What Is A California Contractors Bond of Qualifying Individual?
According to contractors we have spoken with regarding license bond requirements, the guidelines pertaining to a Bond of Qualifying Individual (BQI) are certainly one of the more confusing topics. While many contractors will not require a BQI, those that do should carefully plan how their license is qualified, particularly if the parties to a license have credit blemishes or other license issues that could dramatically affect overall bonding costs for the business. Below is a short summary of what a BQI is and when it’s required for California contractors.
When Is A Bond of Qualifying Individual Required?
For a variety of reasons, some contractors may choose (or have no other choice) but to have their license qualified by another individual. When this occurs, some California contractors may be responsible for obtaining a bond of qualifying individual in addition to a contractor’s license bond as a condition for obtaining and maintaining an active license.
According to business and professions code 7071.9, a bond of qualifying individual is required if a license is qualified by a responsible managing employee (RME) or a responsible managing officer (RMO) that does not own at least 10% of the voting stock of a corporation. The CSLB also requires that any RME must not be the qualifier for another license and must be a bona fide employee of the business that is employed for at least 32 hours per week, or 80% of the businesses operating hours, whichever is less. Contractors that have a license that is not qualified by an RMO or RME do not require a Bond of Qualifying Individual.
How Much Does a BQI Cost?
For the most part, a Bond of Qualifying Individual is very similar in structure to a contractor’s license bond and is also in the amount of $12,500 at the time of this writing. As such, rates for BQI’s are evaluated by sureties in much the same manner as standard contractor’s license bonds. As with a license bond, BQI rates will largely be based on the personal credit profile of the indemnitor, which in this case is the RMO or RME. While commonly requested, another individual with better credit cannot be substituted for the RMO or RME, nor can the credit of the corporation or business be used in lieu of the individual’s credit. With this in mind, businesses that require an RMO or RME should be aware that overall bonding costs may be much higher when a BQI is required, especially if the RMO or RME in question has poor credit. A solid plan of attack is for contractors to carefully review their bonding options in advance and evaluate all possible solutions. For more information on California contractor bonds, please click here.