Novation ‘can lead to serious unintended consequences,’ Institute survey finds

The Australian Institute of Architects has released the first results of its nation-wide survey on novation, a type of procurement model where the contract between a client and an architect is replaced with a contract between a builder and the original architect.

The Institute conducted the survey in April 2019, which received 263 responses nationally. The first results of the survey cover 158 Victorian projects delivered between 2009 and 2019.

The survey found that “novation is no longer working optimally” and that “the principle allocating risk to the best person to manage it appears to be eroded.”

Victorian chapter president Amy Muir said, “Severing the direct contractual relationship with the client, as happens with novation, can lead to some quite serious unintended consequences for all parties as our survey has clearly documented.”

These consequences include an increased likelihood substitution of specified materials: 71 percent of respondents reported that novation had a negative impact on the finish and durability of projects, 74 percent believed there was a negative impact on the aesthetics and design, and 63 percent reported a negative impact on the use of locally-sourced materials.

Respondents also reported being denied access to undertake site inspections and only 21 percent of respondents felt they were felt they were able to effectively protect the original client’s interests after novation.

“Some respondents reported that contractors were taking extremely serious shortcuts in procurement and certification of building components that affect the safety of users and public and reported that there were instances where builders were unwilling to allow inspections to specific areas, claiming that works are underway, and access is prohibited due to safety reasons,” the survey report states.

The survey also found “a major concern that an architect has certain responsibilities but is hampered in managing these because of limited access to information in order to fulfil their duties.

“There was mention of unfair and onerous consultant agreements that place too much responsibility on architects, but do not bestow any authority to advise or instruct. Another issue was instructions by the builder to change documentation or draw up details that the architect does not recommend. “The rising incidence of requirements for collateral warranties was identified, and a particular concern was raised around the need to take on more risk/responsibility for sub-consultants, even where they are appointed by the contractor.

“Architects have increasing responsibilities for all aspects of construction yet have diminishing power to influence good design and constructability outcomes.”

Survey respondents also reported detrimental commercial impacts as a result of novation. “Extra unbudgeted costs were reported as a significant challenge under novated contracts.”

“Reports were made of commercially aggressive tactics by builders at novation, including withholding payment of accrued fees in order to change contract terms and transfer risk. As well, respondents reported that they feel bullied into signing agreements under threat that ‘other Architects will sign if we won’t and we will lose the job.’”

The survey found that novation can be have beneficial outcomes. “Buildability was a stand out in terms of respondents seeing a benefit, as was time and efficiency.” The survey identified that the optimum point of novation is “at either 100 percent of design development or after more than 51 percent of the construction documentation had been completed.”

However the survey found, “a major trend toward novation earlier and earlier in the design process, with less complete documentation, leaving a greater proportion of design choice in the hands of the contractor and missing the opportunity to effectively lock in design quality for the benefit of the principal.”

“The findings from our survey add to the growing body of evidence that more independent oversight and greater accountability are needed to improve quality in our built outcomes,” Muir said.

“Our aim in conducting this survey was to better understand the issues and use the findings to work across industry towards solutions.”

“The clear message to the Victorian Government from these survey results is that an industry-wide code for novation must be created and legislated.

“An overwhelming 83 percent of respondents were in favour of this proposal because they believe it would help improve the quality of projects being delivered.”

Broader national results of the survey are forthcoming. For the full Victorian results of the survey, click here.

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