractor license bond in California is sufficient or whether it needs to be increased.
Find out the essential details about the bill and how it may affect your outsourcing business in California.
Changes in Senate Bill 610
The bill, if passed, would lead to a study on the appropriateness of the current amount of contractor license bond in California. The amount is now $ 15,000 – among the lowest bonding requirements for contractors in the country. The board will need to assess whether an increase is necessary to take into account current economic conditions and the risks inherent in contracting for construction.
The licensing board will need to announce its findings and the recommended course of action by January 1, 2024, allowing contractors enough time to prepare for potential changes.
There are a few other changes the bill can make if accepted. It would lead to an extension of the deadline for the appointment of a registrar of entrepreneurs by the licensing board from January 1, 2020 to January 1, 2024.
In addition, the legislation would also make the rules governing contracts with companies that have a judgment against them much stricter. In cases where a judgment is pronounced against a licensee or caseworker, qualified persons and caseworker are prohibited from performing these functions until the judgment is executed.
License security amounts vary
In introducing the bill in question, California lawmakers are moving toward a potential increase in the contractor’s license bond requirement. One of the reasons for this is that California is among the states that have relatively low bond amounts for contractors. Lawmakers must strike a balance between ensuring sufficient protection for the general public and an appropriate level of stringency towards contractors.
Contractor license bond amounts vary between $ 1,000 and $ 500,000 in all states. However, in most places there are separate bonding requirements for different types of licenses. Thus, contractors working on larger contracts or on specific high-risk work must obtain larger bond amounts. This is not currently the case in California where all types of entrepreneurs need a bond of $ 15,000.
The lowest bond amounts for contractors are found in New Jersey ($ 1,000 to $ 3,000) and Idaho ($ 2,000), but these are exceptions. In most states, requirements are around $ 20,000 and above. Surety bond requirements in Delaware can be as high as $ 200,000, $ 350,000 in North Carolina and $ 500,000 in South Carolina.
How collage works for entrepreneurs
The purpose of requiring construction specialists to have a bond is to protect their clients and the state in which they operate. If you do not follow applicable laws as a contractor, you may face a claim against your surety. It can provide fair compensation for any damage that a party may have suffered as a result.
The maximum refund that can be requested from you on proven claims is the total amount of the deposit you have paid. This is why the amount of the deposit is important. Lawmakers look at a variety of factors to assess the appropriate requirements in each state.
In order to get your contractor license bond, you need to cover a small percentage of the required bond amount. It is formulated on the basis of your personal and professional finances. The stronger they are, the lower the perceived bond risk, which leads to a lower bond premium. The rates you can expect if your finances are healthy are between 1% and 5% of the deposit amount.
How do you see the effect of the California bill on the construction industry in the state?
Vic Lance is the founder and president of Lance Surety Associates. He is a surety expert who helps contractors get licensed and bonded. Vic holds a Business Administration degree from Villanova University and an MBA from the Ross School of Business at the University of Michigan.
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