Pursuant to AB39, The Nevada State Contractors Board now requires contractors providing residential improvement construction to carry a new bond
The State of Nevada recently passed Assembly Bill 39, AB39, that includes several measures to protect consumers during their residential construction projects, including the introduction of the Residential Improvement consumer protection bond.
The mission of the Nevada State Contractors Board is to ensure the integrity and professionalism of the construction industry in Nevada. They have the responsibility to promote quality construction by Nevada licensed contractors through a regulatory licensing system designed to protect the health, safety and welfare of the public. Again, protecting the public is the primary mission of the Contractors Board.
In order to further protect the public, contractors providing residential improvement construction services will now be required to provide a new bond. This bond is called the RESIDENTIAL IMPROVEMENT BOND FOR THE PROTECTION OF CONSUMERS and the bond limit required is $100,000. This new requirement takes effect on October 1, 2023.
The Contractors Board also held a webinar recently that addresses many of the important points relating to AB39 and a recording can be viewed here.
What is Assembly Bill 39 (AB39)?
AB39 was enacted during the Nevada Legislature’s 82nd Legislative Session. It takes effect and is enforceable October 1, 2023. It seeks to address issues identified in residential construction. AB39 does not apply to commercial construction.
AB39 reinforces the contract requirements that must be used by residential contractors as follows. AB39 has additional contract requirements in addition to those listed below. You should consult the Contractors Board for a complete list of what AB39 requires and also consult this checklist provided by the board.
- Contractor Information
- License Number
- Monetary Limit
- Owner Information
- Mailing Address
- Address & Legal description of property (single-family residence, etc.)
- Timeline & Scope
- Date of contract execution
- Estimated date of completion of all work
- Description of work to be performed
- Payment Terms
- Total amount to be paid to contractor by owner
- Initial down payment not to exceed $1,000 or 10% of the contract price, whichever is less, unless the contractor has satisfied the bonding requirements found in AB39
Remember that contracts that are not compliant with AB39 are subject to disciplinary action.
What are the bond requirements in AB39?
AB39 requires the initial down payment not to exceed $1,000 or 10% of the contract price. However, contractors that have met the bonding requirements are not held to this limitation.
The Residential Improvement Bond for the Protection of Consumers Bond can be purchased and submitted to the Nevada State Contractors Board. The bond carries a $100,000 limit and must be purchased through an authorized Surety Company. Here is a sample of the new bond form.
Rather than purchasing this new bond, a contractor may also post cash with the Contractors Board.
How much will the Residential Improvement bond cost?
Surety companies usually charge 1.5% – 3% of the bond limit for preferred risks. A preferred risk is an applicant that has good to excellent credit, no prior bankruptcies or liens and no prior surety bond claims. So a preferred risk should expect to pay between $1,500 – $3,000 annual premium for this bond that carries a $100,000 limit.
Applicants that do not qualify for preferred rates could pay upwards of 10% and may have additional collateral requirements set by the Surety company.
Since the Residential Improvements bond is a new bond, we also expect to see additional underwriting requirements, such as financial statements, proof of assets and cash accounts. Depending on the applicant, the surety company may also require financial statements prepared by a CPA.
Doesn’t my contractors license bond already protect consumers?
Yes, the Contractors License Bond you already have does provide consumer protection. However, the limit on most license bonds is much lower.
The Residential Improvement consumer protection bond is specifically required to have a $100,000 limit. This provides a much higher level of consumer protection since many residential improvement or remodeling projects can easily exceed the limits of most license bonds.
Many residential improvement projects also have higher down payment requirements. High down payments paid to contractors by homeowners is specifically problematic due to contractors applying these payments to other jobs they already have in progress. This practice, known as diverting, is essentially a Ponzi scheme, and is a felony.