Letter of Intent

Question 1

What types of letters of intent are there?

Answer 1

1. ) Comfort Letter
2. ) Consent to spend
3. ) Letter of recognition (of a contract)

Question 2

What is a letter of comfort?

Answer 2

A letter used to create a morally binding but not legally binding assurance to the Contractor.

A letter used if there is for example a week delay until the design documents can be finalised (no allowance for spending though) to contractor put at ease.

Question 3

What is consent to spent?

Answer 3

A letter withinstructionsto proceed andconsent to spendallowsworkto proceed up to a certainvaluewhile thecontractitself is still being drafted. A letter which allows for a permitted sum to be spent, often for items on a long lead in or preliminary items.

Question 4

What is a letter of recognition?

Answer 4

Recognition of existence of a legally binding contract.

Question 5

When might your client use a comfort letter?

Answer 5

To reassure a contractor that you intend to enter into a contract in the future.

Question 6

When might your client use a permission to expend monies letter?

Answer 6

Items with a long lead in / design work.

Question 7

Who should draft a letter of intent?

Answer 7

Lawyer

Question 8

Who would issue a letter of intent?

Answer 8

Employer

Question 9

Is a letter of intent an appropriate substitute for a contract?

Answer 9

No - they can be drafted incorrectly and there is no case law to support.

Question 10

What information might you have to provide for your client’s solicitor for inclusion in a letter of intent?

Answer 10

1. ) Name of contractor,
2. ) Date to commence,
3. ) Date of expiry,
4. ) Total money to expend,
5. ) Scope of works,
6. ) Instructions to proceed,
7. ) Limit of liability,
8. ) Dispute resolution,
9. ) Insurances

Question 11

From your experience, what happens when the limit of a letter of intent has been reached in terms of money?

Answer 11

Contractorshould not incur anycostsin excess of any financial caps stated in theletter of intentwithout getting theemployersagreementbefore doing so.

Question 12

What caps or limits have been included in a letter of intent used on one of your projects?

Answer 12

1. ) Expiry Date

2. ) Monetary value

Question 13

Once your client has issued a letter of intent, does the contractor have to do anything if it is to be binding on the parties?

Answer 13

Sign it

Question 14

If you were asked to review a letter of intent for a client, how would you respond and why?

Answer 14

It is a legally binding agreement and I cannot draft it, legal advice must be sought.