WHAT ARE THE MAJOR RISKS WITH USING LETTERS OF INTENT AND HOW CAN YOU AVOID THE PITFALLS?

Before you use letters of intent, you should understand their many risks. Here are 10 questions that can help you make an informed decision:

1. Is it ever ok to use a letter of intent? You could be negligent in letting a project continue under a letter of intent, especially if the employer doesn’t understand the risks. You should not use a letter of intent until the key project details have been agreed (works, time, cost and quality).
2. What’s wrong with letters of intent? Letters of intent have all the appearances of a contract but very little of the content!
3. Can you avoid letters of intent? You could
   1. Just say no and refuse to sign one.
   2. Adopt a two-stage tender process.
   3. Use an unamended standard form for minor works to cover the works needed NOW.

   What you really need is a letter of intent that is properly drafted, quick to agree, and user-friendly: my 500-Word Letter of Intent.

4. Why do disputes happen? A major problem is that as no-one knows what a letter of intent does, the partners are working under a misunderstanding: the employer thinks it is a merely a tool to speed up the project while the contractor thinks he has blank cheque to carry out the project.
5. What can be done to minimise the risk of disputes? These three things can help you avoid disputes:
   1. build better letters of intent.
   2. implement it to the letter.
   3. recognise that a letter of intent is merely the first stage in the contract negotiation process.
6. What’s the main risk in writing a letter of intent? Probably that you don’t even ask why you are using a letter of intent and so have no idea what to include.
7. What’s the main risk in using a letter of intent? A project contract is never entered into because the parties take their eye off the ball.
8. What happens if the main contract is not entered into? Either the employer terminates the letter of intent and throws the contractor off the project, or the project team could carry on regardless, with no clear idea of what contract terms apply.
9. How can you encourage the other side to enter into the main contract? First, you need to create a clear contract for a very limited works package.  Second, you need to focus your efforts on getting your partner to agree the project contract.
10. Why can’t you rely on the limits in your letter of intent? Generally, where those limits are exceeded, the contractor still gets paid for any works carried out.

Using a letter of intent is not a risk-free option. You can continue to gamble with your projects but please download my Checklist on Avoiding the Risks of Letters of Intent to help you sidestep their pitfalls. In my Webinar you can learn the five simple steps you need to follow to become a STAR letter of intent user.