Understanding How California Contractor Bonds Work

By Sylvia Taylor

If you've decided to go into the construction business on the west coast, you will have to do more than just buy a pickup truck, a trailer, a ladder, and some tools. You have to be licensed, insured, and bonded. There will be forms to fill out, fees to be paid, and specific information needed by the licensing board. In order to have the correct coverage necessary, it's important to understand the different Los Angeles California Contractor Bonds and what they cover.

You can not do construction work for the public in California until you get a license bond. This is what protects the people you are working for if you fail to do the job you were hired for. If your work is defective is any way, the customer can file a claim against you.

A license bond is a way to ensure that everybody gets paid. That includes laborers working for you, subcontractors and suppliers. A qualifying individual bond can be required in cases where contractors in charge of projects have less than a ten percent interest in the company they work for.

A fidelity bond will protect your customers in the event one of your workers steals something from them while they are working on a project. A fidelity bond will cover all kinds of dishonest acts by employees and relieves you of the responsibility of repayment or replacement. Employee dishonesty bonds are protection for you and your company in case a worker steals something from you.

If you plan to bid on local, state, or federal government contracts, you will most likely be required to purchase a surety bond. This is a form of insurance for the government agency awarding contracts. If you don't perform, the government will file a claim against you as the beneficiary of the bond.

You will be responsible for satisfying any and all claims and pay any legal fees incurred because of them. As part of the surety bond you will be required to sign an indemnity agreement. This is your promise to repay, both corporately and personally, any money the surety actually had to pay on your behalf.

Your credit could be a factor when it comes to getting any kind of bond. An agency issuing a bond to a small contractor will be looking a that person's personal credit and won't issue a bond unless that credit is good. Contractors who have poor credit ratings will have trouble getting bid and performance bonds in order to work on government contracts. Large companies can get the bonds they need, but have to submit strong financial statements and have a stable history in the industry.

You can go to the California State License Board's online site to get additional information and start the process of obtaining your license. The necessary forms are all online. There are study guides available to help those needing to take the licensing test as well as explanations for the paperwork required. After you've submitted your application, you can check its status on this website.

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