I am aware of the bond requirement for CSLB contractors.

Is that bond the same as a performance bond or do they serve different purposes?

If so, what is the difference?

Thanks.

Contractors in California have to have a $15,000 License Bond. This is completely different than a Payment or Performance Bond.

Lets say you hire a contractor to paint an apartment. You get a contract with a price, description of the job and a time line -- going to take a week. Your contract calls for Swiss Coffee, but the painter used Navajo White instead. You don't accept the finished product and want him to re-paint at his own expense. He walks away having been paid over 50%. You write him a demand letter, giving him time to re-do the job. He still does nothing.

Robert,

O.K. so did you just describe the license bond or the payment/performance bond?

What is the purpose of whichever you did not describe?

Under the contractors License Bond, if they screw up your job and won't make good (That you can prove because you have a valid contractor spelling out the terms of the job, then the Bonding company will review you claim and if it's true you got taken, the Bonding Company will make it right by:

a) making the contractor finish the job as intended

b) refunding your entire price/cost

c) letting another contractor finish the job for the price you agreed to pay.

This is all different from a payment and performance bond. Why? You only have $15,000 coverage on the license bond.

Robert,

O.K. so it is clear what the license bond is but what is the purpose of the payment/performance bond?

Is the payment/performance bond the same but just for a higher amount?

Once a contractor give your a written estimate, you can then ask for a Payment AND Performance Bond. They are different from a License Bond. In contracting you can only give 10% or $1000 down, which is ever less. But if you get a Payment and Performance bond then you can give your contractor what ever money he needs to order supplies, etc, you are covered.

Robert,

O.K., thank you very much, very clear now.

I have never before considered payment & performance bond but I have never before needed to contract for a job such as the seismic retrofit.

Can you tell me how contractor usually reacts to property owner wanting payment & performance bond?

Do many contractors consider it an annoyance? Would that be a clue that contractor is the wrong guy to hire?

For example, even though they have workers comp, some contractors are too lazy to have their insurance guy send the certificate of insurance and need to be reminded. Maybe the insurance broker might want a token charge and the contractor is too cheap. That tells me to make certain even more than usual is clearly stated in contract and to wait to get what I need before proceeding. It tells me that contractor might be one who likes to cut corners. It also tells me the contractor has little interest in how he treats his customers. If I get objections, I move on and find someone else. I would be happy if that were to happen since I learned what I needed to know before I hired him. I've always believed the best contractors are happy to show they have workers comp to set them apart from those contractors that don't have it.

Here is a story for the books. I was bidding on a job, plumbing a complete re-piping of a huge complex. Me a small fish contractor gave a bid, included was a Performance and Payment Bond.

Another company made a bid saying they are a 100 million dollar company so they don't need to offer a Payment or Performance Bonds.

The Complex went with the larger contractor, that ended screwing up. They used Type "M" copper, the thin walled pipe. I had offered Type "L" rated copper piping rated for underground being thicker walled.

Within a year the pipes started leaking and the owner of the complex had very little recourse, except to sue a company now filing for bankruptcy.

A contractor is required in CA to carry workers comp. The only problem is the corrupt government that owns the largest insurer for Workers Comp polies and the usury rates/premiums.

The complex owner didn't know that had they paid the 3% extra for a Payment and Performance bond, and had the contract written spelling out a facets of the job/material, they would have been covered for:

Payments to employee's

Payments to sub-contractors

Payments for materials

Payments to make the job done right

Robert,

O.K. very informative.

So, it sounds like some contractors would prefer to avoid payment & performance bond. I wanted to be prepared just in case I got any resistance when negotiating.

So is there a preferred bonding company that is considered superior in terms of claims, reliability, and financial stability? And do I have the task of obtaining the bond or is that something that needs to be done by the contractor? If by the contractor, what evidence of the bond can I obtain????

Very important in California. If your licensed contractor gives you a written estimate to do a job, and then you ask them for a Payment and Performance Bond -- they can't walk away and say NO! But if you ask them to be bonded before they give you the estimate, they can refuse to do the work or provide anything (estimate).

If a contractor has a good work history and never any complaints or fillings against their Contractor License Bond, depending on their financial sound worthiness, they can get a bond from from one of many companies for 2-3% of the total contract price.

My License Bonding Company and several others has my information on file. I can get a bond up to $250,000 with a simple phone call and a fax of the contract with my client. If I want $500,000 to $1,000,000 in Bonds, it will take 24 hours to secure the bond. The insurance company will sent a document saying I got the bond. But until the contract is signed and I get a deposit from the client, I don't have to pay for the bond, yet.... Some contracts go nowhere.

So many contracting companies are an LLC with partners that go out of business in 2 to 3 years. Those companies have problems securing bonds. I've been in business for decades with assets. I have no problem getting a bond.

So what sort of reliable rock solid document can I obtain as evidence of the payment and performance bond? Is there a better bonding company with better legal terms from perspective of property owner?

Okay, here we go.

There is a three page document that needs to be filled out and faxed to the Contractors Insurance Agency by the Contractor. If your contractor is qualified and the amount of your contract is under $250,000, then this can be "fast tracked".

These payment and performance bonds cost around 3% of the total contract price, with $100 being the minimum premium.

Within 24 hours of the forms being submitted to the insurance agency, they will provide the approval in the form of a "certificate" showing the general information. It will also show an Insurance Surety Underwriter, a Billion Dollar backer of the Bonds. So if the contractor, insurance agency and bonding company don't pay, the Billion Dollar Backer will cover between 50% to 100% of the total contract.

You will have to call the Billion Dollar Surety Company and confirm the "Certificate" is valid by the date, number, insured and amount.

Robert,

Very interesting and excellent info.

So is it the property owner or the contractor that is the actual insured?