Civil Engineering Reference
In-Depth Information
been a party to the Appointment as joint employer.' he consultant, DTR, contended,
as a defence to a claim by the employer under the collateral warranty, that it was enti-
tledundertheaboveprovisiontorelyonthecontributorynegligenceofthecontractor
under the novated appointment. However, the Technology and Construction Court
rejected that contention and held that the damages due to the employer as beneficiary
under the collateral warranty could not be reduced to take account of contributory
negligence by the contractor because an employer under a construction contract is
not liable for the negligence of the contractor. See also Section 13.3.5.
In common with most other standard forms, the SBC, the SBC/DB or the NEC3
do not make any provision for novation of design consultants' appointments from
employer to contractor, so if such novation is intended, bespoke amendments will be
needed to the building contract conditions to impose an obligation on the contractor
to enter into the novation agreement. It would also be prudent for the employer
to include in the building contract tender documents a copy of all consultancy
appointments to be novated, so that when pricing tenders, each tendering contractor
is aware of the risks and responsibilities arising from the terms of such appointments.
For example, are the consultant's obligations and scope of services back-to-back with
those assumed by the contractor under the design and build contract? Or are there
any liability caps in the consultancy appointment, either in time or amount, which
result in residual risk for the contractor?
Consequential amendments may be required to the terms of the consultancy
appointment with effect from the novation, if only to recognize that certain provi-
sions applicable to a consultant/employer relationship require modification to reflect
a consultant/contractor relationship.
Although novation of design consultancy appointments is the most common
instance of novation in a construction contract context, it is not the only example.
There may be a novation from the original employer to a new employer, such as
in the case of a corporate reorganization or asset sale. Any such novation would
require the consent of the contractor and in most cases (such as clause 7.2 of the
SBC and the SBC/DB) a typical clause permitting assignation of the contract by
the Employer would not be wide enough to cover novation. The effect of ancillary
contracts would also need to be considered, such as contractor parent company
guarantees and performance bonds, to ensure that the benefit under these passed to
the new employer.
Novation may also be of relevance where the contractor becomes insolvent. One
oftheoptionsopentotheemployer,andtheinsolvencypractitionerresponsiblefor
the affairs of the contractor, is the novation of the original contract to a substitute
contractor, whether on the same terms as the existing contract or on varied terms. In
construction insolvency, a true novation, that is where the substitute contractor steps
into the position of the original contractor and the contract continues as if the sub-
stitute contractor had been the original contractor, is most unlikely. Considerations
such as liability for defects and the potential liability for liquidated and ascertained
damages will militate against true novation. In most cases, therefore, the transaction
will be a conditional novation, in terms of which the substitute contractor takes on
