Scenario: eight months after handover, an FDI factory’s concrete floor cracks and the roof drainage leaks. The investor calls the contractor back for warranty repairs — and learns the company has ceased operating and its director is unreachable. At that point, all the risk concentrates into one question: were the contract and the retention designed to standard? This article analyses the current construction warranty framework — noting that Decree 207/2026/ND-CP replaced Decree 06/2021/ND-CP from 1 July 2026.
The current framework: Decree 207/2026/ND-CP
Construction warranty is now governed by Chapter III of Decree 207/2026/ND-CP dated 15 June 2026 on quality management, construction execution and maintenance of construction works, effective 1 July 2026 and replacing Decree 06/2021/ND-CP. Article 32 allocates responsibility: the construction contractor warrants the work it performed; the equipment supplier warrants the equipment it supplied; the warranty period runs from acceptance for putting the work into use. The binding minimums for works using public investment capital are at least 24 months for special-grade and grade-I works and at least 12 months for other grades, with temporary works excluded. Works using other capital — including privately funded FDI factories — agree their warranty terms by reference to those benchmarks. Construction contracts for large projects now sit under a separate framework in Decree 210/2026/ND-CP, so warranty clauses should be reviewed against both decrees together.
Retention money and the guarantee substitute
Article 33 of Decree 207/2026/ND-CP requires the investor to retain warranty money at minimum rates: 3% of the contract value for works with a 24-month warranty, and 5% for works with a 12-month warranty. The contractor may substitute a credit institution’s guarantee letter for the retained cash — good for the contractor’s cash flow while preserving the investor’s protection, provided the guarantee’s validity covers the whole warranty period plus a margin for the payment-demand procedure. When a defect appears, the investor notifies the contractor, which must remedy it within the agreed time. The pivotal point of Article 33 is the investor’s self-help right: if the contractor does not perform the warranty, the investor may use the retention or the guarantee proceeds to hire another organisation or individual to carry out the repair and pay from that very source.
When the contractor vanishes: the practical sequence
Where the contractor has disappeared or is insolvent, act in order so as not to lose rights. One, record the defect condition with a third-party witness (a construction quality inspection organisation) and send the warranty demand to the contractor’s registered address — this is the legal foundation for every later step. Two, if retention is still held or a guarantee is still valid: hire another firm to repair, pay from that source and (for a guarantee) demand payment from the bank strictly per the guarantee’s procedure. Three, if the security has already been fully released: sue in court or arbitration under the contract’s dispute clause to obtain an enforceable judgment against the contractor’s remaining assets; in parallel, if the contractor is insolvent, petition for bankruptcy and register the claim. Four, review the main contractor’s liability for subcontracted portions and the supervision consultant’s liability where the defect links to wrongful acceptance. The best defence remains contractual: hold the 3%/5% standard, never release retention early, and require an unconditional warranty guarantee from a reputable bank.
Frequently Asked Questions
What is the minimum statutory warranty period for a factory building?
Under Articles 32 and 33 of Decree 207/2026/ND-CP (replacing Decree 06/2021/ND-CP from 1 July 2026): works of special grade and Grade I are warranted for not less than 24 months; all other works for not less than 12 months, counted from acceptance for use. An ordinary FDI factory building is Grade II or III, so the statutory floor is 12 months — but it is only a floor: the parties may, and in practice should, agree a longer period in the construction contract (24 months for main structure, foundations and waterproofing is a common negotiating baseline), because the law does not prohibit warranty longer than the minimum.
How much retention money applies to a factory warranty, and for how long?
Under Article 33 of Decree 207/2026/ND-CP: minimum warranty periods are 24 months for special-grade and grade-I works using public investment capital, and 12 months for other grades using public capital; works using other capital — including FDI factories — agree their terms by reference to these benchmarks. Retention is at minimum 3% of the contract value for 24-month-warranty works and 5% for 12-month-warranty works, and may be replaced by a bank guarantee letter of equivalent value. If the contractor fails to perform warranty repairs, the investor may use the retention or the guarantee to hire another party to fix the defects.
What if the contractor disappears or goes bankrupt during the warranty period?
Follow the sequence in Article 33 of Decree 207/2026/ND-CP: the investor notifies the warranty request; if the contractor does not perform (including where it has vanished or is unreachable), the investor may hire another organisation or individual to repair and pay from the retained warranty money or call the bank’s warranty guarantee. If the retention was already fully released, three routes remain: sue in court or arbitration under the contract (judgments can still be enforced against the contractor’s remaining assets), petition to open bankruptcy proceedings and register as a creditor, and pursue the main contractor’s joint liability for subcontractors’ work. The practical lesson is never to release 100% of retention before the warranty expires.
Should the investor retain 5% of the contract value as warranty security?
Yes — and 5% sits inside the statutory frame: Decree 207/2026/ND-CP sets warranty money at 5% of contract value for special-grade and Grade I works and 3% for other works; the contractor may substitute the retained amount with an equivalent bank warranty guarantee. For an FDI investor, retaining 5% (or an equivalent guarantee) is the only practical lever when the contractor is slow to honour warranty: once the notice period passes without repair, the investor may use the warranty money to hire a third party to fix the defects and settle the account. Add a staged release schedule (stepping down over a defect-free warranty period) so the contractor has an incentive to cooperate.
This article has been quality-reviewed by the FLAW AI Legal Council