Letters of Intent?

Question 1

What is a letter of intent?

Answer 1

• A letter from an employer to a contractor indicating intention to enter into a formal written contract.
• Typically asks the contractor to commence works before the formal contract is executed.

Question 2

What information is typically included in a letter of intent?

Answer 2

• Description of the works
• Contract sum (if agreed)
• Date of possession
• Date for completion
• Insurance provisions
• Method of payment
• Expiry date of letter
• Statement of employers right not to award the main contract for whatever reason.
• ADR method

Question 3

What are the advantages of a letter of intent?

Answer 3

• Allows work to commence before the main contract is signed.

Question 4

What are the disadvantages of a letter of intent?

Answer 4

• May lead to complacency and disincentivise both parties from signing the main contract.
• Contractually less robust than the main contract.

Question 5

Who issues the letter of intent?

Answer 5

• The employer

Question 6

In what circumstances might a letter of intent be used?

Answer 6

• Where the employer needs to commence works before a certain date.
• Early procurement of long lead items.

Question 7

Who signs a letter of intent?

Answer 7

• The employer and the contractor.

Question 8

What would you say if the client asked you to draft a letter of intent?

Answer 8

• As it is a legally binding document, I would inform the employer that I cannot draft a LOI.
• I would recommend that they seek legal advice.

Question 9

What are the different types of letter of intent?

Answer 9

Comfort Letter
- A letter expressing a party’s intention to act in a particular way.

Instruction to proceed with intent to spend
- Allows work to proceed up to a certain value while the contract it being finalised.

Recognition of contract
- A letter of acceptance. Issued once contract has been substantially agreed and marks completion of negotiations.

Question 10

Are you aware of any case law relating to letters of intent?

Answer 10

Ampleforth Abbey Trust v Turner and Townsend
- PM on new build accomodation at a school responsible for procurement of contractor and building contract.
- Contractor never signed a contract and the whole of the works were procured using LOIs.
- Resulted in employer being unable to claim LDs for late completion.

The defendant was found negligent in failing to take steps for the purpose of finalising building contract between employer and contractor.