REALWorld Law


Security documents

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?



The Construction Contract Procedures Part B (VOB/B) dealing with security are mostly supplemented and detailed in the construction contract. In particular, the contracting parties commonly agree on the following types of security:

Performance guarantee

Generally the contractor must provide a performance guarantee amounting to 10% of the gross contract value. However, it should be noted that under the jurisdiction of the Federal Court of Justice an on demand performance guarantee cannot be stipulated in general terms and conditions.

Payment/prepayment guarantee

The amount of any payment/prepayment guarantee is also generally 10% of the gross contract value. In order to ensure that claims for the remaining remuneration are not unsecured at the end of the construction process, it is advisable for the contractor to agree that the prepayment guarantee only expires at the completion of the construction project.

Warranty guarantee

Where agreed, the principal may hold back an amount of up to 10% of each instalment and the final payment as security. Generally the parties agree that at the time the final invoice is issued, the retention is reduced to 5%. This is then paid into a blocked account unless the contractor provides a contractually agreed warranty guarantee in order to release the amount. An on-demand warranty guarantee cannot be agreed on in general terms and conditions.


Under the German Civil Code the contractor is entitled to register a builder's security mortgage on the relevant plot of land owned by the principal.

Payment guarantee

Again under the German Civil Code the contractor has a claim against the principal for the delivery of a guarantee in the amount of the total remuneration owed – including remuneration for any variations – so far as not yet paid but contractually agreed plus 10% for ancillary claims. The guarantee, which can be issued by a bank or a credit insurer, is of more practical relevance than the builder's security mortgage. In the event that the guarantee is not provided the contractor may cease work.