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  • Novation in Construction Contracts - What Does It Really Mean - Lexology

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    Novation is a legal concept that substitutes a new contract between parties in place of an existing contract. In construction, it is commonly used to transfer responsibilities for design work from a consultant to the head contractor. Novation requires consent from all parties and discharges the original contract, replacing it with a new agreement between the continuing party and the incoming party. It differs from assignment, which only transfers rights and not obligations to a new party. Parties undergoing novation should carefully consider provisions around the release of claims and contractual warranties to avoid unintended risks.

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    Novation in Construction Contracts – What Does It Really Mean

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    Novation in Construction Contracts – What Does It Really Mean_ - Lexology

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    Novation is a legal concept that substitutes a new contract between parties in place of an existing contract. In construction, it is commonly used to transfer responsibilities for design work from a consultant to the head contractor. Novation requires consent from all parties and discharges the original contract, replacing it with a new agreement between the continuing party and the incoming party. It differs from assignment, which only transfers rights and not obligations to a new party. Parties undergoing novation should carefully consider provisions around the release of claims and contractual warranties to avoid unintended risks.

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    © All Rights Reserved
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    Segnala contenuti inappropriati
    88 visualizzazioni2 pagine

    Novation in Construction Contracts - What Does It Really Mean - Lexology

    Caricato da

    getashishvaid
    Novation is a legal concept that substitutes a new contract between parties in place of an existing contract. In construction, it is commonly used to transfer responsibilities for design work from a consultant to the head contractor. Novation requires consent from all parties and discharges the original contract, replacing it with a new agreement between the continuing party and the incoming party. It differs from assignment, which only transfers rights and not obligations to a new party. Parties undergoing novation should carefully consider provisions around the release of claims and contractual warranties to avoid unintended risks.

    Copyright:

    © All Rights Reserved
    Scarica in formato PDF, TXT o leggi online su Scribd
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    3/29/2017 Novationinconstructioncontractswhatdoesitreallymean?

    Lexology

    Novationinconstructioncontractswhatdoesitreallymean?

    Australia August302013

    Novationisasignificantfeatureofbuildingandconstructionprojects,particularlyinrelationtodesignandconstruct
    (D&C)procurement.

    Itisimportantforconstructionindustryparticipants(particularlyprincipals,headcontractorsandconsultants)tohave
    asoundunderstandingoftheconcept,afailureofwhichcanhaveunintendedconsequences.

    Whatisnovation?

    Novationisalegalconceptthat,atitscore,aimstoachieveaprocessofsubstitution.Itisatransactionbywhich,with
    theconsentofallthepartiesconcerned,anewcontractissubstitutedforonethatalreadyexists.

    Theeffectofanovationistodischargetheoriginalcontractbetweentwoparties(thecontinuingpartyandthe
    outgoingparty)andsubstituteitwithanewcontractbetweenthecontinuingpartyandanewparty(theincoming
    party).Theincomingpartymustperformthecontractualobligations(underthenewcontract)thatwereformerly
    owedbytheoutgoingpartyundertheoriginalcontract.

    Forexample,itiscommonunderaD&Carrangementfortheprincipaltoengageaconsultanttocarryoutdesign
    workspriortotheprincipalengagingaheadcontractortocarryouttheconstructionworks.Atsomepointduringthe
    project(forexamplewhenthedesignhasreachedaparticularstage)theprincipalmaynovatetheappointmentsofits
    designconsultantstotheheadcontractor.Novationfundamentallychangestheriskallocationintheproject,asthe
    headcontractorgenerallythenassumesresponsibilityfortheentiredesign(includingthepriordesignwork).

    Novationvsassignment

    Novationisoftenconfusedwiththeconceptofassignment,howeverthesearetwodistinctconcepts:

    Novationtransfersboththerightsandobligationsoftheoutgoingpartytotheincomingparty,whereas
    assignmentisatransferofrightsonly.Itisnotpossibletoassigncontractualobligationstoanotherparty.

    Novationrequirestheconsentofallpartiesinorderforittobevalid(i.e.bywayoftripartiteagreement).
    Conversely,acontractmaybeassignedwithoutconsent(unlessthereisacontractualprovisiontothecontrary).

    Novationgivesrisetoanewagreementonthesametermsastheoriginalagreement,withtheoriginal
    agreementbeingdischarged.Onceanassignmentoccurs,theoriginalcontractisnotextinguishedand,
    consequentially,theassignorwillremainboundbyanyprospectiveobligationsandliabilitiesunderit.

    Novatedconsultantsbeware

    http://www.lexology.com/library/detail.aspx?g=18df2afc05b44bb291545ba4ee16c559 1/2
    3/29/2017 Novationinconstructioncontractswhatdoesitreallymean?Lexology

    MoststandardformsofD&Ccontractprovidefornovationaswellasincludingstandardnovationdeeds(forexample,
    AnnexurePartDofAS49022000)(standarddeedofnovation).

    Issuesthatshouldbeconsideredandaddressedbypartiestoadeedofnovationinclude:

    Release

    Theprovisionsofthestandardnovationdeedincludeageneralrelease,wherebytheoutgoingpartyandcontinuing
    partyreleaseeachotherfromallclaimsinconnectionwiththeoriginalcontract.

    Itisimportanttobeclearaboutthescopeofthereleaseanditstiming,andtotailorthedraftingofthenovation
    accordingly.Afirstprinciplesunderstandingoftheconceptofnovationisessential.Alackofunderstandingcan
    leadtounintendedconsequences.Forexample,inMWHAustraliaPtyLtdvWyntonStoneAustraliaPtyLtd(inliq)
    theVictorianCourtofAppealwasscathingaboutapoorlydraftedTransferAgreement,saying:1

    Insofarasitusesthenomenclatureoftransfer,ithasclearlybeendraftedandexecutedbyindividualswithout
    acompleteunderstandingofthelawofnovation.

    Therefore,partiesshouldseektoclarifytheeffectofthenovationonaccruedrights,claimsanddemandsin
    connectionwiththeoriginalcontractaswellasallfuturerights,claimsanddemands.

    Warranty

    Theprovisionsofthestandarddeedofnovationincludeawarrantybytheoutgoingpartyandthecontinuingparty
    thatthecontinuingpartysworkperformedundertheoriginalcontractisinaccordancewiththeprovisionsofthe
    originalcontract.

    Bewareoftherisksofsuchaseeminglybenignpromise.Thenovatedconsultanthasnowgivenastandalone
    contractualwarrantythatitsservicescompliedwiththeoriginalcontract.Manyprofessionalindemnitypolicies
    excludeindemnityforcontractuallyassumedliabilitywherethatliabilitydoesntalsoariseintheabsenceofthe
    contract(forexampleaclaiminnegligence).Spotthepotentialblackhole,whichinsurancemightnotcoverinthe
    eventofaclaim.

    Managetherisk

    Therefore,thekeypointisthattheconsultantsinsuranceprogramneedstobecarefullytailoredtoaddressthis
    potentialhole.Dontletyourexpensiveinsuranceprogrambeanumbrellaforasunnyday.

    Toviewallformattingforthisarticle(eg,tables,footnotes),pleaseaccesstheoriginalhere.

    http://www.lexology.com/library/detail.aspx?g=18df2afc05b44bb291545ba4ee16c559 2/2

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