ᐅ How can I protect myself against the bankruptcy of a construction company?

Hello! Our preferred home builder offers a completion guarantee in the form of an insurance surety worth 5% of the net construction contract amount.

A completion guarantee is great. But why only 5%? How is it handled in your cases? How can I best protect myself against the company going bankrupt?

Background: I have looked into credit reports. From what I read, they are not very conclusive. A completion guarantee seems to be the best option. But is it available for the entire project, or are 5% typical?

Thanks in advance!

Hauherr2020 schrieb:

How can I best protect myself against the company going bankrupt?

A reasonable payment schedule. You might also get a guarantee or bond covering the entire amount (which is uncommon) – however, the builder will charge you a premium for this, as they have to pay for it as well (1.5–2% of the construction costs).

Maybe you can also get a guarantee/bond for the entire amount (uncommon) –

That is unusual, right? What clause did/do you have in the contract, for example?

Hauherr2020 schrieb:

This is unusual, right? What clause did/do you have in the contract, for example?

We had a contract with separate trades, as is often the case on construction sites. The agreement was mostly a handshake deal (at least for just over half of the trades)—no guarantees, retention, or similar arrangements.
The construction volume was approximately €500,000 (without land) — all trades (some even from abroad) worked according to prior agreements, including after project completion. We visited the site daily (my ex took over site management).

nordanney schrieb:

Reasonable payment schedule.

There’s really not much more to say. Just don’t pay too much in advance. If something goes wrong, at worst the construction will be halted until everything is resolved. Afterwards, work can continue with other contractors.
The worst-case scenario is having paid too much upfront and then not having enough funds available later to complete the house.

Check the home builder beforehand. Credit agencies such as Creditreform, etc.