Examining Novation Agreements: Strengthening Contractor Position

This case study delves into the intricacies of novation agreements, a mechanism used to transfer contractual rights from one party to another, particularly in the construction industry where consultants are often novated to design and build contractors. It highlights key issues arising from these agreements, such as identifying the terms to be novated, assessing consultant liability in the pre-novation period, and addressing potential conflicts of interest. The study emphasizes the importance of clearly defined terms in novation agreements to protect the contractor's position, referencing the Blyth & Blyth Limited v Carillion Construction Ltd case, which underscores the need for explicit clauses regarding services performed before novation. The analysis concludes that well-drafted novation agreements can benefit both contractors and employers by mitigating uncertainties and ensuring accountability.

Running Head: NOVATION AGREEMENT
Novation agreement
Name of the Student:
Name of the University:
Author Note

1NOVATION AGREEMENT
Novation Agreement
It is to be mentioned that novation agreement is a system of transferring the rights of one
of the parties to a contract to another party1. For example a contract between A and B can be
transformed into a contract between A and C by the use of a novation agreement. However for
such transfer of rights of one of the parties to another, it is essential that all the three parties agree
to the terms of the contract. Further it can be stated in accordance with the example given above,
if B fails to perform his duty as bound by the terms of the contract between A and B, A can only
sue B for breach of contract terms and not C unless there is a novation agreement present
between the three parties. Nowadays, employers tend to appoint consultants before appointing
design and build contractor. It is to be stated that the consultants are novated to the design and
building contractor. The consultant accepts full responsibility of the design including
responsibility of design which was carried out by the consultant before his appointment.
Issues arising under novation agreement
The first issue arising under novation agreements is the identification of the terms of the
agreement that is to be novated. It is to be said that the obligations under the original agreement
can only be novated.
The second issue is the identification of the liability of the consultant. While assessing
the obligation of the consultant in the pre novation period, it is to be considered that the
consultant owed a duty to the employer only and not the contractor as the contractor was not
present at the time of his appointment.
1 Marinescu, Ioan Lucian. "STUDY ON THE OBJECTIVE NOVATION OF AN OBLIGATION." Challenges of
the Knowledge Society (2017): 247-253.

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The third issue is identification of the problems which in turn give rise to conflict of
interests. It can be said that the consultant may find himself in a situation of conflict of interest.
The conflict of interest of the consultant can be assumed to be relating to the performance of the
duties yet.
Terms to be incorporated in novation agreements to strengthen the position of the
contractor
It is to be stated that most of the practitioners still are of the opinion that novation is a very
important mechanism prevalent in this construction industry. However, in order to ensure that
the novation agreement succeeds in implementation both contractors and employers must avoid
uncertainties in the terms of such agreement as held in the Blyth & Blyth case. The instances
when a consultant will be held liable for loss suffered by the contractor must be clearly
mentioned. Typically novation agreements should contain the following:
 Date of the novation to take place
 Form of novation agreement to entered into by parties
 Timeframe of execution
 Identifying the third party to the agreement.
In the case Blyth & Blyth Limited v Carillion Construction Ltd2 the issues related to
novation agreements have been discussed elaborately. It is to be mentioned that in this case an
agreement of novation purported to place the responsibilities of contractor for the services
performed before the novation agreement on the consultant. However, the consultant started
2 (2001) 79 Con. L.R. 142

3NOVATION AGREEMENT
proceeding against the contractor for non-payment of fees. The contractor responded to the
charges pressed by the consultant with a counter claim of charging the consultant for breach of
terms of contract that supposedly occurred before the novation agreement. The defendant,
Carillion argued that the consultant failed to perform the duties owed to the employer which was
responsible for Carillion’s tender being too low. It was decided by the court that the contractor
was eligible to bring proceedings against consultant as the consultant did knot owe any duty to
the contractor and the contractor did not suffer for which the consultant could be held
responsible3.
It is to be stated that this decision of the court had left contractors in a difficult position.
The contractors have the liability of the work of the designers without the recourse of the
designers who are responsible for the preparation of the design. It is to be stated that this problem
can be mitigated in the designer acknowledges that such designer had known that the contractor
would rely upon the design for preparing the tender prices. However, this would expose the
consultant.
Therefore it can be stated that after considering the facts of the Blyth and Blyth case, that
parties to a novation agreement must ensure to list all the services to be inserted. The parties
must also exclude all those services which cannot be regarded to have been performed for the
contractor during the prenovation period. It is to be stated that novation agreements apparently
benefit both contractor and employer provided the terms of such agreement is properly drafted.
3 Mooney, Conor Francis Joseph. "The removal of the consideration requirement, and the consequent clarification on
duress, for verbal modifications to Irish construction contracts." (2015).

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Reference List:
Blyth & Blyth Ltd v Carillion Construction Ltd (2001) 79 Con. L.R. 142
Marinescu, Ioan Lucian. "STUDY ON THE OBJECTIVE NOVATION OF AN
OBLIGATION." Challenges of the Knowledge Society (2017): 247-253.
Mooney, Conor Francis Joseph. "The removal of the consideration requirement, and the
consequent clarification on duress, for verbal modifications to Irish construction contracts."
(2015).