Market bonds and guarantees (on-demand guarantee, retention): what to know

Quick answer. Winning and performing a contract often means providing guarantees: a bid bond to apply, retention of guarantee capped at 5% on private construction work (Law No. 71-584 of 16 July 1971), an on-demand guarantee (GAPD, article 2321 of the Civil Code) or a performance bond. These mechanisms tie up cash or credit lines. Understanding them lets you negotiate, replace retention with a bond, and limit the cost.

On a public or private contract, the buyer (client) seeks protection against contractor default. It therefore requires guarantees, which protect the buyer but tie up your cash or borrowing capacity. Whether you work in construction, services or industry, you will most often encounter a bid bond, retention of guarantee, performance bond or on-demand guarantee.

Anticipating these guarantees is part of good preparation, alongside responding to the tender and managing working capital. Well negotiated, they preserve your cash; poorly anticipated, they can tie up a significant share of the contract for one to two years.

The bid bond#

Before signing, the buyer may request a bond proving the seriousness of your bid. It is valid during the offer validity period and released after contract signature or bid rejection. Its cost is limited to a bank or credit-insurer commission.

Retention of guarantee#

On private construction work, retention of guarantee is governed by Law No. 71-584 of 16 July 1971. Key points:

• 5% cap on the contract amount.
• Maximum duration of one year from work acceptance.
• It guarantees proper performance and the correction of defects during the warranty period.
• It can be replaced by a personal and joint guarantee from a financial institution of equal amount; failing that, the buyer must escrow the retained sum (article 1799-1 of the Civil Code). This substitution lets you recover the cash immediately.

The on-demand guarantee (GAPD)#

Governed by article 2321 of the Civil Code, the GAPD is an autonomous guarantee: the guarantor pays on simple written demand, without raising exceptions drawn from the underlying contract. It is the most protective guarantee for the buyer, hence the costliest for the contractor, and the one that offers the least room to contest before payment.

The performance bond#

A form of suretyship (article 2288 of the Civil Code), it guarantees completion of the contract. Unlike the GAPD, the guarantor can raise exceptions; it is generally less costly and released after final acceptance.

On private construction work, the 1971 law sets the framework: retention capped at 5%, one-year duration, and the option to replace it with a personal and joint guarantee or, failing that, with an escrow. It is a rule protecting the contractor: beyond 5% or the one-year period, retention has no basis.

On public contracts, retention is governed by the Public Procurement Code: it is also capped (generally 5%) and may be replaced, at the holder's request, by an on-demand guarantee or, if the buyer agrees, by a personal and joint guarantee. Public buyers frequently require a GAPD on large contracts.

The distinction has heavy consequences. With a GAPD (article 2321), the guarantor pays on first demand, whatever your objection: you then only have a recourse for restitution, lengthy and uncertain. With a suretyship (article 2288), the guarantor can raise exceptions and payment can be discussed. Suretyship is generally less costly.

Our recommendation: whenever possible, negotiate a performance bond rather than a GAPD, relying on your references and absence of incidents. On a public contract, the margin is narrower, but the holder retains the option to substitute a guarantee for the retention.

A market guarantee has a cost and an accounting effect to anticipate. Bonds and on-demand guarantees issued by your bank or a credit insurer carry a commission, based on the guaranteed amount, the duration and the perceived risk. These signature commitments also consume part of your authorised lines: an outstanding guarantee reduces your capacity to draw on other facilities by the same amount.

On the accounting side, these commitments given appear as off-balance-sheet commitments; the commission is an expense of the period. Retention of guarantee, by contrast, is a receivable you hold on the buyer, due at the end of the warranty period: track it precisely so you do not forget to claim its release. Where recovery is seriously in doubt, an impairment may be considered. Building this full cost — commission, immobilization and line impact — into your pricing avoids unpleasant surprises and feeds the negotiation. Also check the release date set in the contract: a guarantee running beyond what is strictly necessary needlessly ties up your lines and your cash.

• Construction and works: the leading sector for retention of guarantee. Do not confuse retention (released after one year) with ten-year structural liability (a separate insurance over ten years). Escrow with a third party often lets you recover cash without waiting.
• Subcontracting: retention can cascade (the prime contractor retains from you, the buyer retains from them). Negotiate partial releases by phase to avoid excessive immobilization.
• Large public contracts: combining bid bond, retention and GAPD is common. Budget a financing line or a Bpifrance guarantee to cover these commitments.

• Do not confuse retention and GAPD. Retention (5%, one year) protects defect correction; the GAPD is an autonomous guarantee payable on sight. Combined, they tie up more.
• Request substitution. On private construction work, you can replace retention with a bond or require escrow: it is a right, not a favour.
• Anticipate the line impact. A guarantee issued by your bank consumes capacity; build it into your cash plan.
• Monitor release. Retention is not always released automatically: check the absence of reservations and claim release at maturity.
• Interest on delay. A late release without cause may give rise to interest; the legal interest rate for claims between professionals is 2.62% for the first half of 2026.

Recently, a construction company consulted us on a substantial contract combining retention of guarantee and a separately required performance bond. By analysing the contract, we obtained a two-stage release of the retention, at mid-term and at acceptance, and substituted the retention with an escrow, cheaper than an on-demand guarantee. The cash immobilization was sharply reduced, and the commission cost lightened.

Our conviction: market guarantees are never fixed. They are negotiated at every stage — before bidding, at signature, then during execution. Every point gained on a retention or a commission gives your cash flow room to breathe. But you must know your rights, starting with the option to substitute a bond for the retention.

Hayot Expertise recommendation. Before signing a contract, have the real cost of the required guarantees on your cash flow costed: retention, bonds, commissions, immobilization duration. We identify possible optimizations — partial releases, degressivity, substitution by escrow or bond, choosing a suretyship rather than a GAPD — and help you size the necessary lines. A well-negotiated guarantee means preserved working capital.