Introduction

Construction contracts often involve complex arrangements among multiple parties. During a construction project's lifecycle, there may be a necessity to transfer contractual rights and obligations from one party to another. This article explores the key differences between novation and assignment within the context of NEC contracts. The discussion highlights relevant clauses, practical limitations, and the importance of customising contract amendments to manage risk and prevent unintended outcomes.

What is Assignment and Novation?

 Assignment

Assignment is the transfer of rights from one party to another party without transferring its obligations. An example of this is when a client transfers their rights in a contract with the main contractor to a purchaser of the project. The purchaser would then become the ‘assignee’ and would receive the benefit of the original construction contract e.g. enabling the purchaser to enforce the works to be completed. The limitation of assignment is that it only transfers the benefit of a contractual obligation and not the burden. Therefore, in the example provided, the original client, the ‘assignor’, would still retain the burden of paying for the work to be undertaken.

Under English law, if a contract is silent on assignment, generally the rights under the contract can be unilaterally assigned by the assignor to an assignee without restriction. This may be an undesirable outcome as parties do not want to be subject to unlimited assignments.

Contractors and designers may also be subject to restrictions within their professional indemnity insurance which limit the number of times an agreement, e.g. a collateral warranty. can be assigned. This is a common-sense approach as the parties often want to know who they may end up liable to. Due to the position under English law, it is common for the parties to limit assignment via clauses within the contract, e.g. the client will typically specify they have a unilateral right to assign a specific number of times, and they may restrict the contractor from assigning any element of the contract without their consent.

Novation

Novation refers to the process by which a party’s rights and obligations under a contract are transferred to a third party. This is different to assignment which only allows contractual rights to be transferred.  Novation is commonly associated with design and build contracts. Typically, a consultant is initially engaged by the client to carry out the design work. However, if the client later prefers to consolidate responsibility for both design and construction under a single entity, the consultant may be novated to the contractor. Through a novation agreement involving the client, consultant, and contractor, the consultant’s duties and liabilities are transferred to the contractor. As a result, the consultant is released from any contractual obligations to the client and instead assumes those obligations toward the contractor.

 Assignment under NEC contracts

The NEC3 forms of contract are silent on assignment and consequently any rules on assignment, if required, were introduced using a Z clause.  The NEC4 ECC introduced a new clause 28.1, which requires the parties to notify each other if they intend to assign the benefit of the contract.  The only other restriction is that the client is not permitted to transfer a benefit or any rights if the receiving party does not intend to act in a spirit of mutual trust and cooperation as required by clause 10.2 of the contract.  Similar provisions exist in the main and subcontract long form versions of the NEC4 contracts.

Assignment may be necessary following termination. The NEC4 ECC, and the other long forms, allow the client to instruct the contractor to assign the benefit of any subcontract or other contract related to the performance of the contract to the client (92.2 P2).  However, this right exists only when the client has terminated for reason R1-15, R18 or R22 and will, in any event, require a new contract with negotiated terms and payment.

The provisions of clause 28.1 are “exceedingly modest”^[i] to that seen in other standard forms of contract, e.g. the JCT D&B 2016 contract does not allow either party to assign without the other party’s consent.^[ii]  Users of the NEC4 forms wishing to place greater restrictions, including a requirement to obtain the consent of the other party, may need to consider amending the contract.

Novation under NEC contracts

The NEC standard forms of contract do not make provision for novation. This is a conscious decision by the NEC4 Contract Board, recognising that the process of novation can be complex and lead to disputes over liability for errors that existed in the design prior to novation.^[iii] The NEC4 User Guide states ‘…there is no shortcut handover NEC document as each contract placed under NEC should be thoroughly understood by both Parties, regardless of how or why the two Parties finished up together in contract.”^[iv]

It is recommended that if client and contractor are willing to continue using the services of a designer or other consultant following the initial stages of a project, they should do so using separate bi-party contracts.

Termination under NEC4 is not mandatory when a party is facing bankruptcy or administration allowing novation of the contract to a third party which may help to minimise delay and disruption. Parties that wish to include the option of novation under these circumstances from the outset should do so by including relevant provisions in the form of additional conditions of contract (Z clause).

Conclusion

Assignment transfers only contractual rights, not obligations, and is addressed minimally in NEC4 via clause 28.1. Novation, which transfers both rights and duties to a third party, is not provided for in NEC contracts due to its complexity and risk of liability disputes. Parties using NEC contracts may wish to consider incorporating Z clauses to tailor provisions for assignment or novation, ensuring clarity and alignment with project needs and providing adequate legal protections. Assignment and novation can be complex; parties should seek specialist legal advice when drafting any additional provisions. Unintended consequences of incorrect drafting can leave a party unable to recover or pass on losses they have incurred, despite still being liable for them.

 David Hunter and Chris Turner

July 2026

This article was first published in the NEC Newsletter 25 June 2026

^[i] Brian Eggleston, The NEC4 Engineering and Construction Contract A Commentary (3rd edn, Wiley Blackwell 2019) 147.

^[ii] Clause 7.1

^[iii] Blyth & Blyth Limited v Carillion Construction Ltd (2001) 79 Con LR 142 [CSOH].

^[iv] NEC4: Establishing a procurement and contract strategy, vol. 1 – Chapter 4.