An Interim Payment Certificate (IPC) has been issued. The amount is certified. But the payment does not arrive. This is one of the most common and damaging problems in UAE construction projects, and it can cripple a contractor's cash flow within weeks.
This guide explains what contractors can actually do when an IPC goes unpaid in the UAE, covering contractual remedies under FIDIC, statutory rights under UAE law, and the practical enforcement tools available through UAE courts. Whether you are working under a FIDIC Red Book, Yellow Book, or a bespoke Dubai Municipality contract, the principles are largely the same.
For contractors facing non-payment, timing matters. The remedies available depend on how quickly you act and whether you follow the correct procedural steps.
Quick Answer
If a certified Interim Payment Certificate remains unpaid past the contractual due date (typically 56 days under FIDIC), the contractor is entitled to financing charges without formal notice. After 21 days' written notice, the contractor may suspend work. If non-payment continues for 42 days beyond the payment deadline, termination becomes available. UAE law also provides statutory suspension rights under Article 247 of the Civil Code, even where the contract is silent.
What Is an Interim Payment Certificate?
An Interim Payment Certificate is the document issued by the Engineer (or Employer under Silver Book contracts) certifying the amount due to the contractor for work completed during a payment period. Under FIDIC contracts, the IPC follows submission of the contractor's Statement and triggers the employer's payment obligation.
The payment mechanism under FIDIC 1999/2017:
- Contractor submits a Statement (payment application) by the contractual date (typically the 20th of each month)
- Engineer reviews and issues an IPC within 28 days
- Employer pays the certified amount within 56 days of receiving the Statement
The IPC is binding on the Employer. Under Sub-Clause 14.6 of the FIDIC Contracts Guide, the Employer must pay the certified amount in full, regardless of any counterclaims. If the Employer believes it has a claim against the Contractor, proper notice must first be given under Sub-Clause 2.5, and any deduction must be incorporated into a future Payment Certificate by the Engineer.
Why IPCs Go Unpaid: Common Scenarios
Before examining remedies, it helps to understand why payment failures occur. The response should be calibrated to the cause.
Employer cash flow problems
The most common cause. The Employer lacks funds to pay, often because of financing issues, delayed payments from their own clients (in development projects), or general financial distress.
Disputed deductions
The Employer withholds payment claiming entitlement to set-off for liquidated damages, defective work, or counterclaims. Under FIDIC, such deductions should only be made through the proper certification process.
Engineer certification delays
The Engineer fails to issue the IPC on time, delaying the payment trigger. This is addressed separately under Sub-Clause 16.1.
Retention disputes
Disagreement over retention release, particularly after Taking-Over or expiry of the Defects Notification Period.
Administrative failures
Documentation issues, incorrect banking details, or internal approval delays. These are usually resolvable with direct communication.
Contractual Remedies Under FIDIC
FIDIC contracts provide a structured escalation of remedies for non-payment. Understanding this sequence is critical for contractors.
1. Financing Charges (Sub-Clause 14.8)
The first remedy is automatic. If the Contractor does not receive payment in accordance with Sub-Clause 14.7, financing charges accrue without the need for formal notice or certification.
Key features:
- Charges are compounded monthly on the unpaid amount
- The period begins from the contractual payment due date, regardless of when (or whether) the IPC was actually issued
- Default rate: Central Bank discount rate plus 3% per annum (unless the Particular Conditions state otherwise)
- Under the 2017 edition, the rate is the average bank short-term lending rate to prime borrowers plus 3%
Important: In the UAE, interest is generally enforceable in commercial contracts, though some contractors hesitate to claim it. There is no blanket prohibition on interest under UAE law for commercial transactions.
2. Suspension of Work (Sub-Clause 16.1)
If the Employer fails to pay within the contractual timeframe, the Contractor may suspend work after giving 21 days' notice.
The triggering events under Sub-Clause 16.1:
- Engineer fails to issue an IPC in accordance with Sub-Clause 14.6
- Employer fails to comply with Sub-Clause 14.7 (payment obligation)
- Employer fails to provide reasonable evidence of financial arrangements under Sub-Clause 2.4
Procedure:
- Issue written notice to the Employer stating the intention to suspend
- Specify the grounds (e.g., "failure to pay IPC No. [X] due on [date]")
- Allow 21 days from notice before suspending
- If payment or certification is received within 21 days, the notice lapses
Consequences of suspension:
- Contractor is entitled to extension of time for delay caused by suspension
- Contractor is entitled to Cost (including reasonable profit under FIDIC 2017) for delay and additional costs
- The works remain suspended until payment is received
Practical note: Many contractors are reluctant to suspend, fearing damage to the relationship or retaliation. However, if you do not actually suspend after giving notice, you may struggle to prove delay or claim additional costs. The notice itself often resolves the situation.
3. Termination by Contractor (Sub-Clause 16.2)
If non-payment persists, termination becomes available. Under Sub-Clause 16.2, the Contractor may terminate if:
- The Contractor does not receive the amount due under an IPC within 42 days after the expiry of the payment period under Sub-Clause 14.7
This means termination is available approximately 98 days after the Statement submission (56 days for payment + 42 days grace period).
Termination procedure:
- Give 14 days' notice of intention to terminate
- If the default is not remedied within 14 days, termination takes effect
- Contractor must then follow the procedures under Sub-Clause 16.3 (cessation of work, removal of equipment, etc.)
For detailed guidance on termination procedures, see our article on how to terminate a construction contract in the UAE.
Statutory Remedies Under UAE Law
Even where the contract is silent or ambiguous, UAE law provides additional remedies for non-payment.
Right to Suspend Under Article 247 of the Civil Code
Article 247 of the UAE Civil Code permits a party to suspend performance of its obligations if the other party has failed to perform its own obligations. This applies to construction contracts where payment is due.
Key principles from UAE court decisions:
- The right to suspend exists even without an express contractual provision
- The contractor should first send notice requiring rectification of the breach
- The suspension must be proportionate to the breach (the de minimis principle applies)
- The contractor must act in good faith under Article 246
The Dubai Court of Cassation has held that a party cannot invoke the right to suspend if the other party has substantially discharged its obligations, leaving only a minor part unperformed. For significant payment defaults, however, suspension is well-supported.
Payment Orders Under UAE Civil Procedure Law
For undisputed debts, UAE law provides an expedited enforcement mechanism. Under Articles 62 and 63 of Cabinet Resolution No. 57 of 2018, a creditor may apply ex parte for a payment order where:
- The debt is quantified and documented
- The debt has been acknowledged by the debtor (e.g., through an IPC or signed Statement)
- There is no genuine dispute as to the amount
If the court grants the order, the debtor must pay or challenge the order within a short timeframe. This is faster than standard litigation but requires strong documentary evidence.
Precautionary Attachment Orders
If there is a risk that the Employer may dissipate assets or become insolvent, the Contractor can apply for a precautionary attachment order under the UAE Civil Procedure Law.
Requirements:
- The applicant has a prima facie case
- There is a risk of asset dissipation
- The debt is established (an IPC provides strong evidence)
Critical deadline: If the attachment is granted before substantive proceedings are filed, the Contractor must file the substantive case within 8 days, or the attachment becomes void.
Precautionary attachments can freeze bank accounts, attach real property, and prevent asset transfers. They are a powerful tool for motivating settlement. For more on this remedy in the context of guarantees, see our guide to bank guarantees in UAE commercial contracts.
The Calculation of Financing Charges
Contractors frequently underestimate the value of financing charge claims or fail to claim them at all. Here is how to calculate them correctly.
Formula (FIDIC 1999):
Financing Charges = Principal Amount × (Central Bank Rate + 3%) × (Days of Delay / 365)
Charges compound monthly, so for extended delays, the calculation becomes more complex.
Example:
- Unpaid IPC amount: AED 5,000,000
- Central Bank discount rate: 5.4%
- Contractual rate: 5.4% + 3% = 8.4% per annum
- Delay period: 90 days
Simple calculation: AED 5,000,000 × 8.4% × (90/365) = AED 103,561
With monthly compounding, the actual amount would be slightly higher.
Documentation required:
- Copy of the unpaid IPC
- Evidence of the Statement submission date
- Calculation of the contractual payment due date
- Central Bank rate evidence (available from the Central Bank of the UAE website)
- Running record of the delay period
Can the Employer Set Off Against an IPC?
This is one of the most contentious issues in UAE construction disputes. Employers frequently attempt to withhold payment claiming entitlement to deduct for delays, defects, or counterclaims.
The FIDIC position:
Under the FIDIC Contracts Guide commentary on Sub-Clause 14.6, the Employer is bound by the Certificate and must pay in full, regardless of any entitlement to compensation. If the Employer has a claim, it must first submit notice under Sub-Clause 2.5, and the Engineer may then incorporate the deduction in a future Payment Certificate.
The risk of improper set-off:
If an Employer sets off improperly:
- The Contractor is entitled to financing charges on the withheld amount
- The Contractor may suspend work
- In extreme cases, improper set-off can constitute a repudiatory breach enabling termination
Under Article 246 of the UAE Civil Code, the requirement of good faith applies to the exercise of contractual rights. An Employer that withholds payment without proper justification may be found to have acted in bad faith.
Remedies Comparison Table
Common Mistakes Contractors Make
Failing to issue proper notices
The contractual notice requirements exist for a reason. Informal complaints do not preserve your rights. Every communication should be in writing, reference the relevant contract clause, and be sent to the correct address.
Continuing to work after suspension notice expires
If you give 21 days' notice but then continue working normally, you undermine your claim for delay costs. Either suspend or withdraw the notice.
Not claiming financing charges
Many contractors view interest claims as provocative or de minimis. On large projects with extended delays, financing charges can amount to hundreds of thousands of dirhams. Claim them.
Waiting too long to act
The longer you wait, the weaker your position. Assets may be dissipated, witnesses become unavailable, and limitation periods may expire. Act promptly.
Ignoring the claims procedure
Under FIDIC 2017, claims for additional Cost arising from suspension must comply with Sub-Clause 20.2. Missing the notice deadlines can bar your claim entirely. For more on FIDIC claims procedures and time bars, see our detailed guide.
Special Considerations for Subcontractors
Subcontractors face additional challenges because their payment depends on the main contractor receiving payment from the Employer.
Pay-when-paid clauses
Unlike in the UK (where such clauses are prohibited by the Construction Act 1996), pay-when-paid clauses are valid under UAE law. A subcontractor bound by such a clause may not be entitled to payment until the main contractor is paid.
However, UAE courts may interpret such clauses narrowly. If the main contractor's non-payment is due to its own default (rather than the Employer's non-payment), the pay-when-paid clause may not protect it.
Direct claims against the Employer
Under UAE law, a subcontractor generally has no direct contractual relationship with the Employer. However, if the main contractor has assigned its rights to the subcontractor (under Article 891 of the Civil Code), the subcontractor may be able to claim directly.
Dispute Resolution Considerations
Most UAE construction contracts include arbitration clauses, often specifying ICC, DIAC, or ad hoc arbitration under FIDIC rules.
Key considerations:
- Precautionary attachments can be obtained from UAE courts even where arbitration applies
- Under Federal Law No. 6 of 2018 (Arbitration Law), the tribunal also has power to order interim measures
- Specify clearly in the arbitration clause whether UAE courts retain jurisdiction for interim relief
For high-value disputes, arbitration provides confidentiality and the ability to select industry-expert arbitrators. For straightforward debt recovery, court proceedings with payment orders may be faster. The Chambers Construction Law 2025 UAE guide provides additional context on dispute resolution options.
How Kayrouz & Associates Can Help
Payment disputes require both technical understanding of construction contracts and practical knowledge of UAE enforcement mechanisms. Our Construction Law team advises contractors, subcontractors, and employers on:
- Reviewing IPC disputes and advising on recovery options
- Drafting and serving suspension and termination notices
- Applying for precautionary attachments and payment orders
- Representing clients in arbitration and court proceedings
- Negotiating settlements and payment plans
If you have an unpaid IPC and are considering your options, contact us early. The remedies available depend on timing, and delays can prejudice your position.
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