Types of letters of intent

A sample form of letter recognising the existence of a binding contract is included in the related forms section.

Letters recognising the existence of a binding contract between the parties may be used to execute the contract before the formalities of copying, binding and signing the contract have been completed. Many standard forms of contract, such as the GC/Works family and those produced by the Institution of Civil Engineers (ICE), the New Engineering Contract (NEC) and the International Federation of Consulting Engineers (FIDIC), rely on similar letters as the main means of executing a contract. (Contact RICS Books to order these standard forms of contracts.)

A letter recognising the existence of a binding contract has similar effects to the execution of the contract itself. If the contract is repudiated after such a letter is in place, but before the contract itself has been signed, the employer will be liable for loss of profit by the contractor on the outstanding works.

When drafting letters recognising the existence of a binding contract, it is important to address the following:

• the parties;
• the contract documents;
• the nature and scope of the works;
• the contract sum;
• the dates for possession and completion;
• insurance of the works;
• third-party liability insurance in respect of the works;
• the superseding effect of the contract documents that are to be executed and how interim payments are to be taken into account;
• the authority of relevant individuals prior to execution of the formal contract; and
• the status of certificates and instructions issued before execution of the contract.