As David Chappell says:
it is difficult to think of any other cause responsible for more difficulties and disputes in construction contracts than the employer being in a hurry Construction Contracts Q&A, 2011
There are 3 approaches to letters of intent:
- Follow the guidance from eg the RICS, CIOB and APM and avoid letters of intent at all costs (the ostrich strategy)
- Recycle old documents and keep your fingers crossed that the content and the parties’ conduct does not result in a dispute (the hope strategy)
- Create simple and effective letters of intent that are quickly superseded by a full contract document (the success strategy).
The ostrich strategy
It is not negligent (according to the courts) to use a letter of intent, so why are you deciding it is not even an option to consider? The risks are not insurmountable (see below). There are other contractual mechanisms you could use e.g. a two-stage tender, or (if that’s too late) a pre-construction services agreement, or even an order for specific goods and works. Or you can change the contract programme to meet the delays caused by agreeing the contract.
The hope strategy
My research shows the majority of letter of intent users fall into this category… But hope is not a strategy.
Recycling letters when you have no idea whether they are ‘good to go’ or a ‘disaster waiting to happen’ is foolhardy at best and negligent at worst. Rate your letter of intent using my free checklist. One grateful user said it made him ‘look like a genius‘.
The success strategy
I recommend, based on my own and others research (including that mentioned below), using a simple temporary contract. This should maintain momentum on negotiating the full contract, while allowing limited services or works to start. Whatever document you use, the risks are minimised if you follow it up quickly with the full contract.
Simple: If your letter of intent needs to be created, negotiated and signed in a hurry then it needs to be simple. You can use an unamended standard form if you like!
Temporary: If you extend a letter of intent or allow it to rumble on, then it may become permanent (which is not its purpose). If you are happy to use a letter of intent then you should be prepared to terminate the contractor’s employment if they don’t sign (although as the Bailey paper says “it would be completely counter-productive to remove an incumbent contractor who has commenced what were considered critical works.”). Welcome to the cleft between a rock and a hard place!
Superseded: If you fail to get the full contract signed, then you are treating that contract as a dispensable luxury (which it is not).
What should you do?
Use letters of intent wisely and sparingly. If you need more information, watch my videos.
Ref: Unpublished masters dissertation by Russell Bailey of Faithful+Gould on letters of intent, referred to in my SCL paper D-195 and my book.
