1.22 Because the project had begun as a conventional procurement, the agreements between the FCO and the architect and the engineer made no provision for any third party to take over the FCO's client role. But given the eventual decision to retain the design under development by Michael Wilford and Partners, and for the requisite degree of risk transfer to the PFI to take place, the successful bidder would have to take on that role. To effect this a legal process known as novation was required. The FCO recognised that novation of the design development to Arteos would also act as a disincentive to the FCO to request changes to the Embassy design. Such changes had typically increased construction costs by a quarter on FCO projects managed in-house. This process was one factor in delaying the signing of the deal.
1.23 One of the FCO's conditions when appointing the supplier was that the supplier should achieve novation as soon as possible. They also stipulated that the supplier should employ the design team on the existing terms of their appointments. The supplier was in the event unwilling to accept the existing terms and wished to reduce the scope of the design team's services and, as a result, their fees. The design team resisted Arteos's revisions to the terms agreed under their contract with the FCO.
1.24 An agreement was reached that the FCO and Arteos would each pay the design team £50,000 for lost fee income and the design team would forgo a further £50,000. The FCO considers that this payment facilitated the novation of the architect's agreement at a difficult time and contributed to the achievement of novation in December 1997. In the FCO's view, the agreement of novation terms avoided later legal problems and achieved the right allocation of risk.