Basics on Contractors Surety Bonds

A Discussion on the Basics of Surety Bonds

This article will discuss the basics of the contractors surety bonds that will need from time to time. Throughout their business transactions, these bonds are government required in cases of certain violations against the contractor’s license law.

What is the Disciplinary Bond

In violation of the contractor’s law, the contractor’s license maybe revoked or suspended. At this instance, the contractor is required to file a disciplinary bond with the Registrar in reapplying, or reinstating or reissuing of a new license.

The disciplinary bond is not less than $15,000 or can be ten times the contractor’s license bond. Because of its violation, this bond shall be on file with CSLB for a period of two years to inform other potential clients of its current violation.

How to Claim from a Surety Bond

All contractors are obligated to strictly follow the contractors’ license law and any violation would be grounds for disciplinary action against the license. The contractor then, upon acquiring a surety bond, is obligated to comply with the conditions of the bond and can file a claim with the surety company.

Consumer cases that qualify surety bond claims includes; damages of persons due to a deliberate and willful violation of a construction contract; contractor’s failure to pay wages of its employees resulting in damages; failure to pay fringe benefits for eligible employees resulting in express fund damages. A previous court case ruling has held the express trust fund provision superseded by federal law.

The simple procedure begins where consumers file surety bond claims with the surety company that wrote the bond within its period of coverage. CSLB is not an entity that process claims against surety companies. Once filed, the surety companies will investigate the claim filed against a bond while the CSLB will investigate the complaint filed against a contractors’ license. They may function separately, but work together closely.

Once the CSLB receives a cancellation notice from a surety bond company the license bond will be cancelled in 30 days. Technically, if a replacement bond or a reinstatement bond notice is not received by CSLB before the end of the 30 day period, the contractors’ license will be suspended.

Easy ways to check on the current Bond

To encourage contractors to frequently perform a check on their current bond status, they can verify it on the Automated Phone Response System and now in the Internet. Surety bond renewals do not typically have the same cycle with license renewals. Therefore, it is not safe to assume that when your license expires, your bond also needs renewal or vise versa. Take note of your renewals and place them on your calendars as reminders.

Promptly Renew Bonds

Renewing promptly your surety bonds can avoid a license suspension. Make sure that the effective date of the new bond for continuity purposes is the same as the old bond’s cancellation date. Allow sufficient time for processing and arrange your new bond at least four weeks before expiration of the old one.

Who Files the Surety Bond?

You can actually ask from your surety bond agent if they will do the filing of the bond with CSLB, or you can file it yourself. If you are given the original bond copy, file it with CSLB. Note that CSLB does not return any bond copy that has been accepted and processed and will put it in record with the active contractors’ license.

Always Keep Records of Your Bonds

Safe keep your own accurate records of the contractors surety bonds such as the bond agent, effective dates, bond numbers, terms of the bond and the Surety Company.