Surety, assignment, and account to GÜ - security?

Hello dear forum,

I have a signed construction contract and overlooked some fine print - yes, my fault!

My general contractor demands a security for payment claims amounting to 25% of the fixed price from me. This security can be provided in the form of a guarantee, an assignment, or a joint account. He wants to ensure that I don't buy a Porsche with the loan and that he ultimately gets paid for the services rendered. At the same time, a contract performance guarantee of 5% of the fixed price is granted.

I have now read through various threads, websites, and forums and I am still not really sure what the best option is for me to provide the desired security to the general contractor.

As I understand it, with the payment security I grant the general contractor access to about 100,000 EUR net (security for payment claims - contract performance guarantee) without having any security for the provision of services for that money. A friendly ING advisor told me that a guarantee would be free to set up, but the general contractor would then have access to the money at any time and I could hardly do anything against it. In the worst case, he performs services poorly or not at all, I refuse to pay, and he retrieves the money via the guarantee. I find that a very one-sided risk...

The advisor was not very familiar with the term "assignment," but alternatively suggested a "financing confirmation" and payment of invoices directly to the general contractor. Currently, the flow of money is: bank --> me --> general contractor.

With the joint account, I would probably have to draw an amount of around 125,000 EUR from the still interest-free loan and transfer it to another account. I would therefore have to pay interest on it already, which is why this option is not an option for me at all.

[*]Can you share your expertise on which option you consider the safest/most sensible for me as the client?
[*]For example, I don't know if I can limit access to the guarantee, like "only if I agree to the payout," are there any experiences with this?
[*]So: guarantee or assignment - what would you do?

For example, I don’t know if I can limit access to the guarantee, something like "only if I agree to the payment," are there any experiences here?

No, because the contractor will want a "self-debtor guarantee, payment on first demand" – this is also a very common guarantee in banking. You can only get the money back through a lawsuit – if it’s still there.

A fair solution would be a contract performance guarantee of 25%. Or you pay 25% in advance and receive a down payment guarantee of the same amount from the contractor in return. There are many possibilities.

With the joint account, I would probably have to call up an amount of about 125,000 EUR from the still interest-free loan and transfer it to another account. So I would already have to pay interest on it, which is why this option is not an option for me at all.

You will have to swallow a toad, since you have a contract with the contractor. Do the joint account and book it as tuition fees.

Regarding the assignment option, my question to you is what exactly is meant by that. Assignment of the payment claim? If yes, how is it formulated? That would be the simplest solution if it’s just about the assignment of the payment claim. Essentially it means: You, dear customer, assign your claim to payment of the loan to you (= customer) to the contractor. Thus, the bank can and may only pay this partial amount to the contractor. BUT: He doesn’t call the money from the bank, you still do that. And if you argue, he doesn’t get any money (but neither do you). After agreement and/or legal dispute, the money will be paid out – to you and/or the contractor. Simple and effective. And without risk for you – at most associated with stress in case of dispute, but at least you still have the money in reserve and the contractor has to get it from you, not vice versa.

Thank you very much for the assessment.

I will first ask my general contractor if they have a "standard template" for the assignment of the payment claim. Then I'll take that to the bank. The suggestion for an assignment came from them, and maybe I can solve it most elegantly that way.