Novating design team to a contractor

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Synopsis

Clients within the Construction Industry prefer to use the JCT Design & Build Contract rather than other traditional procurements methods. Novation is a process that allows Clients to oversee the early stages of design development of a project and then transfer the responsibility for the design to a Contractor after the contract has been awarded. By transferring the responsibility to the Contractor through novation the Client takes minimum risk contractually while retaining an influence on project design from the initial stages. This process transfers maximum risk to the Contractor as he becomes responsible for all future design of a project and all past design completed up to the point of a contract being awarded, this includes any design errors.

Both Contractors and Designers must work together closely on any design and build project, but particularly when novation has taken place. For a project to be profitable and be completed on time it is essential that there is a good working relationship between Contractor and Designer.

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Research to establish if the process of novation has an adverse affect on the working relationship between Contractor and Designer was conducted. The aims were to identify factors that may affect the working relationship of the two parties and to understand the opinions of both Contractors and Designers about what affect novation has on their working relationship. The objectives of the research were to highlight specific problems within the process of novation and recommend improvements to industry. To achieve this research in the form of a literature review, questionnaires and an interview with Contractors and a Designer was performed.

The report recommendations are aimed at Clients to hold more pre-contract meetings with Contractors not just Designers, and understand the criteria a Contractor follows when appointing a Designer to ensure compatibility between parties when in Design and Build contract together.

Acknowledgements

I would like to express gratitude to the following people and organisations for their time, knowledge and support in assisting the in the successful completion of this research project:

  • My final year Supervisor Dr Ron Craig of the Civil and Building Engineering Dept of Loughborough University, for constructive criticism and guidance throughout the process of developing the dissertation.
  • HBG UK Ltd for using a lot of Commercial Managers', Design Co-ordinators', Legal Correspondents' and Personnel's time in completing the literature review and aiding in the data collection.
  • The Commercial Manager of the second Contracting Company questioned
  • The Architect questioned for his experience and opinions of the process of novation.
  • Mr Andrew Moss for proof reading the final draft of this report and suggesting possible alterations.

Chapter 1 - Introduction

1.1 Introduction to Subject

The Design and Build form of J.C.T contract (please see chapter 4.0) has become more popular with construction Clients that employ Contractors to construct new buildings and/or renovate existing structures. The Author's research has shown that the percentage of contracts tendered for under a Design and Build form of J.C.T has increased over the last five years. In conjunction with this the traditional form of JCT contract has decreased in popularity with Clients.

In many cases the designs which make up part of the contract between the Client and Contractor, under JCT Design and Build, are completed by a Design Team on behalf of the Client before the contract between the Client and Contractor is made. To ensure that the Contractor who successfully tenders for a project retains the Design Consultant that the Client employed prior to the contract being made it is sometimes necessary for a Client to novate (please see chapter 5) the design team across to the Contractor. The purpose of this report is to investigate into the problems, if any, with the process of novating a design team to a Contractor from the Client and suggest solutions. This report will also detail the affects on the working relationship between the Contractor and the Designer, and how novation either aids or hinders the working relationship

1.1.1 Aims of Chapter One

  • To introduce the Dissertation subject area.
  • The reasons behind the investigation of this Dissertation.
  • To outline the work carried out and a description of the contents of the Dissertation.
  • Detail a well constructed hypothesis that the investigation will either prove or disprove.
  • To outline a guide to the report, and introduce each individual chapter.
  • To detail the aims of the report and the objective that must be achieved to meet the aims.

1.2 Rationale behind I nvestigation

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The interest into the investigation of "Are there always problems with novating a design team to a contractor?" came about after the Author's industrial placement. While working on site for a Contractor on a J.C.T. Design and Build contract where the design team was novated it became apparent to the Author that there were many differences of opinions between the Designers and the Contracting Company.

The main items of debate and disagreement between the Contractor and the Design Team were the Clients requirements. In the Author's experience there was a large difference of opinion of how design changes and/or variations should be treated between the Design Team and the Contractor.

Whilst profit-driven Contractor seemed to always look for the cheapest and most cost effective way of bridging any design problem; where as the Design Team gave the impression that they were more concerned about the aesthetics of the design and the Clients design opinions rather than the buildability and cost.


Many design variations that were requested by the Client, or those forced upon the Contractor were not always as the Contractor had specified to the Design Team. The Contractor felt that his time was wasted by the Consultant not designing elements as originally specified. The working relationship between the Contractor and the Designer seemed to deteriorate from the project start date, until beyond the design completion stage.

After the Author had asked other members within the Contracting Company about the novation of a Designer to the Contractor it became apparent that the relationship between Contractor and Designer was similarly affected on other projects. The Author had discussions with the Client of the project he was placed on. The Client stated that more building work was being undertaken using the J.C.T. Design and Build form of contract as this reduces the risk to the client and/or the person funding the project.

The Author found that under Design and Build more risk was placed on the Contractor, and that management techniques had to change to appropriately manage higher risk projects. He also realised that as more contracts were being made under the Design and Build form of contract with the Designers being novated to work for the contractor a greater knowledge of the subject area would be beneficial to the Author in the management of Design and Build contracts.

1.2.1 Originality of Thought

The Author had discussions with his Supervisor before commencing the research about the subject matter. A hypothesis was agreed upon that gave the Author scope to research areas of the process of novation in design and build contracting that have not previously been discussed in an undergraduates research project for the Supervisor. The process of novation being used in the design and build contract has recently become popular with Clients. The aim of the research is to establish if Contractors and Designers have not yet fully adapted to the change and improvements in the working relationship between the parties must be made to ensure that they remain competitive and profitable.

1.3 Subject Definition

Novation is a process in which [1]a contract between party A and party C is turned into a new contract between party B and party C. This process can only be achieved if all three parties agree that novation can take place.

A Deed of Novation[2] is commonly used to terminate a contract between parties A and B, and then create a new contract between parties A and C. There are standard legal documents, blank deeds of novation, which are available as downloads from the internet, for example at (www.citysolicitors.org.uk/legal_activities as of 28/03/06).


A deed of novation has been used for many years before it became popular with Clients in the construction design and build context. It is used in the sale of manufacturing companies, where components made are used by other larger companies. For example, the purchase of a windscreen wiper company by a new owner whilst retaining the commitment to an existing customer car manufacturer.

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Novation has many other wider applications other than construction; Porsche in their latest brochure[3] offer a novated lease for their new motor cars. In this case an Employee of a company (the lessee) signs a lease agreement with Porsche (the lessor). A Deed of Novation, then supplied by Porsche, is signed by Porsche, the Employee and the Employer. This then transfers the responsibility for the payment to the Employer.

Novation is used in a construction context where the relationship between two parties has developed over time and the introduction of a third or new party is necessary. There then needs to be provision to contractually protect the existing parties in the relationship.

1.4 Report Intention

The intention of this report is to investigate how the working relationship between the Contractor and the Designer novated to the Contractor from the Client could be improved to their mutual benefit, and to the benefit of the Client. However, the report may show that there is no improvement to be made, and that the process of novation as it presently stands is adequate.

1.4.1 Aims

  • To identify clearly factors that may affect the relationship between the Contractor and the Designer under novation
  • To discover any adverse characteristics that may cause a poor working relationship between the Contractor and the Designer
  • To clearly understand the opinions of Designers and Contractors that has been involved with novation
  • To understand the attitudes of Designers and Contractors towards novation
  • To clearly understand the definition of novation and the context in which it is used within the construction industry
  • To identify any differences in attitudes between Contracting Companies towards novation under a J.C.T. Design and Build contract
  • To understand why Clients now prefer to use the Design and Build form of contract rather than the Traditional contracts they favoured to use
  • To identify why Clients within construction novate the Design Team across to the Contractor

1.4.2 Objectives

  • To highlight specific problems within the process of novation that requires improving
  • To investigate how the process of novation may differ between contracts and/or with varying Clients
  • To identify differences between the Contractor's and Designer's opinion of novation under the J.C.T. Design and Build Contract
  • To highlight areas within construction where it is necessary to use novation in Design and Build contracts
  • To advise the Contracting Companies of the most economic way of managing a Design Team that has been novated by a Client
  • To identify if a Contractor and Designer have a better working relationship, i.e. have a greater understanding of each others objectives and needs, under a traditional contract rather than novation under a Design and Build Contract

1.4.3 Hypothesis

"The working relationship between Contractor and Designer is adversely affected by Novation."

1.5 Overview of Research Methodology

The methodology of the research for this project will take the form of the following; please see the methodology in chapter three for a detailed discussion on the report methods used:

  • A review of past and current literature concerning the background of novation within the construction industry.
  • A review of specific literature concerning the working relationship of a Contractor and Designer.
  • Discuss the definition of novation within construction, and where it is most commonly used in the industry.
  • Design a questionnaire to send out to a selected Contractor and a Designer.
  • Design an interview format and questions for a specific Contracting Company to answer on the subject of novation.
  • Design an interview format and questions following the results of the previous interview to issue a separate questionnaire to a different Contracting Company to analyse company differences.
  • Analyse results gathered in the interview to form a conclusion about the effect of novation in construction.
  • Make suggestions or recommendations to the industry and Clients within the construction industry.

1.6 Overview of Main Conclusions

The Author's completed research shows that there are ten factors that could adversely affect the working relationship between a Contractor and a Designer under a novation agreement. The Author found through analysing an interview and questionnaires completed by two Contractors and an Architect that the reasons for novation having an adverse influence on the working relationship of a Contractor and Designer were that:

  1. The time allowed for Contractor to Tender is not increased
  2. The loyalty of Designer to Client remains evident after novation to the Contractor
  3. There is usually a large distance between the Designers head office and the project
  4. Insufficient design fees are allocated at the tender stage
  5. There is an increased risk of error in design
  6. There could have been a previously poor working relationship between the parties
  7. The Designer may be inappropriate for the project
  8. The performance of the Designer is not consistent throughout the process of completing the design
  9. Novation is usually late or rushed from the Client
  10. There is an increased probability of conflict between the two parties

The Author found that many of these factors were specific problems which could be attributed to the process of novation under a design and build project. Therefore, the results support the hypothesis of the research. However, additional research is required if the hypothesis is to be proven to be correct.

1.7 Guide to the Report

  • Chapter One: Introduction - This section introduces the study and outlines the hypothesis, aim and objectives of the research. It indicates the origin of the Author's interest in the subject, why the hypothesis was chosen, and describes the methodology that was followed.
  • Chapter Two: Literature Review - This section examines the literature research conducted by the Author. It is an investigation into the definition of novation, and describes where it is used within the construction industry. This section details the current view of the contractor in a novation agreement.
  • Chapter Three: Methodology - This section of the report describes the methodology which was used to conduct this research. It shows how the information was collected. It also includes the topics covered within the interview and the design of questionnaires that were employed.
  • Chapter Four: Design and Build Contracts - This section describes the forms of J.C.T. contract used and highlights the advantages and disadvantages to the Design and Build form of JCT contract. It provides an introduction into Design and Build and details the differences between the Employers Requirements and Contractors Proposals that are a key feature of the Design and Build contract.
  • Chapter Five: Novation - This section of the report describes in detail the uses of novation within a construction context. It gives a definition to the process of novation as used in a Design and Build situation. This chapter details the conflict of interest the Contractor and the Designers tend to experience due to novation. It illustrates the problems that may arise in the design, payment of design fees and the varying levels of the Consultant's performance.

  • Chapter Six:Analysis - This section of the report is the analysis of the questionnaires sent to Clients within the building industry and their Project Managers and the Designers. It analyses the interviews conducted with the contractors and additional information gathered.
  • Chapter Seven: Conclusion - This section of the report presents the Author's conclusions based upon the findings within the analysis chapter of the report. It suggests solutions to the aims and objectives set out in the introduction, criticises the hypothesis around the report was based and highlights the possibility for further research.

Chapter 2 - Literature Review

2.1 Introduction

The literature review is a comprehensive analysis of all relevant articles, books and publications to this research project.

Derek Swetnam[4] describes the literature review as a report;

That is central to the dissertation and in all styles of work it has a number of functions:

  • It shows that you have read widely around your chosen topic
  • It demonstrates your critical understanding of the theory
  • It acknowledges that work of others
  • It informs and modifies your own research

The Literature review in this chapter is broken down into eight sub-headings. The chapter talks about the description of novation, then goes on to describe where novation is used today both in and outside the construction industry. The literature review describes the process of a Designer being novated to a Contractor. The final section of this chapter discusses and analyses in what way the literature which is reviewed is relevant to the Author's research project.

2.1.1 General Aims

  • To break down the causes of the problem highlighted in the hypothesis into logical stages.
  • To collect and analyse previous research and literature to further investigate the subject area of this project.
  • To research any previously made recommendations.
  • Make recommendations which have been concluded from a detailed literature review.

2.2 Aim of This Literature Review

  • What is the description of Novation and in what context was it used before in construction?
  • Where is Novation used today outside of construction and what is its main purpose?
  • What other uses are there of Novation within construction other than a Designer being novated to a Contractor?
  • When did Novation of a Designer to Contractor become popular with Clients in the construction industry?
  • Have there been problems with the novation of a Design team to a Contractor in the past?
  • When is Novation practical in construction contracts?
  • What are the risks to the Contractor in the novation process?

2.3 Contents of Literature Review

2.3.1 Description of Novation

David Janssens[5] stated that:

Occasionally, an Employer may stipulate that the successful Contractor is to engage one or more of the Employer's consultants to complete the design and detailing of the project in the post-contract stage. Such consultants are employed by Contractors under 'novation agreements', i.e. a 'novation' agreement is a new agreement in substitution of a previous agreement between the Consultant and the Employer.

Novation exists when an agreement or contract between two parties is going to be broken and a third party enters to take the place the agreed or contract role of the party which is leaving the agreement or contract.


Novation can also exist when a third party enters into an agreement or contract without any other party leaving.

Jeremy Hackett[6] stated that:

"Novation" is a legal concept, formally providing for the re-employment of a Consultant by the Contractor, as part of the contract agreement between the Employer and Contractor. Should the Contractor merely choose to re-employ the same individuals who have previously sat the other side of the interview table from himself that would not be novation, but its effect would be very similar.

2.3.2 Uses for Novation.

Novation is not only used within the construction industry, the use of novation in law is much more commonly used in the buying and selling of manufacturing companies. In this context a novation agreement maybe drawn up by lawyers of a manufacturing company which intends to sell to buyer whilst still retaining the same business clientele. In this instance a customer of the business being sold would be novated across to the new buyer of the business, this ensures that the customer can always source what ever item the new buyer manufactures.

Ann Arbor[7] Stated that:

A hospital in Texas is taking electronic commerce beyond purchase orders and usage reports to adoption of digital contract management. The sooner hospitals are able to sign up to participate in new contracts, the sooner they are able to access contract pricing. Using the enhanced form management program, materials managers can submit forms online where suppliers can approve them, also online.


In this example a hospital in Texas is using the agreement of novation over the internet to sign up for new contracts much faster than it was able to previously.

This has benefited materials managers the most as they are able to source cheaper or higher quality materials from differing suppliers and simply transfer the agreement they have with one supplier to another using novation.

2.3.3 Alternative uses of Novation within construction.

The section above discusses how different forms of novation are implemented in areas other than the construction industry. However, within the realms of construction there are many more uses for the novation agreement to be used. The use of novation within construction has only been commonly used during the past decade or so, the main reason for this is the introduction of the JCT Design and Build Contract which made the novation of Designer to the Contractor much easier for the Client.

Before the introduction of Design and Build Contract novation was present in the same format it exists today in other industries as mentioned above. If during the construction process a Client was unable to fund any further necessary works and there was a willing buyer to stand in for the Client, it may be in the interest of the entering party to continue to use the existing Contractor. The easiest and least time consuming way to do this would be using the Novation agreement.

The second way in which novation occurred in a construction context before the introduction of the Design and Build Contract was if the Contractor was suffering from financial issues or the relationship between himself and the Client has been irreparably affected in someway. If a situation like this occurred it was beneficial for the Client to take on board a new Contractor through a novation agreement. This removed the necessity for the remaining works to be re-tendered, and the likelihood that the Client would have to pay an excess for the works to be completed.

2.3.4 When did novation become popular with Clients

Jim Smith[8] stated that:

The choice of a procurement method is probably the single most important decision the client makes, other than the decision to build. The various procurement methods can be described, as defined by Masterman (2002), under these three distinct categories:

  • Separated and co-operative.
  • Integrated.
  • Management orientated.

In the last few years and particularly within the past decade the procurement methods for contractors have been moving away from the more traditional contracts as described above.

The change to a procurement method which uses the second and third categories above has largely been Client-driven; the main reason for this is that the Contractor has to accept a high level of risk if he is to tender successfully for a project. As more design development has been shifted across to the Contractor it is becoming easier and more cost effective for the Client to shift higher levels of risk to the Contractors. The Design and Build contract and all its variations have expanded considerably to accommodate a Client's needs in recent times.

The Royal Institution of Chartered Surveyors (RICS) [9] in 2000 stated that:

Design and build and its variations have expanded considerably in the last decade. It has increased dramatically in the 1990s going from a 10 percent share during the 1980s up to a 35 percent share of the construction procurement market, with management contracting declining to a 10 percent share.

Chan stated[10] that:

21% of private Clients in the UK use the Design and Build system, of which 42% commonly use Design-Novate and Construct for their projects. Design-Novate and Construct has also been widely adopted in Australia and Hong Kong.

David Jaggar[11] Stated that:

The major advantages of design and build are that all the risks, both financial and period for completion, are transferred to the design and build contractor, with the client only dealing with one organisation, so eliminating the complexities and frustrations of dealing with a range of separate organisations. The approach also overcomes the problem of the separation of design and construction, so saving overall time and allowing the design to reflect improved buildability in the construction solution.

The argument against this is that a Contractor may be taking a higher percentage of higher risk projects. However, as a Client is off loading a lot more risk than what was traditionally not possible in the past they are able to fund much more projects and engage a lot more designers. The result of this is that the Contractor has more work to tender for and a much higher chance of winning projects as more tenders will be processed.

2.3.5 Issues arising from using Novation in construction.

Jim Smith[12] stated that:

There is considerable debate as to the merits and demerits of the approach and it is fair to say that many design professionals were unhappy about the approach, not least because there was a reduction in their own influence and independence. However, a valid view put forward, which undoubtedly design and build suffered from in the 1980s, was that the quality of the final building was often inferior and the role of design was devalued, as the design and build contractors "shaped" the design to suit their particular methods of construction. More recent views from clients noted above indicate that they were satisfied with the quality of their completed design build projects.

The Design Manager of a Contracting Company plays a critical role in the development of design to determine a contract value for a project. The role involves being able to balance cost and quality and time constraints within a framework. This is an essential skill for all Design Managers or Project Co-ordinators. The Design Manager will work closely with the Commercial Manager at the tender stage of a Design and Build contract when novation of the Design team is being used by the Client. It is crucial that both managers work together to reduce the amount of design and financial risk the contractor will have to carry through the contract period if the tender submission is to be successful.

Allinson[13] states that:

The developments in the construction industry, the continuing specialisation of professions and the rising application of alternative procurement methods have all contributed to the gap between design and management, but they have also emphasised the need for a design professional with management and technological skills. The management of the process should ensure a successful and deliverable project

When Design and Build contracts first became widely used by Clients in the 1990's Contractors tended to manage the building works in the same way they managed traditional contracts. Here a Project Manager was responsible for the development of the construction and concluding the outstanding design issues as well as resolving any building sites day-to-day issues. Project Managers were supported by a number of other managers such as Services Engineers, Site Management and Quantity Surveyors.

Jim Smith[14] states that:

However, a single reporting source on all aspects of design and cost has not always benefited the client, contractor or the project. Projects have been organised in a very "flat" structure with numerous lines of responsibility reporting directly to the project manager. The larger projects would have over half a dozen separate factions directly beneath the project manager, including the above stated managers, structure coordinators, documentation managers, tendering coordinators, contract administration, project administration and occupation health safety and rehabilitation (OHS&R). In practice, this structure has proved to be an inefficient and ineffective form of management on many projects...

He continues to say that:

With the dominance of design and construct contracts, the management of the design and development of projects is essential to enable successful procurement and fast tracking. However, its weakness is in the management of design and cost during design development and the lack of understanding of how to achieve good design, to the expected quality and within budget parameters. The weakness is aggravated by the perception of the design cost control function having the single focus on "cost cutting" and not on value implementation.

The guidelines which a Contractor should follow before entering into an agreement with a potential Client are discussed further in this literature review. A Contractor will have in house guidelines showing how to interview and gain information from Designers to decide if it is worth investing the time, effort and expense in a project that if won, would result in a greater financial loss.

If this process is not conducted correctly or if any high risk items are overlooked in order to win a project a Contractor may find himself in court in an attempt to redeem his financial losses caused by poor design by the Consultants.

2.3.6 When is Novation Practical.

Thomas and Skitmore[15] State that:

Design, Novate and Construct contracts are more appropriate when:

  • The time for completion of the project is 'of the essence'
  • The budget for the project is fixed and extra resources of funding are very limited
  • The project involves special design and technical requirements.

Procuring a construction project and building it within the time set, to come in on budget to ensure quality and to decrease the risk are the prime objectives of the Client. Despite increasing quality standards and the overall complexity of new building projects, less time and money is being allocated to the design, planning and bidding stages of a project.

Novation of a design team is practical when the Client is able to contract a builder into accepting more risk than he would feel normally comfortable taking. Recent market conditions, low interest rates, fierce competition within Contracting and the introduction of the JCT Design and Build contract giving Clients the opportunity to novate Designers has enabled Clients to use novation to their advantage.

It is neither possible nor practical for Employers to impose such a condition in all varieties of Design-Build, as the table, by Janssens[16] shows:

Novation of Consultants and the different varieties of Design-Build.

Variety of Design-Build Comment

Develop and Construct Most common variety where novation is applied.

Design-Build Novation often suggested by Employer, but

(Single-Stage Tender) Contractors should take care.

Design-Build By definition novation is not possible.

(Two-Stage Tender)

(Design completition)

Negotiated Design-Build Possible, but in this case it would usually be a 'named'

& Design & Manage. Consultant, in that the employer would be unlikely to

have already entered into an agreement with the Consultant.

Turnkey Novation would not normally be applicable

2.3.7 Problems with the novation process.

Before a Contractor accepts the imposition of a novated design team he should go through a procedure of checking that both he and the Designers to be novated will be able to work together productively from the tendering aspect to the completion of the design and the completion of the construction process. If the Contractor feels that the relationship between him and the Designer will not be a fruitful one then the Contractor may be better off declining the opportunity for tendering.


An alternative to this is for the Contractor to approach the Client and reach an agreement to waive the condition of novation. This may be in the interest of the Client as well as the Contractor in the long run; some Clients approached by a Contractor who also offer an alternative Designer have been awarded contracts.

Before entering into an agreement of novation with a Client the Contractor must satisfy themselves that they will be able to have confidential access to the consultants to be novated during the whole tendering process. This may be difficult for the Client as key designs maybe completed to give financial gains to the Contractor. Usually more than one Contractor may tender for one contract and the client could find a vast difference in price and differences in the design evolution between Contractors tendering for one project.

David Janssens[17] states that:

In this situation the contractor should seek answers to the following points, as a minimum:

  • There will be many proposals and details that the Contractor will want his Designers to consider, and so the Contractor must check on what arrangements have been made to allow time for such discussions.
  • How will any innovative proposals be kept confidential?
  • What will be the Consultant's attitude to Contractor's alternative proposals derived during the tender period, and will the Consultant be prepared to work-up such ideas?
  • Will the Consultant be able to devote sufficient time with the Contractor at the conclusion of the tender period for detailed checks for errors and omissions, and assist with the risk assessment?

If a Contractor is able to satisfy himself that all the points above have been answered in sufficient detail then they may feel confident that all risk has been allowed for and that a tender submission could be feasible. If all the points are satisfied then the Contractor should be confident about entering into a novation agreement with the Client.

2.3.8 The risks to the Contractor in the novation process

When a Designer is novated to a Contractor by a Client this brings much more risk than other procurement methods. Under novation it is not the Client that is responsible for the design of the project and the Contractor has not been in control of the design from the initial stages. This increases risk as it is the Contractor who is responsible to check the designs of the project whilst under a deadline to return a tender bid.

By using novation the Client can get the best of both the traditional and design and build contracts. The Client has control over the design at the initial stages of the project and can develop the design as he wishes as he would in a traditional contract. But he also transfers the risk of design error and ensures better cost control with fewer variations, a key feature of the design and build style of contract.

Thomas and Skitmore[18] describe the Contractors' risks in the novation process as follows:

  1. The novated Design Team's ability to perform
  2. The lack of Design Team's fees allocated to the post-novation phase
  3. Working relationships with the novated design team
  4. The timing of the novation.

2.4 Conclusion.

Much research has gone into the reading around the subject of novation as this literature review shows. The introduction of the Design and Build Contract has benefited U.K. Clients within the building industry especially in the past ten years because of the use of the novation agreement.

Recently due to the competitive construction market it has been the Contractors which have had to take responsibility for most of the risks which would have traditionally been the responsibility of the Client.

A novation agreement between a Client and Contractor for the Design team should in theory work; but it is the responsibility of the Contractor to firstly interview the Consultants that are to be novated to him and ensure that a fruitful working relationship for the duration of the project.

The literature review shows that problems occur when there is a breakdown in communication between the Contractor and Designer resulting in designs remaining incomplete or not being developed according to the Contractors budget. As the majority of risk is placed onto the Contractor the Client could be expected to pay a little extra on the contract value as designs are incomplete by as up to 70%.

The Client has to expect a price increase because of risk added to certain elements of the construction. However, the price should be lower than if the Contractor encounters an item that has not been priced correctly or has not had the right amount of risk allocated, resulting in a financial loss for the Contractor.

Chapter 3 - Methodology

3.1 Introduction to Methodology

Here the Author has explained how the topic was chosen for the investigation. It also shows how the literature information was collated to produce the literature review which makes up the previous chapter. Below is the method that was used to collect data and conclude the research.

The first stage was to conduct a literature review (please see previous chapter), this stands as the basis for all the additional research conducted in this dissertation.

3.1.1 Background Studies

The additional chapters of the background studies are an integral part of the Author's research as they act as an extension to the literature review. This section also gives an in depth research into the two most important components of the hypothesis (i) Design and Build and (ii) Novation.

3.1.2 Design and Build

In the first section of the background studies there is a description of the design and build contract which is used by Clients within the construction industry (please see chapter 4.0). This chapter describes the differences between the design and build form of contract and other popular contracts used by Clients including a description of the application of the care and skill clause used in contracts. In this section the Author provides the different uses of design and build from the perspective of a Client novating a design team to a Contractor and the when the Contractor has the choice of which consultant to use.

3.1.3 Novation

The second of the background studies looked at the novation aspect of the proposed hypothesis (please see chapter 5.0). Here is a description of what novation is and its uses in a design and build context within construction. The chapter describes the possible causes for a conflict of interest between the Contractor and the Design team. It also states what issues may arise because of novation; particularly in terms of the project design, payment of the Design Team's fees and any changes in the performance of the Design Team.

3.1.4 Interview

The Author decided to interview the Contracting Company about the subject of the dissertation because this would give an insight into the company that the Author will be working for after his degree course is complete.

The interview questions were constructed from integral parts of the literature review, and enabled the Author to collect qualitative data to analyse the hypothesis. The interview was held with the Author's sponsorship company. The Contracting Company has had several years experience at dealing with novation of a Design Team from a Client, and they also have maintained a high percentage of Design and Build projects over recent years, (please see figure 1.0). The interview was held with both a Senior Commercial Manager of 25 years experience and a Senior Design Manager of over 30 years experience in the construction industry. The questions asked in the interview were designed to give the point of view from the Contractor about the working relationship between himself and the novated Design Team.

When a Client novates a Design Team to a Contractor it is the Contractor who will have to bear the largest majority of risk for the design and construction of a project, therefore the view of the Contractor about the situation is of up most importance. Time constraints of the research project meant that it was not possible to interview an Architect about the same subject then cross reference this with the Contractor.

3.1.5 Questionnaire

The Author decided that the Architect's opinion of the Contractor's responses to the interview would be best made on a questionnaire. As mentioned above the Author decided to obtain the opinions of an Architect by way of questionnaire, this reduced travelling costs for the Author and allowed him to carry on the report while the Architect completed the questionnaire. The questionnaire was sent to an Architect of over 30 years experience in design and one who is used regularly by the Contractor interviewed for design and build contracts. The Architect has experienced the process of novation both separately and with the Contractor interviewed.

The questions which made up the questionnaire were derived from the responses given by the interviewed Contractor. The aim was to establish if the Architect was in agreement with certain aspects of the Contractors comments. Also the questionnaire was designed to pick out any similar responses between the two parties, to establish a theme and a solution to any common problems.

3.1.6 Confirmation of Results

The results found in both the questionnaire returned by the Architect and the interview with the Contracting Company were analysed to determine any common features and responses made by both parties. The similarities that were found were sent to a Senior Commercial Manager at a different Contracting Company for his opinion of the results, and to ascertain whether there were similarities within a different organisation. The analysis was completed by the Author to remove the possibility that the results found from analysing the one Contractor and Architect were specific to that Contractor and were not representative of the industry as a whole.

The Contractor was a regional competitor to the Author's sponsorship company and has large experience in dealing with novation and using the design and build form of contract.

The research data collected was qualitative owing to the nature of the subject and the whole nature of whether novation under a Design and Build contract is based on opinion of many professionals. It would be extremely difficult to measure the success or failure of novation from a quantitative aspect as both Contractors and Designers may not freely share economic data regarding the financial outcomes of a contract where the design team was novated to the Contractor.

3.2 Aims & Objectives of Research

  • To give a clear explanation as to the reason why methods were used, and why others were dismissed.
  • To clearly indicate the research methods such as the literature review and methodology used at each stage of the research project.

3.3 Topic Selection

Derek Swetnam[19] stated that:

Research is enquiring into some aspect of physical, natural or social world. It must be systematic, critical, empirical and have academic integrity.

The selection of the topic was derived from the Author's industrial placement during the third year of his course. The Author observed whilst on site that the relationship between the Architect and Contractor was a lot less cordial than other sites the Author had worked on in the past.

On investigation with both the Contracting Company and Design Team it was discovered that this was both the Design and Build contract in place between Client and Contractor and the Design Team had been novated across to the Contractor upon successfully tendering for the project, before work had commenced on site.

It was this that led to the interest to investigate further this subject area. The Author realised that the research undertaken had to be completed within a certain time frame. This placed great restrictions on the amount of research that was possible in the fixed time period. Holt[20] explains that most important that, this volume of research has to be realistically possible within the time frame

There were many restrictions which influenced the topic selection. The question of if the report title and idea was at all possible must be asked. David Swetnam suggests that [21]many ideas will have to be crossed out on grounds of impracticability.

The research project has followed the following steps taken suggested by Derek Swetnam21:

Checking Feasibility

  • Is the project physically possible in time, distance and volume of the work?
  • Can it be afforded? (50 letters and stamped addressed envelopes will cost around £30)
  • Do you have, or can you rapidly develop the skills needed to conduct the research?
  • Will you be permitted to gain access to the suggested sites?
  • Can you find the necessary literature?
  • Are there any ethical or moral problems to overcome?
  • Will the topic remain 'live' over the period of the research?
  • Would you have the support of your Tutor and your colleagues?

This approach to checking the feasibility of the study area is echoed by Holt. However, Holt[22] does mention that the production of a dissertation is a circular in nature as the extract below shows:

3.4 Literature Review

Derek Swetnam[23] states that the literature review is a central part of the dissertation and in all styles of work it has a number of functions.

3.4.1 Literature Review Functions.

  • It shows that you have read widely around your chosen topic.
  • It demonstrates your critical understanding of the theory.
  • Acknowledges the work of others.
  • It informs and modifies your own research.

Reviewing literature is an important part of any research project, as this enabled the Author to sample previous research compiled by others. This in turn aided the Author in forming an individual opinion of the chosen subject area. The literature review is the compilation and assimilation of as much information as can be gathered before a concise methodology can be formed.

3.4.2 Literature Data Collection

Following the selection of the subject matter and after the Author had decided upon a title and hypothesis research into previous relevant literature was necessary.

Step 1 - The Author initially searched for existing relevant literature using the Pilkington Library at Loughborough University. This involved using the search engine on the catalogue OPAC which is widely available at the university library. This method further reduced the time taken for the research to be performed. This method was adopted over any other as the Author was able to search for literature by the specific Author, Title or by using Keywords, many irrelevant books can be eliminated in this way.

Step 2 - The second stage of the research the Author used the Metalib system again at the library at Loughborough University. The purpose of this research was to obtain more up-to-date information from specific legal and construction related journals and articles. This method of research yielded more research and information relevant to the topic than the process described in step one. The reason for this is that only key construction industry literature was being searched rather than standard text books which cover a broader range of subjects.

Step 3 - The Author concluded the literature review by a comprehensive search for articles, journals and newspapers from around the world. This was completed by use of the internet, an in depth search of building magazines, any construction news and the Construction Managers Journal. General internet search engines were used such as Google (http//www.google.co.uk). However, these sources tended to give a broad result.

The Author found that the views and opinions of previous Authors on the subject and past Researchers were more prevalent in journals and articles rather than in books and newspapers.

3.6 Limitations

  • The research project accounted for three modules in the final year of the BSc Commercial Management and Quantity Surveying degree the Author is studying. As a result of this the Author felt it was important to prioritise tasks. Efficient time management was required to compile the research project as well as completing all other modules to the highest criteria possible.
  • The Author realised that there was not much literature expressing opinions of others in large broad subject text books.
  • Most of the literature review was obtained from the articles found in journals sourced via the internet or using Metalib.
  • There were financial and expenses limitations as only a few travelling expenses could be afforded by the Author. This is the main reason why the Author opted to send out a questionnaire to an Architect that would have under normal circumstances have been personally interviewed.
  • Owing to the nature of the topic and subject area the Author predicted that information to support his hypothesis may not be freely shared. This would be true of any cases that could arise between Contractors and Designers.
  • Due to time limitations impose upon the Author it was only possible to interview his sponsoring company in some detail. This information was cross reference with one other major Contracting Company to establish if there are differences in opinion and/or management between the two companies.
  • As a result of the small sample of three professionals one being interviewed and the other Contractor and Architect responding by questionnaire Hypothesis specific questions were asked. However, it will be difficult to say that the results found were accurate of other or all Contracting and Design Organisations.
  • The findings that were made only partially support the hypothesis owing to time and financial limitations. Additional research must be completed to ensure that the results found by the Author either prove or disprove the hypothesis.

3.7 Negotiation

Derek Swetnam[24] states that:

A ll research for dissertation requires a certain amount of negotiation to gain access to information or interviews with professional.

He advises to follow these general tips:

  • All communications to be of a high standard and quality.
  • If possible check names and statuses beforehand.
  • Be friendly but formal
  • Explain what you intend to do.
  • Offer to make results available if possible.
  • Work to their time limitations, not yours.
  • Cultivate your legitimate status.

3.8 Questionnaire

The questionnaire was aimed to be answered by:

  • An Architect who has experience of working for a Contractor under novation
  • The Author decided that the questionnaire would be the preferred method to obtain research information from the above sources rather than interviews. The main reasons for this are the time and cost of research, and because the Author had built up a number of contacts and relationships during his year in industry. It would be easier to send out a questionnaire to a selected Architect where a return of information could be assured.

    Some commercial marketing organisations such as the Readers Digest offer free prize draws and still get low responses to the question asked. When constructing a questionnaire general consideration must be made before even the first question is written.

    Derek Swetnam[25] states that:

    Remember that a low rate of return may have research significance and has to be reported. You will be fortunate if you reach a 70% rate of response on personally collected questionnaires, and postal ones may be as little as 10%.

    An effective questionnaire should be well structured and requires good planning and an overall design.

    Robert Patterson[26] suggests that:

    The Objective of constructing effective questionnaires is not to help researchers avoid embarrassing inquiries like that of the supervisor. More important, the objective is to prevent researchers from asking poorly designed questions and administering faulty questionnaires.

    The method employed by the Author to construct the questionnaire was to try and see the questionnaire from the recipient's perspective.

  • Would the person reading and completing this be interested and co-operative in filling it in?
  • How could the recipient be encouraged to answer all the questions set and give the optimum information?

Oppenheim[27] suggests that:

Decisions on research techniques must be summarized and fall into the five groups shown below:

  • The main type of data collection, interviews, postal questionnaires, contents analysis of records and observational techniques.
  • The method of approach to respondent (Sampling selection, sponsorship, state purpose of research, length and duration of questionnaire, confidentiality and anonymity.
  • The Build up of question sequence or modules within questionnaires and the ordering of questions.
  • For each variable, the order of questions within each module, using approaches such as a funnelling
  • The type of question to be used; examples include 'closed' question with pre coded answer categories versus free response questions.


The Author constructed the questionnaire following the suggested format by Oppenheim[28]:

  • Length - Keep questions short in length, no sentence should be over twenty words in length.
  • Avoid double barrelled questions - Keep questions simple, straight forward, clear and understandable.
  • Avoid Proverbs
  • Avoid double negatives - this will cause confusion.
  • Don't Know / Not applicable - do not give options not to respond
  • Simple words should be used - Acronyms, abbreviations, jargon and technical terms should be avoided.
  • Beware of the dangers of double usage.
  • Some words are notorious for their ambiguity.
  • All closed questions should start their lives as open ones.
  • Beware of leading questions - Do not assume anything
  • Pay attention to the details - i.e. font size of the writing.

There are many advantages with sending out questionnaires in the post, the main ones are as follows:

  1. 1. Avoidance of any bias which could come from an interview situation.
  2. 2. Ability to research a wider range of people who respond.
  3. 3. There will be a lower cost of processing the data that is collected.
  4. 4. There will be no travelling costs incurred to gain the research.

However, the Author decided to hold telephone conversations with the professionals willing to complete a questionnaire and agreements were made that the questionnaire was to be emailed to them and then returned by email. This resulted in a faster return at a much smaller cost, resulting in greater time being available to process the data gathered.

3.8.1 The Questionnaire to the Architect

  1. Would you agree or disagree that the four points above are the significant factors that increase risk to the Contractor & Designer when the Designer has been Novated to the Contractor?
  2. This question is the same as question one in the interview questions posed to the Contractor. The purpose of this question is to establish whether or not the Architect that completes the questionnaire agrees with the above statement, and to validate the Author's research completed in the literature review.

  3. Does the lack of fees available to the Designer have such a large impact on the performance of the Designer for the project?
  4. This question is used to establish whether a lack of fees available to the Designer towards the end of the design has an impact on the Designers output and performance throughout the duration of the project. This question is used to cross reference question three of the interviewed Contractor.

  5. As the Designer for the project pre-novation, do you think that your main objective is to satisfy the Client not the Contractor with your designs post-novation?
  6. The question is designed to find out if the Designer sees the Client as the main source of information for designs to be complete, or any variations that need to be made, rather than the Contractor.

  7. Do you value the opinion and choice of design elements of the Client over the Contractor even after novation?
  8. The Purpose of this question is to discover if the Designer would still prefer to take instructions about design and specification from the Client rather than the Contractor, even after novation has taken place, and if so for what reasons.

  9. In your opinion are there more or less conflicts between the Designer and the Contractor because of novation?
  10. The Purpose of this question is to cross reference the information given by the interviewed Contractor in question six. It will establish the Designer's point of view on the amount of dispute that occurs because of novation.

  11. Are the aims and needs of the Client pre-novation completely different to the Contractor's post-novation?

The purpose of this question is to discover if the Designer understands fully that there is a difference in the needs and aims of the Client pre-novation and the Contractor post-novation. This question will give the Designer's opinion of the novation situation.

3.8.2 Cross Reference Questionnaire with a Rival Contracting Company

  1. Would you agree or disagree that the four points above are the significant factors that increase risk to the Contractor & Designer when the Designer has been Novated to the Contractor?
  2. This question is the same as question one in the interview questions posed to the Contractor, and question one of the questionnaire sent to the Architect. The purpose of this question is to establish whether or not the rival Contractor that completes the questionnaire agrees with the above statement, and to validate the Author's research completed in t