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Letters of Intent

Pass Papers 2007 Q6 / 2010 Q6 Letters of intent are frequently used in the construction industry.

Discuss the issues which should be considered in deciding whether or not a document described as a letter of intent gives rise to an enforceable contractual obligation and, if so, what the extent of that obligation might be. (20 marks)

2008 Q1 You are employed by a construction company who have recently submitted a tender for the refurbishment of a large multistorey commercial office building. Your company receives the following letter: Dear Sir, Alterations and refurbishment of Anytown House, Blanktown It is our intention to accept your tender in the sum of 14,500,675.35 for the above works and we will, upon completion of the necessary credit checks, instruct our solicitors to prepare the contract for signature. In the meantime would you please arrange to order all necessary materials and procure all necessary sub contracts in order that work may commence without delay as soon as the contract has been signed. Would you also please carry out preliminary scaffolding works to the main elevations in order that a detailed inspection of the spalled concrete cladding may be carried out. Yours faithfully.

Advise your employer as to the possible contractual implications of the letter. (20 marks)

2007 Q6 / 2010 Q6 Letters of intent are frequently used in the construction industry. Discuss the issues which should be considered in deciding whether or not a document described as a letter of intent gives rise to an enforceable contractual obligation and, if so, what the extent of that obligation might be. (20 marks) A letter of intent is a document which is usually sent by an employer to a prospective contractor for pending contract that the parties are intending to enter. The letters of intent do not create always a contractual relationship between the parties. The objective of a letter of intent can therefore be described as an attempt to create a limited contractual liability pending execution of a formal contract. There is no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement; everything must depend upon the circumstances of the particular case. Various previous judgements support to identify this matter. In Turriff Construction Limited v Regalia Knitting Mills Limited (1971) judge considered that letter of intent is no more than the expression in writing of a partys present intention to enter into a contract at a future date. Save in exceptional circumstances it can have no binding effect... Further, A letter of intent would ordinarily have two characteristics: one, that it will express an intention to enter into a contract in future, and, two, it will itself create no liability in regard to that future contract. Accordingly, Judge was able to find that there was contract between the parties. (There is interim agreement)

In Monk Construction Ltd v Norwich Union Life Assurance Society (1992), letter of intent included an amount for the preliminary works up a certain extent and therefore judge considered that there is an interim agreement between the parties. In British Steel Corporation v Cleveland Bridge and Engineering Limited Company (1981) letter of intent stated that we are pleased to advise you that it is our intention to enter into a subcontract with your company, for the supply and delivery of the steel castings which form the roof nodes on this

project...we understand that you are already in possession of a complete set of our node drawings and we request that you proceed immediately with the works pending the preparation and issuing to you of the official from of subcontract. The judge has concluded that there was no contract was existence between the parties because true agreement or census ad idem. (No interim agreement)

In the same manner, In Kitsons Insulation Contractors Ltd v Balfour Beatty Buildings Ltd (1990) the judge has concluded that there was no contract was existence between the parties.

In summary, Letters of intent should be avoided if possible as it mostly leading for the conflicts between the parties. However, if this is not possible following should be included to in to the letter of intent as a minimum in order to make an interim agreement between the parties.

The terms and the scope works to be carried out A statement of one party intention to accept the other party intention to accept the others offer A limitation on the value of works A commencement date and duration A specific instruction to commence the works the works involved The letter will be superseded by the contarct The terms of payment The procedure for resolving dispute.

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