What is each mechanism?
Novation substitutes a party: the outgoing party’s obligations end and the incoming party’s begin, by tripartite agreement. Assignment transfers rights, typically the right to be paid, without necessarily transferring obligations; the assignor usually remains on the hook for performance. Step-in gives a third party (a financier protecting its security, or the buyer protecting service continuity) the right to assume performance temporarily or to appoint someone who will. Different acts, different paperwork, different consequences for who you answer to.
Collapsing them is the standard error. “The buyer can assign the contract” and “the buyer can novate the contract” describe different futures for your counterparty risk, your security arrangements, and your right to object. Read which verb the clause uses, then read what it attaches.
The consent and responsibility map
- Whose consent. Yours, the buyer’s, the financier’s, and whether consent “must not be unreasonably withheld” or is absolute.
- Which counterparty. Assignment to a related body corporate is a different risk from novation to an unknown buyer of the buyer’s business.
- What survives. Accrued rights, security instruments, guarantees: do they follow the contract or die with the party?
- Who performs during step-in. And who pays, who directs staff, and what happens to liability for the step-in period.
- Subcontractor mirror. Whether your own supply chain carries matching provisions; read with subcontracting restrictions.
Where does this bite hardest?
Privatisation-era buyers, machinery-of-government changes, and merger-active sectors: anywhere the named buyer may not be the buyer in year three. Financier step-in bites on asset-heavy and project-financed delivery, where your performance security may answer to a party you never tendered to; read with bank guarantees and retention. Panel and syndicated arrangements add their own transfer mechanics on top.
This page maps the reading; it does not state legal consequences for your contract. Where a transfer clause would change the call, that is named legal review with a date; the governing law and the clause text go to counsel together.
What does this mean for the bid/no-bid call?
A contract freely novatable to any buyer successor, with security following the paper, is a counterparty risk you cannot diligence today; price the uncertainty or qualify the clause. Step-in without payment protection for the step-in period is unfunded performance; same treatment. The summary flag is on red flags in an RFT.