If you have had renovations on your house, you have met and worked with a contractor. Not known for their timeliness, contractors are responsible for providing the material, labor, equipment, and services necessary for the construction of a project. The contractor may then delegate portions of the construction work to specialized subcontractors.
In California, in order to become a contractor, one must first procure a contracting license. You may not have noticed before, but if you search the back of your desk drawer for the business card of the contractor who did your most recent renovations, you will see the terms “Licensed and Bonded” somewhere on the card. The Contractors’ State Licensing Board, in its effort to protect the public, demands that as a prerequisite to obtaining a license, a contractor first obtain a contractor’s bond. Under California Business and Professions Code § 7071.6 the contractor must have on file a contractor’s bond in the sum of twelve thousand five hundred dollars ($12,500).
The purpose of the bond required by Bus. & Prof. Code § 7071.6 is to protect home owners, suppliers, and subcontractors in case they suffer harm as a result of the contractor’s wrongdoing. Just as the common Joe calls up an insurance company to insure his car in case of an accident, Joe Contractor calls up a Surety company in order to get a bond for the amount of $12,500. However, unlike insurance on a car which will cover the unfortunate “text-and-boom” scenario, a Surety bond will not cover accidental mishaps a contractor may have on the job. It only covers violations of the Bus. & Prof. Code. Such violations typically include intentional wrong doings by the contractor.
Also, depending on which class of claimant you are, you may not qualify for the full $12,500 recovery. Your claim may be capped at a maximum sum of seven thousand five hundred dollars ($7,500) regardless of the full value of the bond. A home owner is defined under Bus. & Prof. Code § 7071.5 as a person contracting for home improvement upon her personal family residence. If a home owner is damaged as a result of a violation of the Code, she may make a claim of up to $12,500, the full value of the bond. All other claimants under this section, even a property owner contracting for renovation of a single-family dwelling but not a personal family residence is limited to a maximum claim of $7,500.
Violations of the Code include but are not limited to abandonment of the contract, diversion or misapplication of funds, failure to pay subcontractors, failure to pay suppliers of materials, departure from accepted trade standards and departure from plans or specifications.
And if you are thinking “Aha! I can get Surety money for the unfortunate mistake the contractor made of putting Honey Melon Tea tiles in my Custom Luxury Beach Bath when I had specifically asked for Honey Suckle Tea Leaf tiles!” The answer is unfortunately: “No Honey, no mullah for you.” In order to prove a violation of the Bus. & Prof. Code for Departure of Plans or Specifications the claimant must show a “willful departure from or disregard of plans or specifications.” This means that if the contractor accidentally chose the wrong tiles, or the tiles in the plans were not available and she substituted similar-looking available tiles, she did not violate the code.
There is justifiable reason for the threshold for recovery being so high. Once a surety finds a violation of the Code and makes payment out of the bond, the Contractor’s State Licensing Board may suspend the contractor’s license. Therefore, once payment is made from the bond, the contractor loses her livelihood. This activity goes on the Contractor’s State Licensing Board record making it much more difficult for the contractor to procure another bond in the future to reactivate or renew her license.
For those of you disheartened by the high threshold to procure indemnifications from the bond, or for you contractors reading who now believe you are untouchable, rest assured, the bond is only one avenue to achieving indemnification for a poor construction job. In addition to making a claim against the bond, a claimant may also pursue a claim in Small Claims Court or State Superior Court. In litigation the burden of proof may be mere negligence and not the high burden of showing willfulness.
As always, when a dispute arises the best procedure is to first attempt to resolve it between the parties in good faith. This information could act as a good tool in convincing your contractor to cooperate in negotiations. Requesting that a contractor redo a mistake or make gradual payments to indemnify you for monetary damages may result in faster recovery than making a claim against the bond or seeking damages through the courts.
Should you have any questions, comments or suggestions for improvement, do not hesitate to email me at ngrutman@hausmansosa.com.
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Newsletters and articles are offered only for general informational and educational purposes. They are not offered as and do not constitute legal advice or legal opinions. This Newsletter may contain hyperlinks to other resources on the Internet. These links are provided as citations and aids to help you identify and locate other Internet resources that may be of interest, and are not intended to state or imply that we sponsor, are affiliated or associated with, or legally authorized to use any trade name, registered trademark, logo, legal or official seal, or copyrighted symbol that may be reflected in the links. Please include the following information when citing this Newsletter: Grutman, N., “Renovation Ruination: The Story of Contractors and Sureties.” Weblog entry. Law Bites. February 20, 2012. Date accessed (http://lawbites.blogspot.com/2012/02/renovation-ruination-story-of.html).
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