Most letters of intent start with the all too familiar words “….it is our intention to enter into a contract with you for….”. If this is all the letter says then, as far as a contractual obligation to pay you is concerned, it doesn’t amount to much. It is simply what it says on the time, i.e. an expression of an intention to do something in the future is simply not binding on a party.

A binding letter of intent should be clear and concise bout telling you what your client wants from you and what you may expect in return. Never assume anything. If the letter of intent does not confirm a right, that right simply does not exist.

An example being the right of a Sub-contractor to receive interim payments as the work proceeds but, without such a provision being incorporated in to the letter of intent, there is simply no entitlement to interim payments?

What documents and drawings are you working to?  What if you end up in dispute? What if the contract is cancelled? Where do you stand? All very real examples as to how things can quickly spin out of control so easily?

If you have to take risks, but wish to avoid a financial disaster, I would urge you to take some basic precautions.

To have any chance whatsoever of enforcing payment for work done under a letter of intent, as an absolute minimum, the letter of intent should address all of the following features:

  1. A clear instruction to proceed with a clearly defined scope of work, to a clearly defined standard or specification, drawing(s) etc.
  2. Confirmation of how you are to be paid and when payments are to be made.
  3. A mechanism for providing you with monthly interim payments as the work proceeds
  4. Confirmation that if a contract is not concluded, for whatever reason, how the sum you are entitled to be paid is calculated and when payment of any final balance due to you will be made
  5. A provision allowing you to refer a dispute, arising out of or in connection with the letter of intent, to adjudication adopting the rules contained within the Scheme for Construction Contracts (EnglandandWales) Regulations 1998.

 

If the letter of intent is missing any of these fundamental provisions, you might want to consider your position and question whether working under the proposed arrangement is really such a good idea.