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Assignment vs Novation
A client once asked me:
“What exactly is assignment and novation?”
The interesting part was not the question.
It was when the question was being asked.
The contract had already been signed. The project had already moved forward. And by the time those words suddenly became important, there was already a dispute.
Only then did people start going back through the contract, clause by clause, trying to understand what had actually been agreed.
What was assigned?
What was novated?
Who had taken over which rights?
Who remained responsible for which obligations?
Who was supposed to pay whom?
And what happened to claims that already existed before the change?
This is something I have seen more than once in contract and claims work.
When a deal is moving smoothly, everyone’s attention naturally goes to the obvious commercial terms: price, scope, payment, completion date, variations and delay.
Then somewhere towards the back of the contract appear words such as:
Assignment. Novation. Notices. Waiver. Severability.
Boilerplate.
People skim them. Sometimes they assume the wording is standard. Sometimes the commercial team understands what they want to achieve practically, so they assume the contract must say the same thing.
Then a dispute happens.
Suddenly, nobody thinks the clause is boring anymore.
And someone eventually asks the question that would have been much cheaper to ask before signing:
“What does this clause actually mean for us?”
That is why assignment and novation are worth understanding in plain English, not after the lawyers are already arguing about them, but while everyone still has the opportunity to understand what they are signing.
Imagine This Project
Consider a developer that has already appointed Contractor A as its main contractor.
The project is underway.
Subcontractors have been appointed. Suppliers are delivering materials. Progress claims have been submitted. Variations have arisen. Work has already been certified and paid.
Then circumstances change.
Contractor B is brought in to take over substantial responsibility for completing the project.
Commercially, everybody understands what is supposed to happen:
B will take over and finish the job.
Documents are signed.
People return to the site.
Work continues.
But there is a question that should have been asked before any signature went onto the page:
What exactly is B taking over?
The remaining work?
The contractual rights?
The obligations?
Existing liabilities?
Outstanding claims?
Previous variations?
Subcontractors?
Retention?
Defects?
Delay exposure?
Or some combination of them?
This is where two seemingly boring words suddenly matter:
Assignment and novation.
They Are Not Different Words for the Same Thing
Assignment and novation are often mentioned together, which makes them sound similar.
The easiest way to understand the difference is this:
Assignment:
“I am giving someone else a right I have under this contract.”
For example, A is entitled to receive RM500,000. If that payment right is validly assigned to B, B may become entitled to receive or pursue that payment, depending on the contract, the assignment and applicable law.
But A cannot normally use assignment alone to say:
“B will now take over everything I promised to do, and I am completely out.”
That is a different situation.
Novation:
Think of it as changing the contractual deal itself.
Sometimes the same parties replace their old agreement with a new one. In other situations, one party is replaced by another.
For example:
Before: Developer ↔ Contractor A
After novation: Developer ↔ Contractor B
But this is where people need to be careful.
It does not mean you should automatically assume that every old claim, every liability, every variation and every payment issue has magically moved from A to B.
You still have to read what the novation agreement actually says.
That is the practical difference.
Assignment is mainly about transferring a contractual right or benefit. Novation changes the contractual relationship itself.
And in a live construction project, that difference can be worth a lot of money.
“B Has Taken Over” Still Doesn’t Answer the Question
Suppose B takes over a live construction project.
Six months later, B submits a substantial progress claim.
Someone disputes it.
B also says it has carried out millions in variation works.
Those are disputed too.
Now everybody starts looking at the documents.
B says:
“We did the work. We should be paid.”
But doing the work and establishing who is contractually obliged to pay for it are not necessarily the same question.
Who certifies B’s work?
Who approves the variation?
Who owes B the payment?
What happens if certification is refused?
Does B have a direct contractual right against the developer?
Does B have to pursue Contractor A?
What rights did B actually acquire when it took over?
What liabilities did it assume?
Suddenly, the clause that nobody spent much time discussing before signing becomes rather interesting.
The Project Did Not Start When B Arrived
This is another point that is easily underestimated.
An incoming contractor is not necessarily taking over a clean sheet of paper.
It is taking over a project with a history.
Before B arrived, there may already have been:
previously completed work,
outstanding progress payments,
unresolved variations,
EOT applications,
delay events,
defects,
retention,
performance bonds,
warranties,
insurance issues,
subcontractor claims,
supplier accounts,
instructions that were never properly documented,
and months or even years of correspondence.
So when someone says:
“B is taking over the project,”
the next question should be:
What happens to everything that happened yesterday?
What About an Existing RM5 Million Claim?
Imagine that before the takeover there is an unresolved RM5 million variation.
Who owns that claim afterwards?
A?
B?
Does it depend on when the work was performed?
Does it depend on when the variation was instructed?
Does it depend on whether the entitlement had already accrued?
Does the novation expressly transfer accrued rights?
What about liabilities?
Suppose defective work was performed before B entered the project but the defect is discovered six months after B takes over.
Who bears responsibility?
Again, the word “novation” by itself does not answer the question.
The actual agreement does.
That is why a properly considered novation needs much more attention than changing the name of Contractor A to Contractor B.
And Then There Are the Subcontractors
Large construction projects rarely involve only the developer and main contractor.
There may be dozens of subcontractors, nominated subcontractors, consultants and suppliers underneath the main contractual relationship.
If B takes over, what happens to them?
Are their contracts novated?
Do they remain contracted to A?
Who certifies their claims?
Who pays their retention?
Who is responsible for outstanding amounts from before B arrived?
What happens to warranties already given?
If a subcontractor has an existing claim against A, does it suddenly become B’s liability?
Not necessarily.
Again:
Read the documents.
This Is Why Due Diligence Cannot Mean “How Much Work Is Left?”
When a contractor is offered a major project takeover, the commercial opportunity can be attractive.
There may be substantial remaining contract value.
The employer wants the project moving.
Everyone wants the deal signed quickly.
But before B asks:
“How much money can we make from completing this project?”
there is another question:
“What exactly are we stepping into?”
That requires more than reviewing the remaining scope of work.
The incoming contractor should understand the main contract, novation arrangements, assignment provisions, payment mechanism, certification procedure, existing variations, outstanding claims, subcontract arrangements, retention, bonds, warranties, insurance, EOT position, delay exposure and dispute resolution mechanism.
It should also understand something even more basic:
How will we actually get paid?
Because a contractor can be perfectly capable of completing the physical works and still find itself in a very difficult contractual position when its claim is disputed.
“We Know What Everyone Means” Works Until Everyone Disagrees
At the beginning of a transaction, the parties often share the same commercial objective.
Get the project completed.
That common objective can create a false sense of security.
Everybody knows what “take over” means.
Everybody knows B will finish the project.
Everybody knows B should be paid.
So why spend days arguing over technical contractual wording?
Because contracts become most important when everybody stops agreeing.
Once there is a dispute over a progress claim or variation, the conversation changes.
It is no longer:
“We all know what we intended.”
It becomes:
“Show me where the contract says that.”
That is when assignment, novation, accrued rights, consent, certification and liability stop sounding like legal vocabulary.
They become money.
Boilerplate Does Not Mean Unimportant
This is something legal and contract professionals have warned about for years.
A Malaysian Bar discussion on assignment and novation specifically observed that people relying on boilerplate provisions may not appreciate the distinction between the two, and warned that misunderstanding them can lead to significant financial consequences. (Malaysian Bar)
Another Malaysian Bar commentary made the broader point that contractual clauses can appear routine when the agreement is signed, only to become critical once a dispute arises and the parties begin examining what rights and liabilities the document actually gives them. (Malaysian Bar)
That is precisely why the word boilerplate can be misleading.
Boilerplate usually means the clause is commonly used.
It does not mean the clause is commercially insignificant.
Assignment Can Determine Who Has the Right to Sue
Assignment itself deserves an article of its own.
Under section 4(3) of Malaysia’s Civil Law Act 1956, particular requirements apply to a statutory assignment of a debt or other legal chose in action. Where those requirements are satisfied, the assignment can transfer the legal right and associated remedies to the assignee, enabling the assignee to enforce the assigned right in its own name. (Malaysian Bar)
Think about what that means commercially.
The question is no longer merely:
“Was something assigned?”
It may become:
“Who now owns the right to bring the claim?”
That is why we will look at assignment separately in the next article.
Because once corporate restructuring, insolvency, shares, employees, creditors and third parties enter the picture, the supposedly simple word “assignment” can open an entirely different set of questions.
Before You Sign, Ask the Boring Questions
Most people naturally concentrate on the exciting parts of a deal.
How much is the contract worth?
When does work start?
How much profit can we make?
When will the project finish?
But some of the most valuable questions are considerably less exciting:
Can this contract be assigned?
Can my rights be assigned without consent?
Can another company replace the contracting party?
What requires novation?
What happens to accrued rights?
What liabilities am I taking over?
Who owes me money?
Who certifies my claim?
Who can I pursue if I am not paid?
Those questions can feel unnecessarily cautious when everybody is getting along.
They feel very different when millions are outstanding.
The Clause Everyone Skipped May Become the Clause Everyone Reads
That is the lesson I took from working with complex construction contracts.
A project takeover can look straightforward from the outside:
A leaves. B takes over. B finishes the project.
But contracts do not operate in three sentences.
Projects carry history.
Rights carry conditions.
Liabilities do not necessarily disappear because another contractor arrives.
And words that looked insignificant when the agreement was signed can determine who has the right to claim and who remains responsible years later.
So the next time you reach “Assignment and Novation” towards the back of a contract, don’t automatically assume you have reached the unimportant part.
You may have reached one of the clauses that matters most when things go wrong.
Boilerplate means commonly used. It does not mean consequence-free.
Don’t Wait Until a Claim Is Disputed to Read the Contract
Assignment, novation, payment, variation and liability provisions can significantly affect how a project is administered and how claims are pursued. LexMesos Solutions provides contract and claims support to help businesses understand contractual structures, identify risks and organise claim documentation before problems escalate.
Keywords: Assignment and novation in construction contracts, assignment vs novation, boilerplate clauses, construction contracts, contract takeover, contract and claims support, construction claims, variation claims, progress claims, contractual rights, contractual liabilities, accrued rights, subcontractor claims, contract administration, project takeover, construction dispute prevention and contract risk management
This article is for general informational purposes and does not constitute legal advice. Contractual rights and obligations depend on the specific wording of each agreement, the project circumstances and the applicable law. Where a matter requires formal legal advice or representation, appropriate legal counsel should be engaged.
19 September 2026