Whether you can avoid a letter of intent depends on where you are in the contract process – are you at the stage of deciding your contract strategy or are you about to start the construction phase? It can either be a strategic or tactical decision…
If you would like to involve the contractor (or the supply chain) in planning the construction phase, adding buildability, value engineering or risk management services, then your strategy should include a suitable contractual matrix. This means entering into agreements with the supply chain so the client pays for pre-construction services before the full construction contract is agreed. Those services will define what the full contract says about risk, price, design, methods etc.
The contractual choice for the client is between:
- linked agreements – where the diligent completion of the first agreement will inexorably result in the execution of the full agreement eg collaborative working arrangements
- separate agreements – where the diligent completion of the first agreement is entirely separate and independent of the full agreement eg two stage tendering, management-based contracting
- a single conditional contract – where meeting specific conditions, by either or both parties, will result in the full contract becoming unconditional and operational.
A letter of intent can meet any of these options, depending how it is drafted. But it is not the normal (or wisest) use of a letter of intent. I have never yet advised a client to plan for a letter of intent as part of their project strategy!
David Mosey (author of PPC2000) said the delay in signing a full contract is
a depressing convention of any construction procurement process
If agreeing the full contract for the project is likely to be delayed due to eg planning conditions, approval of grant funding bodies, late design information that needs pricing and so on, then there are three alternatives to a letter of intent:
- You could just say no and refuse to sign one. As 2/3 of UK construction projects are delivered late, using a letter of intent is no guarantee that your project will finish on time. Tip: get the full contract agreed instead and start work once that contract is signed.
- You could use a standard form to cover the initial works only. This type of contract is cleaner and simpler than a letter of intent, as well as being easier to price. Tip: adopt an unamended standard form for minor works, and don’t issue lots of variations.
- You could ask the contractor to proceed at risk, without any promise of payment or guarantee of future work. This is rare in the UK. Tip: if you want to know whether this is better than a letter of intent, watch this video.
But letters of intent are not that easy to avoid. If you really must, then use a properly drafted, quick to agree, and user-friendly letter of intent. My free version is available here.
If you want to know how to build a better letter of intent, use it properly, and avoid the pitfalls then my video-series will help.