Novation and professional indemnity in design-and-build
Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-05
Design-and-build (D&B) procurement often begins with the employer appointing an architect or engineer directly. Once a main contractor is selected, that consultant is frequently novated across so the contractor carries single-point responsibility for both design and construction. Novation is legally elegant but carries real professional indemnity consequences that are easy to overlook until a claim arrives.
What novation actually does
Novation is not an assignment. Assignment transfers the benefit of a contract; novation replaces one contract with a new one. The original appointment between employer and consultant is extinguished and re-created between contractor and consultant, usually by a three-party deed of novation.
Two models dominate UK practice. Under an "ab initio" (or "switch") novation — the form used in the widely adopted Construction Industry Council (CIC) novation agreement — the consultant is treated as if it had always been engaged by the contractor, including for work carried out before novation. Under a "present" or "future-only" novation, the contractor takes on the appointment only from the date of novation. The difference matters enormously for liability, and therefore for insurance.
Why PI cover sits at the centre of it
The contractor is relying on the consultant's design. If that design proves defective, the contractor's route to recovery is a claim against the consultant — and the value of that claim depends almost entirely on whether the consultant carries live, adequate PI insurance. A well-drafted novation deed will require the consultant to maintain PI cover at a stated limit (commonly £1m, £2m or £5m each claim) for a defined period after practical completion, often 6 or 12 years.
PI is written on a "claims made" basis. The policy that responds is the one in force when the claim is made or a circumstance is notified — not the policy in force when the design work was done. That is why continuity of cover, and run-off cover if the consultant stops trading, is a contractual concern for the contractor, not just the consultant.
Novated design work about to start? Make sure your PI cover fits the appointment.
Get a PI quote →The fitness-for-purpose gap
This is the single most important PI issue in D&B novation. A consultant's standard duty is to exercise reasonable skill and care — the same standard as an ordinary competent member of the profession. A design-and-build contractor, however, often owes the employer a stricter "fitness for purpose" obligation: the finished works must actually work, regardless of how carefully they were designed.
Most PI policies cover liability arising from a failure to exercise reasonable skill and care, and expressly exclude liability assumed under a fitness-for-purpose or similar guarantee. If a novation deed or collateral warranty pushes a fitness-for-purpose duty onto the consultant, any resulting liability may fall outside the PI policy — leaving the consultant personally exposed and the contractor's recovery worthless.
Practical protection usually takes the form of a clause limiting the consultant's obligation to reasonable skill and care, so the appointment matches what the PI policy will actually pay.
Who owes what, before and after novation
| Point | Before novation | After novation |
|---|---|---|
| Consultant's client | Employer / developer | Main contractor |
| Who can sue the consultant | Employer | Contractor (plus warranty beneficiaries) |
| Standard of care | Reasonable skill and care | Same — unless the deed imports a stricter duty |
| Employer's direct route | The appointment itself | Collateral warranty / duty of care deed |
| PI cover to maintain | Consultant's own policy | Same policy, now protecting the contractor's recovery |
Collateral warranties and the employer's position
Once the consultant is novated to the contractor, the employer loses its direct contractual link to the designer. To restore a route of recourse, the employer typically requires a collateral warranty (or a third-party rights schedule) from the consultant. Funders, purchasers and tenants often require these too. Each warranty is a separate liability the consultant's PI policy must be able to support, and each should mirror — not exceed — the reasonable skill and care standard and the liability caps in the appointment.
Two clauses to watch: a net contribution clause, which limits the consultant's liability to its fair share where others are also responsible, and an aggregate cap on liability tied to the PI limit. Both keep the exposure aligned with the cover in place.
Telling your insurer — the duty of fair presentation
Under the Insurance Act 2015, a commercial policyholder owes a duty of fair presentation of the risk. A novated design-and-build role, extended contractual liabilities, unusual warranty obligations or a stricter standard of care can all be material to a PI underwriter. Consultants entering novation arrangements should disclose them at renewal or when the appointment is agreed, and read the policy for any exclusion or condition affecting D&B or novated work. Speak to a broker before signing the deed, not after.
A short checklist before you sign a novation deed
- Confirm the standard of care is limited to reasonable skill and care.
- Check the PI limit and maintenance period the deed requires against your actual cover.
- Watch for fitness-for-purpose, guarantee or warranty wording that your policy may exclude.
- Understand whether it is an "ab initio" or "future-only" novation — it changes your exposure for pre-novation work.
- Make sure collateral warranties do not exceed the primary appointment.
- Disclose the arrangement to your insurer to satisfy the duty of fair presentation.
Common questions
Does novation increase a consultant's professional indemnity risk?
It can. The consultant gains a new client (the contractor) and often several warranty beneficiaries, and D&B projects can carry stricter obligations. The core reasonable skill and care duty usually stays the same, but the surrounding contractual terms are what change the exposure — which is why the deed wording matters more than the fact of novation itself.
Can a consultant refuse to be novated?
In practice the original appointment normally obliges the consultant to accept novation on agreed terms, so it is contractual from the outset. The negotiable part is usually the wording — standard of care, liability caps and warranty scope — rather than whether novation happens at all.
What happens to PI cover if the consultant later closes down?
Because PI is claims-made, a dissolved firm with no live policy cannot respond to a later claim. This is why deeds require cover to be maintained for years after completion and why run-off cover matters. Contractors relying on a novated designer should confirm this obligation is in the deed.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.