By David Kalb, President of Capitol Services, Inc.
While government requires a ‘fixed’ contractor’s bond, the marketplace operates on a slightly different ‘scale’. The cost of doing business as a contractor in CA is about to go up significantly, but quick action could save some money. Another contractor asks for advice on keeping the business ‘all in the family’…
Q: In our previous conversation regarding our new GC license, you mentioned the state’s bonding requirement. My notes indicate this was a $12,500 bond for about $250. Can you please point me to a specific citation or other source in the licensing rules that governs this requirement? Is $12,500 a fixed amount for all GC’s or is there any kind of sliding scale or other situations that might require a larger bond (separate and apart from owner/developer/lender requirements for specific projects).
A: All new contractors (General and Specialty) must file a Contractor’s bond in the amount of $12,500. This requirement is specifically addressed in Business and Professions Code Section 7071.6.This is a fixed amount regardless of the size of the company and applies to any active Sole Owner, Corporation or Partnership license (Inactive licenses do not need a bond). If an application or license is qualified by a Responsible Managing Employee (RME) -- as yours will be -- a $12,500 Bond of Qualifying Individual is also required. Again, this is a fixed amount and is referenced in Business and Professions Code Section 7071.9.
There are no fixed costs for these bonds. Each insurance company sets their own price. The company we deal with typically charges $129.00 for two years. This cost is based on passing a credit check; poor credit history usually results in a much higher premium.
Q: If a contractor’s license is in a husband’s name only, can a wife be added? In the event that he should be unable to run the business and the wife's name is not on the license can she take over the business and run it? Your advice would be very much appreciated.
A: Based on your description it would appear this husband is licensed as a Sole Owner. If this is the case, a wife (or for that matter anyone else) could only be added to his license if she qualified a different classification. For instance, let's assume the licensee holds the “C-39” roofing class. If someone could qualify for a second trade (such as the “C-20” HVAC or “C-46” solar), this could be added as an additional class.
In the event a husband were not able to run the business due to becoming disabled for instance, B&P Code Section 7065.1(b) might allow his wife (or another close relation such as son, daughter, son-in-law, etc.), to become the Qualifier and take over. This would require filing a new license application and having someone certify that the person succeeding him has been directly involved (i.e. employed) in the family business for five of the last seven years. In other words, someone will need to qualify his or her own license and have the requisite supervisory experience in the classification held by the present license holder. This is commonly known as the "family waiver".
ALERT: Most contractor license application fees increase up to 50% effective July 1st. Your application must be hand-delivered or postmarked to the CSLB by June 30th to take advantage of the current fee structure. This affects anyone applying for a new original contractor’s license, adding a classification or replacing the qualifying individual. Fees for renewing an existing license are also going up; however, the present fee structure only applies to licenses whose renewal is through June 30th. Any license whose renewal date is after July 1st must pay the increased fee regardless of when the renewal application is delivered to the Contractors Board.
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While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, email info@cutredtape.com, or write me at Capitol Services, Inc., 1225 8th St. Ste. 580, Sacramento, CA 95814. Research past columns at www.cutredtape.com.