T017 Contract Practice - Letters Of Intent Rics Apc

Front 1

What are letters of intent?

Back 1

Method of instructing the contractor to proceed with the Works before the contract has been formally executed

Front 2

In what circumstances might they be used?

Back 2

Where the employer needs to commence the works before a certain date

Where there are materials with long lead in times and it would aid the programme

Front 3

What is their purpose?

Back 3

Legally binding agreement until the actual contract is signed that allows work to commence while safeguarding the Employer’s rights

Front 4

What are the main elements of a letter of intent?

Back 4

State intended contract and amendments
State the intended contract sum
Clearly identify the scope of works – e.g. refer to the tender documents
State any limits on value / time / scope
State the procedures that apply to key issues – payment, termination, dispute resolution
State that contract will apply retrospectively
State the basis for calculating payment should the main contract not be executed

Front 5

Who issues it?

Back 5

The employer

Front 6

Who signs it?

Back 6

Both the employer and the contractor

Front 7

What are the advantages of a letter of intent?

Back 7

Allows work to commence before the contract is finally agreed – programme benefits
Provides more safeguards than just telling the contractor to start without one

Front 8

What are the disadvantages?

Back 8

May lead to complacency and dis-incentivise them to sign the main contract
Less robust than the main contract
You would not want the works to continue for very long without getting the contract signed

Front 9

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

Back 9

It is a legally binding agreement – like a contract – and we would NOT draft those
The PM / contractor / employer may have some standard terms they use
Legal advice should be sought

Front 10

Can you name a case law related to Letter of Intent?

Back 10

Turriff Construction Ltd vs Regalia Knitting Mills - Must show binding effect, i.e. contract sum (else just an intention)

Monk Construction Limited v Norwich Union - once 100k limit exceeded, terms of LOI no longer applied and Monk entitled to be paid reasonable sum for works actually carried out £4m