Novation under Design-and-Build
A developer in West Kowloon appoints an architect for scheme design of a 20-storey office tower. The fee for the scheme is HK$4.2 million. The developer then decides to procure the project under a design-and-build contract and asks the architect to novate to the successful contractor. The contractor's draft novation agreement requires the architect to assume a fitness for purpose obligation for the design, assign all copyright in the scheme design to the contractor, and accept liability for the contractor's construction means and methods. The architect's professional indemnity policy excludes liability assumed under a novation unless endorsed. The developer says the architect must agree, otherwise the scheme design cannot be used and the fee will not be paid.
1. Explain the legal effect of novation and whether the architect is obliged to accept it.
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Novation is a tripartite agreement between the employer, the architect, and the contractor. It extinguishes the original appointment and replaces it with a new contract with the contractor. The architect is not obliged to accept novation; it is a new bargain. The architect should review the proposed scope, fee, liability, insurance, and payment terms. If the architect refuses, the employer may still have a licence to use the scheme design for the project, depending on the original appointment, but the architect is entitled to be paid for work done. The architect should not sign the novation under pressure without checking the terms.
2. Identify the professional conduct and conflict issues for the architect.
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There is a conflict of interest. The architect has confidential information from the employer and has been the employer's professional adviser. On novation, the architect would owe duties to the contractor, whose interests may conflict with the employer's, especially on design development, cost, and claims. The architect should not act for both parties without informed consent. Under the HKIA Code of Professional Conduct, the architect must avoid conflicts, disclose any interest, and not misuse confidential information. The architect should also check whether the original appointment permits novation or requires the employer's consent, and whether the contractor will require collateral warranties to the employer and funders.
3. Advise the architect on the three contractor demands and the insurance implications.
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First, fitness for purpose is a higher standard than reasonable skill and care; it may make the architect liable for a result even without negligence, and may not be insurable. The architect should resist it or limit the obligation to reasonable skill and care. Second, copyright in the scheme design remains with the architect unless assigned. The architect can grant a licence to the contractor for the project, but should not assign copyright without payment and safeguards. Third, construction means and methods are the contractor's responsibility; the architect should exclude liability for them. The architect must notify the professional indemnity insurer before agreeing to novation and obtain an endorsement; otherwise the new liabilities may be uninsured. The architect should also require a collateral warranty and a clear scope for post-novation services.