Bonding requirements
Public agencies protect taxpayers, workers, and suppliers with surety bonds and strict bidding rules. Know the bid bond (at least 10% on state jobs), the payment bond (100% on contracts over $25,000), the performance bond, the stop payment notice deadlines, and the 5% retention limit.
On the Spanish exam, this topic is called “Requisitos de vinculación.” It means bonding requirements, that is, requirements for surety bonds (fianzas).
What a surety bond is
A surety bond is a promise by a surety company to pay if the contractor does not keep a promise. There are three parties: the principal (the contractor), the obligee (the public agency), and the surety. On public works, bonds must come from an admitted surety insurer, which is a company authorized to do business in California (Civil Code §9554; Public Contract Code §10221).
Public bidding basics
Public works contracts are usually awarded by sealed bid to the lowest responsible bidder (for state contracts, Public Contract Code §10180). A “responsible bidder” has shown trustworthiness, quality, fitness, capacity, and experience to do the job well (§1103). The lowest price alone does not win if the bidder is not responsible. You must also be registered with DIR to bid (Labor Code §1771.1).
- Subcontractor listing: the prime must list each subcontractor whose work is more than one-half of 1% of the prime's total bid. The list shows the sub's name, location, CSLB license number, and DIR registration number (Public Contract Code §4104).
- For streets, highways, and bridges, the listing threshold is one-half of 1% of the bid or $10,000, whichever is greater (§4104).
- If the prime does not list a sub for a portion, the prime agrees to do that work itself (§4106).
- A listed sub can be replaced only with the awarding authority's consent, for reasons such as refusing to sign, bankruptcy, or failing to meet bond requirements. The listed sub gets 5 working days to object (§4107).
- Violating the listing law can lead to canceling the contract or a penalty of up to 10% of the subcontract (§4110).
- A bidder who wants relief for a mistake made in filling out the bid must give the agency written notice within 5 working days after bid opening (§5103).
Worked example
Which subs must be listed?
- Building project: prime bid is $2,000,000. One-half of 1% = $2,000,000 × 0.005 = $10,000. List every sub doing more than $10,000 of work.
- Road project: prime bid is $1,200,000. One-half of 1% = $6,000. The greater of $6,000 or $10,000 is $10,000.
In both cases, list subs whose work is more than $10,000.
Bid bond (bidder's security)
A bid bond (fianza de licitación) promises that the winning bidder will sign the contract. On state contracts, every bid must include bidder's security of at least 10% of the bid amount: a bond from an admitted surety, cash, a cashier's check, or a certified check. A bid without security is not considered (Public Contract Code §10167). If the winning bidder does not sign the contract, the security is forfeited to the state (§10181).
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