The rising prevalence of novation as a procurement model for how buildings are constructed has been revealed as a contributing factor to deteriorating construction outcomes, with flow-on impacts to the community and consumers.
Novation occurs when the contract between the architect and the principal is extinguished and is replaced by a contract with a new client (the building contractor) usually on the same terms, bringing about a transfer of contractual rights and obligations.
The Australian Institute of Architects (AIA) conducted a national survey of its members to provide an initial indication as to what the pitfalls and positive outcomes of this procurement method are.
The Victorian state-based survey results have been released ahead of the broader national results. For Victoria, the survey covered 71 architectural practices and 158 projects delivered between 2009 and 2019.
AIA Chapter President, Amy Muir, said the insights should inform government reform in the wake of last year’s Shergold-Weir Building Confidence report.
“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,” Ms Muir said. “This must start with reform of the procurement process.”
The key findings of the survey are as follows:
- 71 per cent of survey respondents reported that novation had a negative impact on the finish and durability of projects and 63 per cent said it negatively impacted the use of locally sourced materials.
- 74 per cent of survey participants believed novation had a negative impact on aesthetics and design.
- After novation, only 10 per cent of respondents reported that they were always included in strategic decision-making processes at project control group meetings, while 35 per cent said they were never included.
- 67 per cent of architects believed that contract negotiations during novation impacted negatively on their ability to deliver quality outcomes for the general public and end user.
- 45 per cent of architects did not know if the monthly reports prepared for the clients were being passed onto the clients during novation.
“The way these contractual arrangements have evolved are negatively impacting the ability for architects and consultants to undertake their roles in an effective manner,” Ms Muir said.
The intent of the initial survey was to better understand the issues and use the findings to work across industry towards solutions.
Ms Muir said the AIA is aware that product substitution is a problem and the survey results highlighted that it was more likely to occur under a novated contract.
“Even more disturbingly, the survey findings included incidents of architects being denied access to the site to undertake inspections at certain stages of the building process. This can have safety ramifications for end users and compromise our ability as architects to properly fulfil our functions and responsibilities,” she commented.
Documentation was another area of concern, as the survey results indicate a major trend toward novation earlier in the design process, with less complete documentation.
“This leaves a greater proportion of design choice in the hands of the contractor and misses the opportunity to effectively lock in design quality for the benefit of the principal, and ultimately the end user,” Ms Muir said.
“The optimal point for novation to occur is at either 100 per cent of the design development or after more than 51 per cent of the Construction Documentation has been completed.”
Ms Muir believes such a change would vastly improve the built outcomes and align with the more stringent processes that the AIA expects – and hopes – will be required through the current reform process.
“The clear message to the Victorian Government from these survey results is that an industry-wide code for novation must be created and legislated,” she commented.
“An overwhelming 83 per cent of respondents were in favour of this proposal because they believe it would help improve the quality of projects being delivered.”
A copy of the Victorian Novation Survey results can be found here.