FIDIC

Payment for Unfixed Materials Under FIDIC — Protection and Risk

Materials represent significant cash flow timing in construction. Paying for expensive long-lead items before they are fixed in the works is commercially necessary but carries insolvency risk. FIDIC contracts address this through specific conditions and property vesting provisions.

6 min read · Updated 23/05/2026

In this article

1. Payment for Materials — The Timing Issue
2. Materials On Site — Conditions for Payment
3. Listed Off-Site Materials — Additional Requirements
4. Vesting and Property Ownership
5. Insolvency Risk — Protection Mechanisms
6. Insurance and Security

Key takeaway

Payment for unfixed materials accelerates the contractor’s cash flow but transfers property and insolvency risk to the employer. FIDIC provides conditions (proper marking, insurance, ownership warranty) and vesting mechanisms (property passes to employer on payment) to manage this risk. The contractor must satisfy every condition before claiming payment.

1. Payment for Materials — The Timing Issue

In construction, materials represent a significant timing gap: a contractor orders structural steel fabrication months before it will be installed; pre-orders cladding systems long before they reach site; and pays for long-lead mechanical equipment well before it is incorporated into the works.

Standard payment certification (valuation of work completed) cannot cover these items until they are installed and incorporated. The contractor is therefore exposed to a cash flow gap: money spent on materials, but not recovered in interim payments until incorporation.

FIDIC contracts address this by allowing payment for materials before incorporation, through two mechanisms: payment for materials on site (materials brought to the site and stored there, awaiting installation) and payment for listed off-site materials (materials held by the fabricator or supplier, set aside for the project, but not yet delivered to site).

2. Materials On Site — Conditions for Payment

FIDIC Red Book 2017, Clause 14.6 provides for payment of materials delivered to site. The conditions are:

• The materials must not be prematurely delivered (arriving so early they occupy site space without productive use)
• The materials must be properly stored and protected from weather and damage
• The materials must be marked or identified to distinguish them from other materials
• The contractor must provide proof of payment (invoices) and ownership documentation
• Title to the materials vests in the employer on payment (the employer owns them once the contractor is paid)

The engineer must be satisfied that these conditions are met before certifying materials for payment. The engineer’s role is not merely administrative — the engineer must actively verify that the materials are genuine, properly stored, and that the contractor has complied with the conditions.

Example: A contractor brings AED 500,000 of concrete to site for a large pour scheduled for the following week. The contractor submits invoices, provides photographic evidence of the concrete’s location (in a dedicated storage area), and demonstrates that it is protected from rain. The engineer certifies the AED 500,000 for payment. On payment, title to the concrete vests in the employer.

3. Listed Off-Site Materials — Additional Requirements

Off-site materials are more complex. They are materials held by the fabricator or supplier, not yet delivered to site, but set aside and identified as part of the project. FIDIC Red Book 2017, Clause 14.7 provides for payment of listed off-site materials.

The additional conditions for off-site materials include:

• The materials must be listed in the contract or agreed by the engineer in advance — the contractor cannot unilaterally include items as off-site
• The materials must be clearly marked and identified as forming part of the contract work
• The contractor must provide a warranty that title to the materials is unencumbered — that the contractor or supplier owns the materials free of any other claims
• The contractor must maintain insurance on the materials whilst they remain off-site (protecting against loss or damage whilst in the supplier’s yard)
• The materials must be held separate from other work by the supplier or fabricator — not intermingled with materials for other projects

The engineer must be satisfied of all these conditions before certifying. An off-site materials claim without evidence of marking, separation, or insurance should be rejected.

4. Vesting and Property Ownership

When the engineer certifies payment for unfixed materials, property ownership passes from the contractor to the employer. This is the vesting mechanism: on payment, the employer owns the materials.

Vesting is important for several reasons: (1) it protects the employer against contractor insolvency (the materials are the employer’s, not part of the contractor’s estate); (2) it makes clear that the contractor has no further obligation to protect the materials (once vested, the employer’s insurance obligation applies); and (3) it establishes that the contractor cannot sell or repurpose the materials.

The contractor should be aware that vesting also shifts risk: if vested materials are damaged or lost, the contractor is not liable (it no longer owns them). The contractor’s sole entitlement is the payment. This is why insurance is critical — the contractor must maintain coverage whilst the materials are off-site and before vesting occurs.

5. Insolvency Risk — Protection Mechanisms

The greatest risk in unfixed material payments arises from supplier or fabricator insolvency. Example: the contractor arranges for a fabricator to manufacture structural steel. The contractor has not yet paid the fabricator (payment due on delivery). The employer certifies the steel for payment (off-site). The contractor receives payment from the employer. But before the contractor pays the fabricator, the fabricator becomes insolvent, and the steel is seized by the fabricator’s creditors.

To protect against this, FIDIC requires the contractor to warrant ownership of the materials — to confirm that the contractor has legal title and that no third party has any claim. If the warranty is false (because the fabricator financed the work and retains security over the materials), the contractor is in breach.

A back-to-back arrangement with the supplier/fabricator is the best protection: the contractor ensures that it receives clear title from the fabricator before claiming payment from the employer, and that materials are set aside and insured on the fabricator’s obligation.

6. Insurance and Security

The contractor’s insurance obligation for off-site materials is critical and is often overlooked. Once the contractor has claimed payment for off-site materials, the employer expects the contractor to maintain insurance protecting the employer’s new ownership interest. The contractor must ensure that the supplier/fabricator maintains adequate insurance and that the contractor is named as interested party on that policy.

Without insurance, the employer’s assets (the paid-for materials) are at risk if fire, theft, or weather damage occurs in the supplier’s yard.

Additionally, the contractor should consider a hold-back or security mechanism: rather than paying the supplier in full before the materials are delivered to site, the contractor might hold back payment (or a percentage) until delivery is complete and property is taken over. This protects against the risk of supplier insolvency between payment and delivery.

Materials Payment and Risk Management

We advise on materials certification strategy, supplier risk management, and the protection of off-site materials. Proper handling of materials payments is critical to project cash flow and risk allocation.

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