What is a Warranty Bond?

A Warranty Bond (Vietnamese: Bảo lãnh bảo hành) is a type of bank guarantee where the issuing bank undertakes to compensate the beneficiary (typically the project owner or buyer) if the principal (contractor or supplier) fails to honour its warranty commitments after delivery or handover of the contracted works, equipment, or goods.

When is a Warranty Bond Required?

• After the practical completion and handover of construction projects
• Upon delivery of machinery or equipment with warranty commitments
• In software or technology system supply contracts
• As required by public procurement regulations or international tenders

Key Characteristics

• Bond Value: Usually 5%–10% of the contract value
• Validity Period: Matches the warranty period stipulated in the contract (typically 12–24 months)
• Claim Conditions: The beneficiary must demonstrate the principal's failure to meet warranty obligations

Benefits

Warranty bonds protect the project owner's interests, enhance transparency and trust in commercial transactions, and allow contractors to preserve working capital instead of tying up cash deposits during the warranty period.

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