Chapter 6 - Novation

In simple terms, novation is an assignment of one party’s rights and responsibilities in a contract to a new party (this differs from a simple assignment where only the rights can be assigned). 

Novations can take place for numerous reasons, but the most common, and that which is considered in more detail in this chapter, is the novation of an employer’s design team to a design and build contractor.

In such cases, the design team is usually appointed to carry out concept design work and complete tender drawings and other documentation for inclusion in the Employer’s Requirements. Once a contractor has been selected, the design team’s appointments are novated and the consultants switch from being advisers to the employer to advising the contractor.

At present, there are only two standard forms of novation agreement used in the construction industry; a switch novation published by the Construction Industry Council (CIC) and an ab initio novation published by the Society for Construction Law (SCL).

This may seem relatively simple in theory, but the process can create new, and often hidden, risks and liabilities for the professional team. This is largely because many novation agreements assume that the professional team would advise the contractor and employer in exactly the same way despite the fact that these two parties have very different commercial interests.

The high water mark for discussion, comment and argument around novation was undoubtedly 2001 which, as a result of the Blyth & Blyth -v- Carillion case, saw the word propelled to the front page of all the building periodicals. Since then, the trade press has been full of arguments and counterarguments about the subject, most of which centre around the technical merits and flaws of the two major types of novation agreement (i.e. ab initio or switch). 

Before examining novation in detail, it is worth explaining what we mean when we talk of switch and ab initio novations in a design and build context. The first is as simple as it sounds – the novation recognises the switch from employer to contractor at a defined point some way through the project. The second (a Latin phrase meaning ‘from the beginning’) means just that.

This type of novation seeks to create the legal fiction that the consultant had been working for the contractor from the beginning, as if the employer never existed.

At present, there are only two standard forms of novation agreement used in the construction industry; a switch novation published by the Construction Industry Council (CIC) and an ab initio novation published by the Society for Construction Law (SCL). Our considered view, having dealt with numerous claims connected with novation, is that the CIC novation agreement provides a better framework for novation than that published by the SCL, as it is far clearer on where the lines of responsibility lie before and after novation.

To begin at the beginning...

This chapter is not intended as an addition to the considerable body of literature in this area. It is not so much a guide to the technical arguments over why we believe the CIC switch form to be the best option, but more of a guide as to the potential pitfalls of the ab initio forms and ways in which you can reduce your risk when you are forced to go down the latter route. 

It is worth restating at this stage that the CIC form of novation is by far our preferred standard form as it eliminates or, at least, reduces the risks associated with a novation from employer to a design and build contractor. It recognises the need for a clear boundary between the work undertaken for the original employer, which must be carried out with the employer’s interests in mind, and that undertaken for the contractor post-novation. 

The problem with ab initio forms is essentially that they assume that the contractor is able to rely on all of the advice provided by the professional to the employer prior to the novation as if that advice were being provided directly to the contractor with his interests in mind.

The point here is that were the professional employed by the contractor from the very beginning, then he would have the opportunity to advise (and would likely be under a duty to do so) the contractor on his tender, for instance, highlighting the need for adequate contingency sums. Clearly, it would be wholly inappropriate for the professional to provide such advice whilst he is operating as the employer’s adviser, yet ab initio novations take no account of this practical reality. 

Novation - the general concerns

Novation is an area with which we have long standing concerns due to the potential lack of certainty regarding the transfer of a consultant's responsibilities; the risk of conflict between a consultant's duty to two different clients and the difficulty in sufficiently demarcating a consultant’s duty to one client from that owed to another. Many bespoke novation agreements in circulation fail to address these risks and create onerous obligations for consultants.

There is no doubt that these general concerns have been exacerbated following the industry wide reaction to Blyth & Blyth which saw contractors’ lawyers re-draft novation agreements to include new clauses in an attempt to allow contractors to rely on work undertaken by the consultants for the original employer, and recover losses suffered as a result of that reliance despite the fact that such losses would not have been suffered by the original employer, for whom the work was undertaken. From a cynical viewpoint, some novation agreements we see appear to have been drafted deliberately to allow the contractor to pass on the risk of a poorly considered bid, or the need for extensive design development, to the consultant team.

In this chapter we consider a number of different novation claims in order to highlight some of the pitfalls that can arise. 

Contractual frameworks

Contractual frameworks on novated projects are not always properly considered and there is often a delay in signing the novation agreement itself. This confusion can lead to such basic problems as establishing who the consultant should be working for at any given time. This could be because the novation terms have not been agreed when the work was performed, or the novation used was so ambiguous that legal argument is required to determine what in fact was intended.

Sometimes the already complicated novated design and build situation is exacerbated by other factors and the following examples explore some cases

Novation Case Study no.1

A contractual muddle: Perhaps the most ‘basic’ form of contractual problem is the absence of a contract in the first place. This occurs all too frequently and we have dealt with the problem associated with the absence of a contract many times.

Novation Case Study no.2

Novation in part: Another example concerning a project, which was initially for the demolition of a 1960s city centre office block, which was to be replaced with a new office and retail development.

Misunderstood contractual points

Even where there are no onerous contractual provisions, there can be dangerous misconceptions amongst some in the legal fraternity. A great number of the novation agreements we review for our clients assume that, from the date of novation, the contractor will simply step into the shoes of the original employer in all respects and that all references to

‘Employer’ in the appointment agreement should be treated as references to the ‘Contractor’. This is all well and good in theory, and might even work with, say, a contract for the supply of goods, but an analysis of the effect that this change can have on the underlying obligations in an appointment document can raise some surprises.  Quite often, for example, following one of these ill-conceived novations, it would seem that the consultant will be required to:

“…inspect and supervise the Contractor’s work (for the Employer Contractor), to instruct, on behalf of the Employer Contractor, the Contractor to remedy work which is unsatisfactory and to advise the Employer Contractor about deductions to be made from the Contractor’s payments.”

So would they be payments he’s making to himself…?

Although this is simplistic, it’s exactly the sort of nonsense that we see created all the time and exactly the sort of ambiguity which causes concern. It is interesting (but academic) to speculate on what a court might do with such provisions. The Court in Blyth & Blyth recognised that a simple “find and replace” led to absurdity. What future courts might hold is a topic for debate, some judges might try to make sense of the nonsense and get to the bottom of what the parties intended, while others might simply strike out anything they regard as nonsensical. Whatever the outcome, it should be clear to all that confusion in the drafting of novations is to be avoided.

We would argue that the solution to many of the problems isto use the CIC novation agreement, but where this cannot be agreed, the answers are more difficult to come by. Much will depend on the particular circumstances of each project, but one of the first points to consider is how the novation agreement sits alongside the underlying appointment agreement. Do the obligations in the underlying appointment make sense once the novation agreement takes effect or does the novation agreement create anomalies similar to those in the example above? If the latter applies, then the problem areas should be flagged to the solicitor responsible for drafting the novation.

Consultants should then look to make it the solicitor’s responsibility to either amend the clauses so that they are now meaningful or delete them entirely.

It may also be prudent to arrange the schedule of services in such a way that there is a clear demarcation between the services which are to be provided to the original employer and those which are provided to the contractor. 

Uncertainty regarding the relationship with employer and contractor

One of the problems for the employer in having a “single point Relationship” with the contractor, is that he must step back from day-to-day contact with his design team, which is now under the employ of the contractor. For any number of reasons, but usually relating to keeping a check on the contractor’s workmanship, the employer may well want to preserve that relationship. 

We have dealt with a number of situations where the original employer refuses to cut his tie with the design team after their novation to the contractor. The level of engagement required by the employer can range from basic requests for assurances regarding quality of the contractor's workmanship to major interference by the employer in the design process which undermines control of design development and project costs. 

The former is worryingly common and some novation agreements expressly include separate duties on the design team to provide a post-novation site inspection service to the employer. This can place a consultant in conflict with his duty to his new client, the contractor, as the example below highlights.

Novation Case Study no.3

In this particular case, a firm of structural engineers were engaged by a developer in relation to construction of new office building.

It was also mentioned above that we have become aware of attempts by employers to interfere in the design process after the design team has been novated to a contractor. A good example follows.

Novation Case Study no.4

Griffiths & Armour handled a claim relating to a project where the design team have been working very closely with an employer for a number of years 

Providing pre-novation advice to the contractor

Even if the CIC switch novation is used, consultants still need to be on their guard for situations which may render even the most favourable novation agreement null and void. A good example of this is when a consultant is placed under pressure to advise a contractor before the novation takes place. 

Novation Case Study no.5

At any one time, we deal with a number of claims of this nature, but the following example is a classic case of a consultant doing almost all of the right things.

Claims relating to the employer's requirements

Claims brought by the contractor, relating to incomplete or incorrect information in the Employer’s Requirements (ERs) are by far the most common type of claim against consultants on novated projects. There are a number of possible reasons for this, although the most obvious to us are that:

  • ERs generally contain ambiguities, often because the design has yet to be developed fully, although sometimes this appears deliberate in an attempt by employers to achieve a good spread of tenders; and
  • in the current construction industry contractors are under significant commercial pressure to bid at levels offering wafer thin profit margins and, in some cases there is anecdotal evidence of contractors knowingly tendering at a loss in the hope that a profit can be achieved through variations and other means once the contract is won.

This category of claim is where a typical ab initio novation agreement, containing a warranty to the contractor in respect of the pre-novation design work, makes it far easier for the contractor. Such agreements allow contractors to argue that the consultant owes him a duty of care for the work undertaken pre-novation and the consultant is therefore under a duty to advise the contractor on anything the consultant is aware of which might affect the contractor's price.

The CIC agreement, on the other hand, makes it far more difficult for the contractor to run this argument. The CIC agreement clearly states that the contractor can only recover loss suffered as a result of reliance on the pre-novation services if the consultant was under a duty to the original employer to take reasonable skill and care to avoid that loss.

In practice this means that, while the consultant will still be liable for any errors in the pre-novation designs, it is much more difficult for the contractor to claim that the consultant should have advised on how to interpret the ERs or should have provided advice on alternative designs proposed by the contractor. This protection can be lost, as in the above case where the consultant offered advice to the contractor which was clearly outside the scope of his duty to the original client.

Novation claims – a simple analysis?

Although we are handling quite a number of claims with issues surrounding the area of novation, it is difficult to offer any useful advice from a simple analysis of the claim numbers involving each type of agreement - the numbers alone do not paint a complete picture. For example, many claims under contracts that have been novated would still have been brought even if no novation had taken place, albeit that the type of loss suffered by the new ‘client’ may well be different. 

Perhaps of even more consequence is the fact that even well drafted contracts can lead to claims if they are not properly understood by the parties to them, or the terms which have been agreed simply fail to reflect what the parties intended.

Consultants can also create problems for themselves irrespective of the underlying contract document. Previous publications have highlighted the problems of ‘scope creep’ and in situations where your employer is changing, ensuring that you stick to the letter of your scope of services is crucial.

As seen in the example above, consultants can in effect assume responsibility to the contractor for pre-novation design, or alternative designs, simply by advising the contractor on these elements at the tender stage.

In our view, it is the environment of uncertainty created by a novation, coupled with an engineer’s instinctive appetite for problem solving that poses the greatest risk to consultants, especially where there is a lack of understanding as to what novation is and how it should be managed. 


Novation is a much misunderstood concept amongst consultants, contractors and employers and the only recent case law we have (in Blyth & Blyth) has perhaps exacerbated rather than helped with this understanding. This is not because we believe that the judgement was incorrect, but because there was an over-reaction to it by certain elements of the legal profession. There is a real issue across the construction industry as to how these “novel” novation obligations should actually be put into practice.

The core problem with novation mid-way through a construction project is that it fundamentally changes the structure of a project team and alters relationships between team members. At the point of novation there is often a period of uncertainty when many consultants find that they are expected to work for two masters at the same time despite what may be written into the novation agreement. This environment increases pressure on the design team, and with that comes the risk that consultants will open themselves up to additional liabilities through the way that they deal with the contractor and employer. 

Skip to next section.

Understanding contractual terms
Indemnity clauses
Strict liabilities
Net contributions and limits of liability
Closing remarks

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