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Watch that novation doesn’t land you with the D&B contractor’s responsibilities

A contractor may turn a deaf ear to a consultant’s lament that some of the risks place it outside its insurance protection, writes Mark Klimt.

This article was first published in Architects Journal.

Despite the well documented difficulties that design and build procurement presents for members of the construction team, it remains a popular way of commissioning projects. These difficulties are neither surprising nor unforeseen. The role of a consultant is very different to that of a contractor, as are the responsibilities traditionally assumed by each. This in turn is reflected in the insurance protections put in place for design consultants and those who implement the design. When these are combined, for example when a consultant is expected to take on all of the absolute obligations and warranties that the contractor has assumed under its building contract with the employer, it’s obviously not going to be a comfortable fit.

Negotiations to resolve these issues can take a number of forms, and will depend on when the consultant becomes involved in the project. Some employer clients who wish to novate their consultant team to the contractor will take the trouble to produce documentation tailored to the change of client at detailed design stage, with services arranged accordingly. Some contractors who engage consultants at tender will leave it up to the consultant to convince its insurer that it is right for them to take on the contractor’s responsibilities of guaranteeing performance and completing the project on time, on pain of liquidated damages. Although parties do generally spend time trying to find common ground, it is not unknown for a contractor to turn a deaf ear to a consultant’s lament that some of the risks will place it outside its insurance protection.

Some of the problems are, perhaps, overstated. The insurance industry is not keen on a fairly common practice of the consultant being novated or transferred to the contractor during on-site operations, but still having retained-services reporting duties to the original employer client. We obvious potential for conflict of interest is cited, and best practice (if indeed this arrangement is acceded to) is for the consultant to have two entirely separate teams working on the two aspects of the project - one for the contractor and the other for the employer. However, you should not lose sight of the fact that there is an inherent conflict of interest for a consultant in a traditional procurement project where the architect is acting as contract administrator.

The task must be carried out in an impartial, even-handed manner, which includes assessing the contractor’s requests for extensions of time and loss and expense - even though the assessment may be against the interests of the consultant’s paying client and you may even have to acknowledge that you were slow in providing information to the contractor. ere is also a practical benefit (despite it not being best practice) if the people familiar with the project are involved, both for the contractor in progressing with construction and for the employer in reporting on whether matters are advancing as they should, because the knowledge that exists in the practice is being maximised.

Where, though, there is a set of services performed by the consultant for the contractor client under the novated contract and a set of retained services performed for the employer, make sure that those services are properly delineated, rather than assuming that, because your practice is providing these services, it is not material which schedule they appear in. An attempt, for example, by a contractor to include within your services an obligation to co-ordinate the activities of various parties on site is simply an attempt to offload on to you (on the flimsy basis that you remain involved anyway for the employer) responsibilities that it should be assuming as design and build contractor. Getting the services, and the client they are provided for, right can have a huge impact on liability and profitability.

For further information please contact Mark Klimt, Partner on 020 7280 8802 or at mark.klimt@dwffishburns.co.uk.

By Mark Klimt

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.