Can Contractor Demand for Private Arbitration While Under Cslb Investigation
Understanding the Surety Bond Claims Process
The following guest post is from Sara Aisenberg, Director of Educational Outreach at SuretyBonds.com, a nationwide surety bail producer that helps contractors fulfill their bonding requirements.
Earlier this year, my colleague Danielle Rodabaugh shared a invitee mail service on California Construction Constabulary Blog about how to found a construction visitor in California. In her commodity, Danielle discusses the importance of gaining experience within the construction industry, how to typhoon a legal team and why construction professionals must program a budget that includes the cost of performance surety bonds. Today, I'd like to delve further into surety bonds for California construction projects — specifically how claims are filed on bonds and what the repercussions tin be.
What is a surety bail?
A surety bail is a legally bounden contract between iii parties: a principal, an obligee and a surety. When it comes to construction bonds, the master is the contractor required to purchase the bond, the obligee is the government agency or the construction projection owner that requires the bond and the surety is the underwriting company that produces the bond. Past posting the surety bond, the contractor pledges to adhere to the agreed-upon contract. Past producing the bond, the surety company backs this pledge.
Mostly, in that location are two types of surety bonds that contractors will most often run across: contractor license bonds and contract bonds. Contractor license bonds are a blazon of license and let bond, while contract bonds are an umbrella group of bonds that are required past individual structure project owners/developers to ensure that contractors accept a solid work history and the skills and materials to end a job on time, on budget and according to the required specifications. Unless otherwise specified, information technology's safe to assume that construction professionals are referring to contract bonds when talking about surety bonds.
Every bit Danielle states in her article, "contractors typically file surety bonds because they pay but a fraction of the required protection, but cash or certificates of deposit can also be filed with the land. The California Contractors State License Lath (CLSB) requires every contractor to file $12,500 of financial security with the state as a role of the licensing process. Applicants with skillful credit could pay just $110 for annual license bond protection while those with bad credit could pay as much as $ane,350 for annual license bond protection."
Furthermore, nearly publicly funded projects in California require performance bonds to be issued for i/2 of the contract price. And, all public works projects contracted for more than than $25,000 require payment bonds issued for total contract price. Surety underwriters typically accuse premiums calculated at 1-four% of the bail corporeality. So, if you need a $50,000 operation bond for a $100,000 project, your premium would probable be between $500 and $2,000.
Without the appropriate surety bail(s) in identify, the project developer won't allow you to begin work on the project. If you plan to work on multiple public projects contracted for more than than $25,000 each year, you'll need to accept enough greenbacks on hand to pay for your bond premiums up front and in full. (Also notation that while surety bonds aren't legally required for privately funded projects, the developer can still choose to require them.) If you can't afford to become bonded, yous won't be canonical to work on projects. The costs associated with bonding is one factor that tin can limit the reach of "small contracting firms."
When is a claim filed on a bail?
If a contractor fails to uphold the terms set past the project owner and stated in the surety contract — such every bit failing to pay subcontractors/suppliers, missing the project completion deadline, exceeding the agreed-upon budget for the projection or completing the project with structural flaws or other problems — a claim can be filed on the bail. As stated on the CSLB website, "claims against a surety company may be filed by homeowners, any person damaged by a willful and deliberate violation of a construction contract, employees damaged by the contractor'south failure to pay wages, or an limited fund damaged equally a result of the contractor's failure to pay fringe benefits for eligible employees. (A courtroom case has held the express trust fund provision superseded by federal police.)" In most cases, the construction projection owner/developer or another harmed political party would file this merits with the surety underwriting company that produced the bond.
One time a claim is filed, an investigation will ensue. According to the CSLB website, "surety companies volition investigate any claim filed against a bond, and the CSLB will investigate whatever complaint filed confronting the license."
What happens when a claim is validated?
If a merits against a contract surety bond is filed and validated, two things will happen. First, the surety company will repay the obligee or harmed political party (project owner/developer, government agency, subcontractor, supplier, etc.) up to the total amount of the bond. The contractor must then reimburse the surety company.
Depending on the severity of the situation, a proven merits might call for the revocation of a contractor'southward license. If this occurs, it will exist nearly impossible for the contractor to legally work on construction projects inside the land of California. The ability to obtain a contract surety bail is based virtually exclusively on credit score, past work history and previous bonding history. Any blemish on this record — peculiarly that of a validated bond merits — will severely affect the contractor's ability to be bonded and, therefore, piece of work in the hereafter.
Surety bonds tin can be disruptive, especially when information technology comes to the claims process. Still, it'south important to think that the surety industry is one of minimal loss. The goal of surety bail requirements is to ensure that professionals of all types — contractors included — perform their duties ethically and in accordance the laws of the land and manufacture. Over the years, surety bonds have held countless professionals accountable for their actions while on the chore with a relatively low corporeality of resulting financial loss. California's surety bond requirement for contractors is only i more way to ensure that these professionals produce quality, lawful work while completing projects on fourth dimension, on budget and according to other specifications.
Sara Aisenberg is the manager of educational outreach at SuretyBonds.com , which is a leading resource inside the surety industry. Through her writing, Sara strives to aid professionals of all types understand the intricacies of surety bonds and how they pertain to their specific industries. Yous can go on upwardly with Sara on Google+ .
Source: https://calconstructionlawblog.com/2013/08/20/understanding-the-surety-bond-claims-process/
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