‘How much may the employer retain for warranty, and for how long’ is the question every FDI contractor asks when negotiating a Vietnamese construction contract. One point must be made immediately: Vietnamese law sets minimum warranty periods, but the retention percentage is essentially a matter of contract — confusing the two gives contractors wrong expectations about their rights. This article separates the layers.
Warranty period: statutory minimums
Under Article 84 of the Construction Law 50/2014/QH13 (as amended by Law 62/2020/QH14) and guidance in Decree 06/2021/ND-CP on construction quality management and maintenance, construction and equipment-supply contractors warrant the works and equipment from the employer’s acceptance for use. Minimum warranty periods run by work grade: not less than 24 months for special-grade and grade-I works, not less than 12 months for other grades (housing follows its own framework). During the warranty period the contractor must repair defects arising from its own fault at its own cost upon the employer’s notice. Parties may agree longer periods — 24 months across all items is common negotiation practice for FDI industrial plants — but not shorter than the statutory minimum.
Retention money: contract decides, two interchangeable forms
To secure the warranty duty, the parties agree in the contract either a retention amount withheld by the employer from progress payments, or an equivalent bank warranty guarantee posted by the contractor. Decree 06/2021/ND-CP frames the mechanism, but the percentage is not a single statutory figure: Vietnamese market practice commonly runs at a few percent of contract value (often around 2-5% depending on work type and bargaining), and well-funded FDI employers often accept bank guarantees so contractors’ capital is not locked. The more important negotiation point than the rate is staged release: retention for each work item should be released when that item’s warranty expires, not held entirely until the last item expires.
Release and typical disputes
When the warranty period ends and the contractor has repaired all defects notified within the period, the employer must return the retention (or release the guarantee) within the contract’s timeframe. Classic disputes: the employer citing defects arising after expiry to keep holding money; argument over whether a defect stems from construction fault or the employer’s faulty operation — decided by acceptance records, operating logs and joint inspection minutes; and employer insolvency or unjustified prolonged retention. FDI contractors should contract for: a joint end-of-warranty inspection procedure with a discharge minute, late-payment interest on retention held beyond term without grounds, and warranty exclusions for natural wear, third-party damage and change of use.
Recommendations
Negotiate warranty as a package: periods by work grade and equipment specifics; prefer bank guarantees over cash retention where possible; staged release per item; and a warranty-closing minute as the release condition. Avoid employer templates with indefinite retention or release tied to events outside the contractor’s control.
Frequently Asked Questions
What percentage is retained for warranty?
The law sets no single rate for all contracts: retention is agreed in the contract within the Decree 06/2021/ND-CP framework, with market practice commonly around 2-5% of contract value, or replaced by an equivalent bank warranty guarantee.
How long is the warranty period?
Minimums by work grade under Decree 06/2021/ND-CP: not less than 24 months for special-grade and grade-I works, not less than 12 months for other grades (housing has its own framework). Contracts may run longer but not shorter than the minimum.
When is retention released?
When the relevant item’s warranty period ends and the contractor has repaired defects notified within the period. The contract should include a joint inspection procedure and a discharge minute as the release basis.
Where do warranty disputes usually arise?
At three points: retention held beyond term on defects arising after expiry; defect causation (construction fault versus operation); and warranty scope versus natural wear or change of use. Acceptance records and joint inspection minutes are decisive evidence.
This article has been quality-reviewed by the FLAW AI Legal Council