Compliance
Construction in California is a highly regulated industry and contractors face compliance issues that other types of businesses are not burdened with. To position your company for long term growth, you must have a plan to deal with these compliance issues. We recommend getting your company in compliance with the laws and having a plan to keep it in compliance. The Construction Industry is a high risk business for all participants and it may not be a question of if you will have a legal problem but when. These problems can be rare and random but when they arrive, you will be better positioned if your company is in compliance with California Laws and regulations.
In the State of California contractors who undertake projects whose total costs (labor and materials) is $500. or more must be licensed by the Registrar of the Contractors' State License Board (CSLB). Contractors can be disciplined by the CSLB for not complying with the license laws. This discipline can take the form of warnings, temporary suspensions, permanent revocation of a license, fines and jail time. You can also lose your standing in court and be denied the right to file a lien or stop notice.
Once licensed, your company must post a $12,500. License Bond with the CSLB. This bond must be in force before you can legally contract. If your license bond expires, your license will be suspended. This is the most common reason contractors licenses are suspended. We recommend that all licensed contractors purchase a two year license bond that runs concurrently with your two year contactors license. Renew your two year license bond at the same time you renew your license. License bonds can be purchased from a reputable insurance broker.
There are other alternatives to posting a License Bond. You could post a Certificate of Deposit payable to the CSLB, issued by a bank or savings and loan association doing business in California, Bearer Bonds issued by the U.S. Government or the State of California, A cash deposit of $12,500. in the form of a cashiers check or bank-certified check, or a bank savings account, savings and loan investment certificate or share account, credit union certificate of funds or share account. We do not recommend any of these alternatives. There are better uses for your hard earned cash.
If you inactivate your license, you are not required to post a License Bond but the license renewal fee must be paid every four years.
If your company is involved in residential construction, you are required by California Law to use the California Home Improvement Contract for all residential construction. An attorney who specializes in Construction Law should write this contract for your company because this contract is very specific in its requirements.
If you do service and repair work you must do it under the California Service and Repair Contract. A service and repair contract is an agreement between a contractor, who is licensed or required to be licensed, and a homeowner or tenant for the performance of a home improvement that meets all of the following conditions:
- The contract amount is $750. or less.
- The prospective buyer initiated contact with the contractor to request the work.
- The contractor does not sell the buyer goods or services beyond those reasonably necessary to take care of the problem that caused the buyer to contact the contractor.
- No payment is due, or accepted by the contractor, until the work is completed.
If you have an outside sales rep that goes out of the office into the community to make sales calls on prospective customers you must use a Home Solicitation Contract or Offer. This contract includes the following services:
- The repair, alteration, or improvement of residences.
- The sale or repair of goods; and/or
- Courses of instruction.
The sales representative must also be registered with the CSLB.
California licensed contractors are required to have their business name and license number clearly visible on their vehicles in print type ¾ inch in height. In addition, plumbing contractors, electrical sign contractors, and well drilling contractors must have their name, business address, and contractor's license number at least 1-1/2 inches in height on both sides of the vehicle.
Contractors are required to print their license number on all advertising material; these include proposals, estimates, bids, contracts, and business cards.
Contractors must also comply with the following laws.
- The Truth in Lending Act.
- Subletting and Subcontracting Fair Practices Act.
Workers Compensation Insurance Reports:
California law requires licensed contractors to provide Workers Compensation Insurance for any employees. This can be done in two ways: (1) by obtaining a standard approved workers compensation insurance policy from an insurance company or from the State Compensation Insurance Fund. (2) by the contractor obtaining a permit from the Director of the Department of Industrial Relations allowing him or her to become a self insurer. This is not recommended for small or medium sized contractors.
Underground Service Alerts:
Except in an emergency, every person planning to conduct an excavation must contact the appropriate regional notification center at least two working days but no more than fourteen calendar days before starting that excavation.
California Licensed Contractors are required to respect the California Access Requirements which were adopted by the Office of the State Architect (OSA) in 1968 and 1982.
Senate Bill 198 requires employers to establish, maintain, and carry out an Injury and Illness Prevention Program. Management must periodically meet with supervisors, and supervisors must conduct tailgate safety meetings at least every 10 working days. There must be a written Fire Prevention Plan and an Emergency Action Plan. Talk with your attorney.
Records retention:
Checks must be kept for three years. Construction Records of completed projects must be kept five years.
This is an overview or outline of some of the compliance issues that contractors face in California. It is not intended to be all inclusive. This information is not, nor is it intended to be, legal advice. Effetti Business Growth is not legal counsel and we do not give legal advice. All contractors should consult a licensed attorney to find out the legal ramifications of not being in compliance with California Law.
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