Novation of the consultant's appointment can offer real benefits to a client, but it must do the work to make it work. Otherwise, it can end up with legal nonsense that risks being thrown out of court.
Visiting from the States recently, my brother asked why London Underground still chooses to install chocolate vending machines that swallow your money but obstinately refuse to let go of their chocolate bars. What is so irksome is not the loss of your money, but the fact that there is no one on hand to blame. Shouting at an inanimate object brings your sanity into question and ringing around customer complaints numbers is just not worth the hassle.

Frustration of this sort appears to be key to the popularity of design and build with developer-clients. It provides a very accessible one-stop complaints desk: the design-and-build contractor. The contractor is responsible for everything – whether or not it has performed the work.

More than one-third of design-and-build projects start with the consultant being appointed by the employer-client and subsequently novated to the design-and-build contractor. (Novation here means roughly that the employer-client's contract with the consultant is transferred to the contractor, as if the contractor had been the client from the outset.) Such novation offers distinct advantages for the client: it has full control over the design before novation, continuity of the same consultant post-novation, and can still look to its contractor for single-point responsibility. However, the contractual documentation and the mechanism of the novation have to be considered carefully to avoid potential pitfalls.

Badly prepared novation contract documents are disturbingly common. In most cases, a very sketchy novation document effectively states, with wildly optimistic simplicity, that, from the date of the execution of the novation agreement, the contractor will step into the role of the client under the appointment document, as if it, rather than the client, had appointed the consultant from the outset. The idea is that where you read "employer" in the appointment, you now understand "contractor".

And that, as a rule, is it. There are rarely any provisions to deal with the many clauses in the appointment document that will simply not make sense in these new circumstances, particularly where the services section of the consultant's appointment had been drawn up to serve for the entire job in the event that the novation should not, in fact, take place.

The consultant may find itself required to inspect the contractor's work for its contractor-client, to instruct its contractor-client to rectify where the work is unsatisfactory, and even to advise its contractor-client about appropriate deductions that should be made from the payment the contractor receives from itself! Gobbledegook, of course.

In the event of a court action, the parties may come across an obliging judge prepared to try to work out what was intended. Or they may be faced with a grumpy old soul inclined to put a thick marker pen through any unintelligible clauses. At best, an uncertain situation; at worst, the risk that a party loses a case because the clause on which it had intended to rely has been rendered meaningless, or given a different meaning, through the novation.

The unfortunate truth is that the only way to draft an appointment document in a way that it can be novated effectively is to have two sets of services; one set owed to the employer-client before novation and the other owed to the contractor-client after novation. Or, at the very least, there should be an indication as to how the appointment is to be amended post-novation. This suggestion may not be a very tempting one, particularly for any employer-clients that suspect their lawyers may be charging them by the word, but it is the only way to make sure that novation has the intended effect.

Late novation introduces a spectrum of horrors all of its own. In "Clash points", Jennie Price and Ann Minogue did indeed clash on pretty well everything on the subject of novation except for one matter – that if a contract is novated after a significant proportion of the design is completed, causing a change in design priorities, it disrupts the design process – and contractors are understandably reluctant to take on risk for detailed design over which they have had no control. Indeed, this is something for which the design-and-build form of contract was never intended.

I cannot leave the subject of novation without visiting "partial novation". This is where the employer has its cake, eats it and asks for second helpings. The employer realises that, although novation gives it single-point responsibility, it must relinquish control over its trusty consultant. Its consultant would instead be at the beck and call of the contractor, whom the employer may suspect of penny-pinching and corner-cutting once given a free rein on the design.

To circumvent this, the employer novates only some of the consultant's duties to the contractor. The duties retained by the employer are intended to be sufficient to allow the employer, through the consultant, to keep a firm grasp on the contractor's collar. They tend to range from inspection of the works to full certifying duties. Obviously, the consultant then faces a potential conflict of interest. With the best will in the world, how easy can it be for a consultant to report to its employer-client that his contractor-client's work is an utter disaster? I appreciate that a consultant has to demonstrate that it has acted fairly between the parties when carrying out its contract administration duties under a traditional form of contract. However, it has to be a great deal easier for the consultant to justify a contract administration decision in its employer-client's favour under a traditional contract, when it can point to a physical defect in the work or an actual delay, than to convince a judge that it genuinely and reasonably failed to spot a workmanship defect during inspection in a partial novation scenario – and was not influenced by its contractor-client (and paymaster).

In short, novation can offer real advantages, but the transition will run considerably more smoothly if the contract documentation is properly prepared, the consultant's appointment is novated to the contractor before detailed design, and the client novates the consultant's appointment to the contractor in its entirety.

How to make novation work

  • The contract must do more than simply stating that, as far as the consultant is concerned, the contractor is the client
  • The consultant’s appointment must be novated to the contractor before detailed design
  • Avoid partial novation – the consultant may face a conflict of interest if it is asked to certify the contractor’s work