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Understanding more about contractor license bonds -- II

Last time, our blog discussed how those mulling the possibility of becoming a contractor here in California may be surprised to learn that they must post a $15,000 contractor license bond with the Contractors State License Board as a condition of securing the necessary licensure.

To that end, we spent some time examining what exactly a contractor license bond is -- a contract between a surety company and a contractor warranting their compliance with California's Contractors License Law -- and how it shouldn’t be confused with an insurance policy. We'll continue this discussion in today's post.

Another key factor that contractors must understand is who exactly is protected by contractor license bonds, meaning who can file a claim against it in the event of any perceived violations of the Contractors License Law.

According to the Business and Professions Code, parties able to pursue this route include:   

  • Homeowners contracting for home improvement work on their personal family residence
  • Property owners contracting for the building of a single-family dwelling
  • Persons damaged owing to willful and deliberate violations undertaken by the contractor, or by the fraud of the contractor in the execution or performance of a construction contract
  • Employees of the contractor who were not paid wages owed
  • Persons or entities damaged by the contractor's failure to remit fringe benefits for eligible employees

Given this broad legal exposure, the question naturally arises then as to what contractors can do to protect themselves.

To that end, the Contractors State License Board suggests contractors make the following suggestions part of their business practices in order to limit potential liability:

  • Always memorializing the terms of a construction contact in writing, including any amendments
  • Always maintaining accurate records of funds received and paid
  • Always confirming agreements reached about project termination in writing
  • Always communicating any potential or actual problems to project owners, prime contractors, subcontractors and/or suppliers with speed and clarity
  • Always addressing potential payment issues with speed and clarity, and, if necessary, devising reasonable payment plans

Here's hoping the foregoing discussion has proven helpful. As always, consider speaking with an experienced legal professional if you have questions about the process of securing a contractor license, or a complaint is filed against you or your business with the CSLB.

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