Contractors and California Surety Bonds – What You Need to know
Posted by: Insurance Place by: October 31, 2016
What Construction Contractors Need to Know About Buying a Surety Bond in California
Bidding for California construction contracts can be competitive. One thing that may help you win bids is a surety bond in California . But how do you get one? Are they really needed?
Today we’ll go over what a surety bond does for you, as well as the factors that make getting a surety bond in California different from other states. Additionally, there are some important changes you need to know. Read on to find out what they are.
What Does a Surety Bond Do?
A surety bond is the contract between the contractor (the principal), the client (the obligee), and the company who sold the bond (the surety). A surety bond has three key features: 1) It ensures the contractor will carry out the agreed-upon work; 2) it protects the client from having to pay for incomplete work or a breach of service; and 3) the insurance company that issued the surety bond pays for whatever went wrong.
Are Surety Bonds in California Required?
In many states, surety bonds aren’t required until they are requested. Even so, businesses use surety to show clients that they are willing to be held accountable for their work. However, in California, many contract jobs require surety bonds before bidding even starts. Surety may also be required at the time the contract is awarded.
One area where surety bonds in California are required is for federally financed construction jobs over $150,000. However, don’t be surprised if you are required to get surety for any California contract.
The New Amount for a Surety Bond in California
As of January 1st, 2016, the required bond amount for California contractors increased from $12,500 to $15,000. Previously, California contractors had to pay $2,500 financial solvency requirement just to get a license. Now, that amount has been added right into the bond amount.
Having Difficulty Getting California Surety Bonds?
It usually isn’t too difficult to get a contractor surety bond in California. However, some factors may complicate the process. For example, getting approved for a contract bond may be difficult if your credit is bad. A bad credit score can raise the cost of your surety bond in California.
Contact an insurance company to discuss your options. It’s important to have surety in California to compete with other bidders and to complete the work required of you.