Assignment in Construction Contracts

Sophie Bennett, Associate Solicitor at Holmes & Hills Solicitors, breaks down what assignment in construction contract is and why it matters.

Assignment of construction contracts is an often-negotiated clause and an important one as assignment provisions can determine whether a development can be funded, sold, refinanced or restructured without delay or disruption.

What is assignment in construction contracts?

Assignment is the transfer of contractual rights (‘the benefit’) from one party to another. Crucially, it does not involve the transfer of contractual obligations (‘the burden’).

This distinction is particularly important in construction. The benefit of the promise to perform generally can be assigned, but the client burdens and liability cannot. That is why, in many construction projects, novation, rather than assignment, is required where the identity of the liable client party changes.

When assignment typically arises in live projects

In live projects, assignment most commonly arises in the context of:

• forward funding or forward purchase arrangements;
• funder security and step‑in rights; and
• group restructurings

How assignment works in practise

In each case, it is often more beneficial to move the benefit of contracts to another party without requiring wholesale contract re‑documentation, and instead using an agreement of assignment to transfer the benefit of all construction documents in one swoop. This is particularly useful for funding agreements where a huge suite documents will often be reassigned back to the original client on redemption of funding.

Where assignment has been tightly restricted or overlooked altogether, parties may find themselves forced into urgent novations, price renegotiations or project‑wide consent exercises at the worst possible time.

How standard form contracts treat assignment

UK standard form construction contracts generally take a cautious approach to assignment, with JCT and NEC contracts typically prohibiting assignment without consent. This is frequently amended in a schedule of amendments to at least carve-out free assignment to/from funders and companies within the client’s group.

Why clients amend assignment clauses

In practice, these amendments are made regardless of whether the project has or anticipates involving funding or planned disposals, just in case the client has no plan to do so but this changes suddenly or many years on from the initial deal.

This can put contractors and consultants in a position where they may not know where the benefit of the contracts they are entering or entered into lies. To mitigate this concern, contractors and consultants could request amendments such as:

• limiting assignment to defined categories (for example, funders or group companies);
• requiring objective conditions rather than unfettered discretion;
• expressly preserving guarantees and security on assignment; and
• ensuring consistency across the contractual suite, i.e. if the underlying agreement can only be assigned twice, ensuring that any ancillary documents such as warranties are also drafted the same way.

It is unlikely that the market will ever overcome assignment without consent (especially if such consent is limited in the number of occasions), given the importance of this flexibility for stakeholders and employers but, equally, contractors have to be able to manage their exposure to risk by having some control over the ultimate assignee.

How we can help

From the firm’s seven offices across Essex and Suffolk, our specialist Construction team provides services to clients which are based across the whole of the UK in addition to those across East Anglia, the South East and in London. Contact our team today.