Vesting refers to a situation where materials or equipment supplied by the Contractor become the Employer’s property. This mechanism protects the Employer in critical cases—such as contractor insolvency, bankruptcy, or material misuse.
Let’s look at a simple example:
A Contractor delivers a long-lead item to site and gets paid for it as Materials on Site (MOS). Afterward, the Contractor goes bankrupt or becomes insolvent.
Meanwhile, the supplier of those materials might still have the right to take them back if they weren’t paid on time. In some countries, laws even allow the supplier to demand payment from the Employer, despite the Employer already having paid the Contractor. This creates a serious risk.
A Certificate of Vesting can solve this. It transfers ownership of the materials directly to the Employer. That way, even if the Contractor defaults or a supplier makes a claim, the Employer stays protected. However, this can be carefully utilised due to limitations that can be imposed by local jurisdiction system.
FIDIC forms (1999 & 2017) don’t include clear vesting clauses. But their guidance documents explain how vesting may be applied.
Many contracts include vesting clauses, but they’re often not followed.
- Contractors may not issue the vesting certificates.
- Engineers and contract administrators may ignore enforcement.
Why Vesting Deserves Attention
Vesting is a vital legal safeguard in construction projects, particularly when long-lead or high-value materials are involved. In the face of contractor insolvency or material disputes, having proper vesting arrangements in place can protect the Employer from costly risks and legal exposure.