When Letters of Intent Go Wrong: A Contract Administrator Perspective

The contract administrator on a construction project is the ‘coordinator and guardian of the client’s interests‘. She is critical in finalising the building contract.

In Ampleforth v TTPM the court reviewed her role and said that whilst the contract administrator was not under any absolute obligation to get the contract signed…

  • she must take steps ‘reasonably required’ to finalise the contract
  • she must realise that the contract is NOT a “dispensable luxury” [read more] so…
  • she must not issue repeated issue of letters of intent.

The judge’s view was that:

the very fact of completion of such a project under letters of intent is a mark of something having gone wrong—by no means necessarily on account of anyone’s negligence, but wrong nonetheless, because the intention and, in almost every single case, the outcome is that a building contract will be executed.

What can you, as contract administrator, do to stop letters of intent and their projects ‘going wrong’?

Focus on the necessary

The court criticised the project manager (acting as contract administrator) for its failure to

… focus on the matters that remained outstanding before a contract could be signed, to work urgently to resolve those matters one by one, to advise the [employer] of the need to ensure that a contract was signed, and to bring proper pressure to bear on [the contractor] and on the situation generally to that end. That pressure would include letting it be known that, possibly, the third letter of intent … or …a subsequent one for a short period would be the last and that the contract would have to be executed thereafter.

The court considered that the contract administrator should make ‘urgent and concentrated efforts‘ to address outstanding matters and get the contract signed.

Key tasks

  1. To bring matters to a head on the contract (not allow them to drag on) [109]
  2. To advise the client, or obtain advice, about the risks of proceeding under a letter of intent [110, 112]
  3. To advise the client that the longer the works continue under a letter of intent, the less incentive the contractor has to execute the contract [111]
  4. To advise when letters of intent are no longer appropriate [113]
  5. To identify the outstanding matters, how they are to be resolved and the timescales, in an action list [115]
  6. To hold relevant meetings to ‘thrash out’ the problems [116]
  7. To have a structured approach to outstanding matters [121]

In summary the court said the Contract Administrator  ‘should have advised the [employer] that its position would be properly protected not by letters of intent but only by a signed contract containing the liquidated damages provision and that suitable efforts should be made to procure such a contract.

What should you do?

If you do not carry out these tasks, you may be acting negligently, leading to claims for breach of your contract and claims on your insurance.

Case: Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC). References in square brackets are to paragraphs of the TCC judgment on BAILII.

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on LinkedIn
Share on pinterest
Share on Pinterest

Leave a comment