Construction surety bond guarantee: meeting customer requirements in French-speaking Switzerland
Without a guarantee, some markets remain inaccessible.
Public procurement, major clients, advance payments: security is often required.
In construction, the ability to provide guarantees is sometimes as important as the ability to build.
Tenders, public contracts, institutional clients, requests for advance payments: many clients require a bond or financial guarantee to secure the execution, advances or certain obligations.
For an SME, these requirements can jeopardize a contract if they are not anticipated. A surety bond, issued by a bank or insurer, serves to reassure the client of your financial stability and commitment, according to the agreed terms.
When well structured, it facilitates market access while protecting cash flow, as it avoids tying up liquid assets.
Surety bond: a financial tool to be handled with care
The risk is not the construction site, it's the poorly negotiated warranty clause.
In the context of construction, a surety bond refers to a mechanism by which a bank or insurer undertakes, for the benefit of a client (the beneficiary), to pay an amount if certain stipulated conditions are met.
It serves to secure contractual obligations, and is often required for tenders, advances, or specific commitments.
For a construction SME, it's not insurance that compensates for your own losses; it's security that reassures the client.
The main issue is therefore managing the risk of "claims" on the guarantee, and the impact on your financial capacity.
What a surety bond “covers” is defined by its text.
A bid guarantee may be called if the company withdraws or does not sign the contract according to the terms.
A deposit guarantee aims to protect the customer who has paid an advance, if the company does not meet its obligations.
Other guarantees may target specific elements: delivery of documents, adherence to certain steps, or restitution obligations. The terms of recourse can be straightforward (on-demand guarantee) or conditional (suretyship in the strict sense), which radically alters risk management.
The main areas of concern are legal and operational.
First, the drafting: a text that is too broad, or poorly aligned with the main contract, exposes the SME to a questionable but costly appeal.
Next, the duration: a guarantee that is extended without a clear release mechanism limits your ability to provide security. Third, the conditions for appeal: who can appeal, on what grounds, what documents are required, and how a disagreement is resolved.
Fourth, counter-guarantees: the issuer of the guarantee may require a counter-guarantee, a deposit, or a line of credit, which impacts your cash flow and credit limits. Fifth, accumulation: multiple guarantees in parallel can reduce your ability to accept new projects, even if the business is profitable.
Choosing the right level and structure relies on a simple decision-making framework. For an SME, the first step is to define the client's requirements: type of guarantee requested, amount, duration, and form (first request or conditional).
Next, check for consistency with the main contract: termination clauses, terms of deposit refund, deadlines, and release mechanism.
Then, assess the financial impact: what level of counter-guarantee, what commission cost, and what effect on your lines.
A useful mini-list to validate includes: type of guarantee, call conditions, duration and release, required documents, alignment with the contract, and available financial capacity.
Mage & associés can assist you by reviewing the guarantee requirements, clarifying the hidden risks in the clauses, and structuring a surety scheme consistent with your other guarantees (construction guarantee, performance guarantee) and your insurances (RC, site).
The goal is to maintain market access while managing the risk of callouts and the pressure on cash flow. A good guarantee is one that reassures the customer but remains controllable for the SME providing it.
Three key uses of surety bonds in construction
Different guarantees for different risks.
Bid security (tender)
It reassures the client about the seriousness of the offer and the commitment of the bidder.
In the event of an unjustified withdrawal, the guarantee may be invoked according to the conditions.
For an SME, it is often the gateway to structured markets.
Deposit Guarantee
(advance)
When a client pays an advance, they can demand a guarantee to protect themselves if the project does not progress.
The advance payment guarantee mitigates this risk for the client, while allowing the SME to finance the start-up without tying up its cash flow.
Specific contractual obligations
Some clauses require guarantees for specific commitments: delivery of documents, deadlines, deliverables.
According to the text, a surety bond can meet these requirements.
The clarity of the appeal conditions is crucial.
Advance payment required by a client: securing the payment without tying up the cash
Realistic fictional example, in a market in French-speaking Switzerland.
Realistic fictional example.
A construction SME in French-speaking Switzerland wins a contract to renovate a building.
The client agrees to pay a deposit to finance the purchase of materials, but requires a deposit guarantee issued by an insurer.
Without this guarantee, the advance payment will not be made and the construction project risks being delayed.
The SME is requesting a surety bond.
The determining factor is the wording: the guarantee must be aligned with the contract, specify the conditions of return, and provide for a release as the work progresses, according to what is agreed.
The SME prepares a solid file: contract, schedule, budget, references, and requested financial information. After issuance, the deposit is paid and the project begins.
A few weeks later, a dispute arose over a modification requested by the client.
The SME manages the contractual dispute without letting the case slide towards a warranty claim: documented communication, site minutes, clarification of amendments.
The guarantee is not called upon immediately, and it is released gradually according to the stages. The operational lesson: surety bonds are a growth tool, but they require contractual discipline.
The text, the release and the management of disagreements protect the SME as much as the customer.
