Can you avoid letters of intent?

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…

Strategic

If the client wants the contractor to assist with project planning, it may need a legal agreement to engage the contractor early. There are various options to do this:

• linked agreements – provided the contractor diligently completes the services/works in the first agreement, it will automatically become engaged under an agreement for the full project
• separate agreements – here the diligent completion of the first agreement is independent to the full agreement, and there are no guarantees eg two stage tendering, management-based contracting
• a single conditional contract – provided specific conditions are met, by either or both parties, then a pre-agreed full contract will become unconditional and binding.
  

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. Although letters of intent can be part of a successful contract strategy, it is only where they are strictly limited because there are processes to ensure they become the full contract in very short order.

Tactical

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:

1. 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.
2. 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.
3. 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.

What should you do?

If you really must, then use a simple, effective, temporary  contract that won’t allow contract completion to drift. If you need more help, grab my free LOI resources or my book on How to Write Simple and Effective Letters of Intent in Just 500 Words.