Construction guarantee: secure your obligations after completion
After delivery, the risk of "defects" really begins
Without a guarantee, the takeover can become a battle of wills.
Many SMEs believe that the risk ends upon completion of the project.
In reality, defects can appear after: sealing, finishes, technical installations, malfunctions.
If the responsible company does not correct the problem or becomes insolvent, the project owner may end up with a degraded asset and significant recovery costs.
The construction guarantee, often implemented in the form of a bank guarantee or guarantee insurance, aims to secure the execution of the contractor's guarantee obligations, according to the contract and the agreed rules.
In French-speaking Switzerland, it is common in contracts and calls for tenders, and it protects the cash flow of the project owner.
Construction warranty: what it is, and what it isn't
A financial guarantee, not a “structural damage” insurance policy.
In Swiss practice, a construction guarantee is a financial security mechanism designed to secure the contractor's obligations after acceptance of the work, including the obligation to repair certain defects according to the contract and the applicable framework.
It often takes the form of a guarantee issued by a bank or insurance company, for the benefit of the project owner. The idea is not to insure "the structure against everything," but to guarantee that a sum of money can be released if the company fails to fulfill its guarantee obligations.
For an SME, this occurs either as the project owner (you require a guarantee), or as a construction company (you must provide a guarantee).
What a construction guarantee “covers” is therefore an obligation to pay, according to certain conditions.
In general, it aims to finance repair work related to defects for which the contractor is responsible, within the limits provided.
The warranty is often linked to a validity period and release procedures, aligned with the contractual clauses (termination rules, acceptance, warranty periods). The exact procedures depend on the contract and may be influenced by industry standards.
The key points to consider are crucial, as the mechanism has both legal and financial implications. First, the nature of the guarantee: some guarantees are "on first demand," while others function like a surety bond with stricter conditions.
This distinction changes the speed and ease of calling.
Next, the beneficiary and the scope: the guarantee must be issued in the correct name, for the correct project, and cover the type of obligations agreed upon.
Third point, exclusions and limitations: a guarantee does not pay for every defect.
It is often linked to contractual obligations; maintenance defects, modifications by third parties or non-compliant uses are not the responsibility of the contractor.
Fourth point, the appeal procedure: required documents, notifications, deadlines, and evidence. An improperly filed appeal can be challenged.
Fifth point, the financial impact for the company providing the guarantee: lines of credit, counter-guarantees, commissions, and the ability to issue several in parallel.
To choose the right level, an SME acting as project owner must reason in terms of risk: technical complexity, criticality of the work, number of stakeholders, and plausible cost of correcting defects.
The amount of the guarantee must be proportionate and consistent with contractual practices, without tying up excessive security.
A small or medium-sized construction company must, for its part, manage its guarantee capacity: select construction sites, anticipate needs, and optimize its financial system.
A useful mini-list to check is: type of guarantee (first demand or surety bond), duration and conditions of release, documents required for appeal, consistency with the work contract, and impacts on financial capacity.
Mage & Associés can assist you by clarifying the mechanisms, reviewing the guarantee requirements in the contracts, and structuring a system consistent with your other construction insurances (RC, works insurance, legal protections).
The objective is to avoid "poorly drafted" or "poorly sized" guarantees that create disputes, and to obtain usable security, both for the project owner and for the executing company.
Three major advantages of a construction warranty
Financial security once the project is completed.
Ensure the correction of defects
If a defect appears and the contractor does not correct it, the guarantee can provide financial security to fund the repairs, depending on the conditions.
This reduces dependence on the goodwill or solvency of the company.
Replace the hold-up
warranty
In some arrangements, the guarantee makes it possible to avoid having cash held in escrow.
The client retains security, and the company preserves its cash flow.
The terms and conditions depend on the contract and the requirements of the client.
Structuring post-construction management
The warranty is part of a process: receipt, list of defects, correction deadlines, evidence.
It encourages documenting and addressing defects professionally, which limits conflicts and accelerates compliance.
Defect after receipt: how the warranty prevents the problem
Realistic fictional example, based on a renovation project in French-speaking Switzerland.
Realistic fictional example.
A small business owner is renovating an office floor in French-speaking Switzerland.
A few months after delivery, leaks appeared around the windows.
The company that carried out the work was slow to intervene, then announced financial difficulties.
The SME fears it may have to finance repairs itself to avoid further deterioration and complaints from occupants.
The contract provides for a construction guarantee supplied by an insurer for the benefit of the project owner.
The SME documents the defect: photos, reports, record of dates, and formal request for correction.
The determining factor is the procedure: respecting the planned notifications, establishing that the defect relates to the execution, and demonstrating the absence of intervention within the agreed time limits.
The SME then makes use of the guarantee, with a structured file and buyback quotes.
The resolution is realistic: after analysis, the guarantee is mobilized according to the conditions, allowing to finance part of the corrective work.
The SME organizes the takeover with another service provider, then closes the file.
The operational lesson: a useful guarantee is not just a piece of paper.
It must be well-drafted, aligned with the contract, and activated through a clear procedure. This prevents a post-acceptance defect from becoming a costly obstacle.
