Ownership of the material on-site and retention of title clause

The usual supply agreements of Contractors include a clause regarding the ownership of the items supplied by Suppliers. It may be necessary to transfer title of the items from the Supplier to the Contractor upon delivery, payment, or incorporation of the material, whichever occurs first. A careful Supplier, on the other hand, may object to such standard clause at the tender stage and offer to transfer ownership of the products only when they have received payments (i.e. retention of title clause) for the goods from the Contractor, which is reasonable from their perspective.

As the Employer’s QS, you may be needed to assess valuations that involve payments for material on-site for a contract where the agreement between the Contractor and the Supplier requires the supplier to transfer ownership of the items after the payment is received. So, if the Employer pays the Contractor for the material on-site based on your appraisal, even though the Contractor has no ownership of the goods/materials, you may be exposing yourself and the Employer to risk, especially if the Contractor goes bankrupt before paying the supplier. Supplier may seek payment from the Employer for the Goods or request that the Goods be returned because they have a right/lien on the goods. 

However, there are laws in some countries that protect the Employer in such cases. According to the Sale of Goods Act 1979 in UK (for Goods supply only), if the employer purchases goods in good faith and without notice of any lien or other right of the supplier in respect of the goods, title will transfer to the employer (this is an exception to the rule ‘nemo dat quod non habet’  (no person can give what he does not have)).  

However, after the material has been integrated into the works, the right to everything incorporated into the building passes to the Employer/Owner under the law of ‘quicquid plantatur’ (whatever is affixed to the soil belongs to the soil: therefore, whosoever owns that piece of land will also own the things attached). In any case, determining which are fixed and which are not is a difficult task. Even while ‘Hot Strip Steel Mill 1′ was held as a fixed since it can only be removed through a lengthy and costly procedure, ‘television cable put in conduit 2′ was held as not fixed because it is just a service to the inhabitants.

As a result, it is critical to act with due skill and care and to confirm that the Contractor owns the material and that there is no retention of title clause in the farther down the supply chain before includes them in your value.