A letter of intent is a document expressing an intention to enter into a contract at a future date without creating any contractual relationship until that future contract has been established, hence it is enforceable by the Courts in respect of both the act and the remuneration.
Such letters are intended to be temporary hence are operative only until the full contract is signed, hence the ‘letter of intent’ is a term of commercial convenience. In the construction industry it is often issued to express either the Client’s (sender) intention to enter into a full contract with the Contractor of the project or the Contractor’s (recipient) instructions to initiate limited preparatory works, material orders or to provide specific pre-contract services. They may also be issued as legally binding executory contract where the letter of intent is either an offer capable of being accepted or the acceptance of an offer.
A comprehensive letter of intent should address the following:
Client authorisation to the contract administrator to represent them.
Contractor’s acceptance of the offer and definition of the project.
The agreed contract sum.
Reference to the tender documents and subsequent changes (dated).
Instruction to proceed on a certain date and site possession date.
Contract completion date (including details of any phases).
A full description of the proposed form of contract, including warranties and performance bonds.
A fall-back date for signing the contract
Guidance as to whether the contract will be executed by Deed, under seal or under-hand.
Restriction of the work authorised by the letter of intent, by proceeding with which the contractor has fully accepted the terms of the letter of intent.
Terms and provisions for cancelling the letter and determining the works at any time prior to signing the full contract – specifically, the terms will limit the client’s liability for costs and exclude claims for loss of profit, opportunity, good will, indirect or consequential losses.
Insurance provisions and indemnification.
Agreement that there are no rights to assign the works.
Disputes resolution procedures.
Liquidated and ascertained damages to be applied to late completion.