Novation is a mechanism whereby one party can transfer all its obligations under a contract and all its benefits arising from that contract to a third party.
The third party effectively replaces the original party as a party to the contract. When a contract is novated the other contracting party must be left in the same position as he was in prior to the novation being made. A novation requires the agreement of all three parties involved. The concept of novation come along with the Contract (Rights of Third Parties) Act 1999.
Novation is typically used in the following contexts:
- A design and build contract.
- The seller of a business transfers the various contracts with his customers to the buyer of the business.
‘Whistle blowing’ in novation
Sometimes there might a clause in the novation which allows the novated consultant to directly report back to the client if something that the contractor is asking, is off the original vision that the client had for the project. Since the novated consultant is now employed by the contractor who’s paying his fees, such a thing should not really happen unless specified as such. The direct client for the Landscape Architect is now the contractor but if value engineering and corner cutting dictates the decision making from the contractor altering the final product, the Landscape Architect should inform the client about this so that he could then speak to the contractor about these amendments.