Contractors Licensing Basics and Bonding Requirements

Can a licensed California contractor work in Oregon? You can’t really compare multi-national ‘mega’ construction companies and a local sole proprietor, so why do they both pay the same in bonding? A good question from a large contractor leads us to some basic answers on choosing which license may be best for your company. A last inquiry for 2007 shows why ‘close to the mark’ really only applies when you’re pitching horseshoes…

Q: I know that all contractors are required to be bonded. Can you tell me why the bond is required? From what I’ve read, this bond appears to be only needed for small contractors. I handle large industrial and public works.

A: The CSLB requires some form of security deposit in order to maintain an active contractor’s license. Most contractors post a Surety bond (currently $12,500); however, my understanding is that well over 1000 license holders have a cash deposit on file in lieu of a contractor’s bond. Based on this relatively low amount, I can understand why you believe this bond is only necessary for small contractors; however, there is no delineation between a small sole owner grossing $100,000 per year and a huge billion $$ industrial contractor.

Claims on a bond (or cash deposit) are available to homeowners who may have suffered property damage to their residence or persons damaged as a result of willful violations of contractor license laws. Claims may also come from employees who are not paid or trust funds not paid as a result of a licensee’s failure to meet fringe benefit obligations.

Q: I’m an employee for a licensed general building contractor in CA. The sole proprietor has decided he no longer wants employees. Simultaneously, I’m now looking to start a new business and have been doing footwork to incorporate myself. My question is weather it would be better for me to become licensed as an individual then get incorporated, or to incorporate then become licensed as the qualifying individual. I’m trying to take better advantage of the tax loopholes.

A: My best suggestion is talking with a CPA or tax attorney regarding the subject of “tax loopholes. As for the type of contractor’s license to apply for, this depends on how you want to conduct business. If you want to contract as a sole owner, this is how you should apply. If your goal is to do business as a corporation, then apply as such with you as the Responsible Managing Officer (RMO). There is no need to apply for two licenses.

Q: How many years of experience do I need to apply for a “C-6″ (Cabinet, Millwork and Finish Carpentry) contractor’s license? If I have about 3 years and 9 months, can I start filling the application today? Thanks.

A: Since the Board is processing exam applications within three weeks of submission; I would wait until you have the required 4 years. If you were to apply today and documented only 3 yrs 9 months, the application would be rejected.

Q: I’ve emailed you a few times and appreciated your quick response. I now have one more question… We are looking into bidding a job in Oregon…What would need to be done to do that legally?

A: Oregon has contractor licensing requirements; however, I am not familiar with licensing in this state. I suggest that you contact the Construction Contractors Board in Salem, OR. Their phone number is (503) 378-4621, or visit them on the web (you can find a link on my web site, www.cutredtape.com).

Regular readers know you can find the contact information for construction licensing in all 50 states in my book. Readers who call me directly before December 31st will receive an autographed copy of, “What Every Contractor Should Know”, at a special discount while they last. Happy Holidays!

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