Performance Bond in Vietnamese Construction Contracts: Law and FIDIC 4.2

Updated: 22 October 2026 · IVLF Advisors

The security a contractor posts at signing is often treated as a formality, until the Employer calls it and the parties discover that the wording, not the contract, decides who wins. A badly drafted performance bond construction contract Vietnam package, on an airport terminal as much as on a hotel fit-out, can leave an Employer unable to reach the money quickly, or leave a contractor exposed to a call it cannot stop. This guide sets out what Vietnamese law requires, how FIDIC sub-clause 4.2 works, and how to draft the instrument for a Vietnamese project.

What a performance bond does in a construction contract

A performance bond is security for the Contractor’s proper performance. It gives the Employer a fund it can reach if the Contractor abandons the Works, fails to meet quality or programme, or refuses to proceed. In Vietnamese practice the concept appears as bảo đảm thực hiện hợp đồng (contract performance security) and, when given by a bank, bảo lãnh thực hiện hợp đồng (performance guarantee). In English-language contracts the instrument is variously called a performance bond, performance guarantee or performance security.

The commercial purpose is narrow. The bond is not a substitute for liquidated damages, for insurance, or for the warranty security that follows completion. It is a liquid source of recovery that supports all of them. Its value depends on three drafting variables: who issues it, what triggers a payment, and when it expires.

Performance bond construction contract Vietnam: the statutory framework

Two layers of Vietnamese law apply. The Construction Law (Luật Xây dựng 135/2025/QH15, effective 1 July 2026) sets the general rules. Decree 210/2026/NĐ-CP, which replaced Decree 50/2021 from the same date, adds detail, much of it for public investment and PPP projects only.

Luật Xây dựng Art 83: the general rule

Article 83 allows the parties to agree security measures, which apply until the obligation is completed or the security is released as agreed. The Employer may require the Contractor to provide security, and may enforce it, or call on the guarantor or the credit institution holding a deposit, if the Contractor’s breach compromises safety, quality or progress, or if the Contractor refuses to perform.

The Contractor may in turn require the Employer to prove its financial capacity or provide payment security, except for contracts under public investment projects. The Government prescribes detailed measures and levels for public investment and PPP projects.

Decree 210 Art 13: public investment and PPP only

For public investment and PPP projects, Decree 210 Art 13 lists contract performance security, payment security, advance payment guarantee and warranty security. It prefers guarantees over deposits and other measures, and provides that where cash is deposited or payments are held back, the party giving the security earns the interest. The figures below apply to public investment and PPP only; on private projects the parties agree the level of security freely.

• Amount. Performance security is set at 2% to 10% of the contract price; a higher figure is possible only as the procurement law allows.
• Forfeiture. The Contractor does not get the security back if it refuses to perform after the contract takes effect, if delay attributable to it is followed by refusal to extend the security’s validity, or in other agreed cases.
• Return. The security is returned after the Contractor completes its obligations, or moves into the warranty period and has provided the warranty security.
• PPP. The employer must show financial capacity through a credit agreement or loan arrangement with a financial institution.
• Joint ventures. Each member provides security for its share of the value, or the lead member provides it if so agreed.

Decree 210 also protects the party that is owed security. Under Art 26(2), on public investment and PPP contracts a party may suspend work if the other fails to provide security required by Art 83 and Art 13, subject to written notice that, unless force majeure applies, may not exceed 28 days.

On-demand guarantee Vietnam versus conditional bonds

Before drafting, decide what the instrument must do. The main structures differ in speed of payment, evidence required and the risk of a contested call.

Instrument	Payment trigger	Evidence the beneficiary provides	Main risk
On-demand (first demand) bank guarantee	Written demand and statement of breach	Statement identifying the breach; signature authentication	Fast but exposed to a wrongful call; contractor relies on contractual indemnity
Conditional guarantee or surety bond	Default or listed events and proof of damages sustained	Evidence of default and loss	Slower; the Employer may face a dispute before payment
Cash deposit or escrow	Held with a credit institution until release	As agreed in the deposit terms	Ties up working capital; interest allocation must be agreed
Retention from payments	Employer withholds agreed amounts from interim payments	None; exercised through the payment mechanism	No third-party credit support; relies on Employer’s solvency
Parent company guarantee	Per its terms	Per its terms	Only as good as the guarantor; a common supplement for special-purpose contractors

FIDIC’s sample forms illustrate the first two structures. Annex C (demand guarantee) pays on a written demand and statement that the Principal is in breach and in what respect. Annex D (surety bond) pays damages sustained due to a default or listed events, up to the bond amount. Annex A is an example parent company guarantee, and Annex G a payment guarantee by the Employer, which is relevant to contractors on privately funded projects.

A civil-law point must be checked locally. The Civil Code regime on guarantee (bảo lãnh) is generally accessory, while a first-demand bank guarantee is intended to be independent of the underlying contract. How the two interact for a guarantee issued by a Vietnamese credit institution depends on the guarantee’s wording and applicable banking rules, and should be confirmed with local counsel.

Performance security FIDIC clause 4.2: what the text says

Sub-clause 4.2 of the FIDIC 1999 Silver Book requires the Contractor to obtain, at its cost, a Performance Security in the amount and currencies stated in the Particular Conditions. If no amount is stated, the sub-clause does not apply. The other 1999 forms follow the same structure; confirm details in the edition actually used.

• Delivery. The security must be delivered within 28 days after both parties sign the Contract Agreement (Silver Book wording). Under the Red and Yellow Books the period runs from receipt of the Letter of Acceptance; confirm in the edition used.
• Issuer and form. The issuer must be an entity, and from a country, approved by the Employer, in the form annexed to the Particular Conditions or another form the Employer approves.
• Validity. It must remain valid and enforceable until the Contractor has executed and completed the Works and remedied defects. If the Contractor is not entitled to the Performance Certificate 28 days before expiry, it must extend the security.
• Limits on claims. The Employer may claim only amounts due under the Contract in four cases: failure to extend validity (full amount); failure to pay an agreed or determined amount within 42 days; failure to remedy a default within 42 days of notice; and circumstances entitling termination under sub-clause 15.2.
• Wrongful claims. The Employer must indemnify the Contractor against losses from a claim to which it was not entitled.
• Return. The Employer returns the security within 21 days after the Contractor becomes entitled to the Performance Certificate.

The bond is also woven into other clauses. The Employer may withhold site possession until it receives the Performance Security (cl. 2.1), no interim payment is made until the Employer has received and approved it (cl. 14.6), and failure to comply with sub-clause 4.2 is itself a ground for termination (cl. 15.2(a)).

The tension between clause 4.2 and a first-demand guarantee

Clause 4.2 limits when the Employer “shall not make a claim”, but the sample demand guarantee in Annex C pays on the Employer’s statement of breach. The two work together only because the contractual limit operates between the parties, while the bank pays on the documents. A wrongful call is then remedied through the Employer’s indemnity, not by the bank refusing to pay. For this reason, a performance bond construction contract Vietnam package should expressly record that the guarantee is independent, and that the Employer’s contractual restrictions bind it as between the parties.

Drafting the performance bond for a Vietnamese project

The following points are where practical disputes arise. They apply whether the project is public or private, subject to the statutory figures noted above for public investment and PPP.

1. Issuer. Specify a Vietnamese credit institution or a foreign bank acceptable to the Employer. FIDIC’s own guidance offers wording requiring a bank in the Country or a foreign bank acceptable to the Employer. A counter-guarantee structure may be needed if the foreign bank cannot issue directly.
2. Currency. State the currencies of the guaranteed amount to match the currencies of the Contract Price, bearing in mind the dong payment rule in Luật XD Art 87(2)(c).
3. Claim place. Require presentation at an office in Vietnam where practical, so that the demand can be authenticated and served without delay.
4. Expiry. FIDIC’s sample forms set expiry some time after the expected end of the Defects Notification Period (70 days in the demand guarantee, six months in the surety bond). Match the expiry to the warranty structure.
5. Reduction. Allow a stated percentage reduction on the Taking-Over Certificate, as bracketed in the FIDIC sample forms, where a warranty security replaces part of it.
6. Governing law and rules. The sample forms refer to ICC Uniform Rules for Demand Guarantees (publication 458) and for Contract Bonds (publication 524). Current market practice often uses the later ICC rules for demand guarantees; confirm which rules the issuing bank will accept.
7. Extension. Provide that the cost of extending the bond when time is extended is a recoverable item; see our discussion of prolongation costs in construction contracts.

Linking the performance bond construction contract Vietnam package to advance payment and warranty security

Security for performance, advance payment and warranty should be coordinated so that the Employer is never uncovered and the Contractor never double-secured. Under FIDIC sub-clause 14.2 the first instalment of an advance is paid only after the Employer receives the Performance Security and an advance payment guarantee equal to the advance.

For public investment and PPP contracts, Decree 210 Art 12(3)(c) requires an advance payment guarantee where the advance exceeds VND 1 billion; see our note on advance payment guarantees in Vietnamese construction contracts. On those projects the performance security is returned only when the Contractor has moved into warranty and supplied a warranty security.

Calling the bond: a practical protocol

A call on a performance bond construction contract Vietnam should be the end of a documented process, not its start. For Employers, the sequence is usually: a notice under the default clause, an opportunity to remedy, a decision to call, a demand that complies exactly with the bond’s formalities, and parallel notice to the Contractor. Sub-clause 4.2 supports this by tying claims to the 42-day periods and to termination events. Strict compliance matters because a demand that deviates from the bond’s wording gives the bank a reason to refuse.

For Contractors the key protections are contractual: a tight list of claim events, an express indemnity for wrongful calls, and a reduction schedule. A Contractor that believes a call is wrongful should seek advice immediately, because options to restrain payment are limited and fact-specific. We do not assume a particular outcome in Vietnamese courts for such applications.

Foreign lenders should note one more point. Under Luật XD Art 83(2), the Employer may enforce security where a Contractor’s breach compromises safety, quality or progress, or it refuses to perform. Lenders financing the Employer should also check assignment.

Sub-clause 1.7 of the Silver Book lets a party assign, as security in favour of a bank, moneys due under the Contract, but does not by itself give a lender the benefit of the bond. If lenders need that benefit, the bond must allow assignment, as the sample surety bond does subject to the Contract’s assignment provisions. Keep the trigger language consistent with the contract’s default provisions.

For further reading, see the Construction Law text on hethongphapluat.com and the publisher’s overview of the FIDIC forms on the FIDIC website.

Performance Bond Construction Contract Vietnam: Infrastructure, Industry, Energy and Real Estate

The legal mechanics of the instrument are the same, but the commercial setting changes who needs the security, how large it is and when it should fall away. The examples below are illustrative only.

Infrastructure and transport packages

For expressways, metro, ports, high-speed rail and airport terminals, the Employer is often a State body or State-owned enterprise, and many such projects fall within public investment or PPP rules. Where they do, Decree 210 Art 13 applies; otherwise the parties agree.

The North–South high-speed railway (about 1,541 km, Hanoi to Ho Chi Minh City, through 15 provinces and cities per press reports of October 2026) and the Long Thành airport terminal (phase 1 operation expected from late December 2026, per press reports) illustrate how many packages one programme can contain. Each package needs its own bond with an expiry that matches that package, not the whole programme.

Factories and heavy industry

On a steel, cement or petrochemical plant, or an FDI factory in an industrial park, the owner is private and the bond amount and form are negotiated. Lenders often ask for an on-demand instrument from a bank acceptable to them, plus advance payment guarantees tied to equipment procurement.

Energy projects

Solar, wind, grid and LNG-to-power contracts often carry bonds sized to the cost of delay against power-offtake deadlines. Whether the structure is public or private is fact-specific. Match the bond expiry to the commercial operation date and the test regime.

Hotels, resorts and urban areas

In a hypothetical hotel fit-out, a smaller bond and retention may suffice, with the bond released on practical completion and a warranty security taking over. For mixed-use urban developments, phased handover argues for phased bond reduction. Land and real estate business rules may also affect timing.

Project type	Typical contract or risk feature	What to check
Airport terminal, expressway, rail	Often public or PPP; multiple packages	Decree 210 Art 13 applicability; per-package bond expiry
Factory or heavy-industry plant	Private; lender-driven bond form	On-demand wording; advance payment guarantee link
Solar, wind, LNG-to-power	Offtake deadlines drive delay exposure	Expiry vs commercial operation date
Hotel, resort, mixed-use	Private; phased handover	Reduction on practical completion; warranty security

Conclusion

A performance bond construction contract Vietnam arrangement works when four things align: the statutory baseline (Luật Xây dựng Art 83, and Decree 210 Art 13 for public investment and PPP), the contract mechanism (FIDIC sub-clause 4.2), the instrument’s wording and the lenders’ requirements. Decide early whether the Employer needs an on-demand guarantee or a conditional bond, fix the expiry against the warranty period, and record the Employer’s limits on calling. A practical next step is to put the proposed bond form into the tender documents as an annex to the Particular Conditions.

Frequently Asked Questions

How much is a performance bond in Vietnam?

For public investment and PPP contracts, Decree 210/2026 sets performance security at 2% to 10% of the contract price. For private contracts, the parties agree the amount. FIDIC sub-clause 4.2 leaves it to the Particular Conditions.

Is a deposit an acceptable alternative to a bank guarantee?

Yes, if agreed. Decree 210 lists guarantees, deposits and other measures for public investment and PPP contracts, with guarantees preferred. Cash deposits tie up working capital.

When must the performance bond be returned?

Under FIDIC sub-clause 4.2, within 21 days after the Contractor is entitled to the Performance Certificate. On public investment and PPP contracts, Decree 210 links return to completion or entry into warranty with warranty security in place.

Can the Employer call the bond for any breach?

Not under FIDIC. Sub-clause 4.2 limits claims to listed events and to amounts due under the Contract. The bond’s own wording and any statutory rules must be read together.

Does the bond cover warranty defects?

Only to the extent its validity and terms reach the defects period. Many projects replace it at taking-over with a smaller warranty security.

Disclaimer: this article provides general information only and is not legal advice for any specific matter. The law is stated as of 22 October 2026 and may change.