When to use letters of intent
All too often, conclusion of the formal contract documents become protracted, and the letter of intent is required to support obligations and liabilities for which it was not designed and for which it is largely inappropriate. Experience suggests that this scenario is often caused by a loss of focus on the need to conclude the contract documents during the early stages of the project (see Use of letters of intent and Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC)).
The advice of this author is that all forms of letters of intent should be avoided wherever possible. Where it is not possible to avoid the use of a letter of intent, their use should be minimised by diligently progressing the execution of the main contract.
The table below briefly sets out the circumstances in which each of the 3 types of letters discussed above can be used, if their use is unavoidable.
| |
Most suitable form | ||
| |
Comfort letters | Consent to spend | Recognition of contract |
| a. The contractor is being asked to extend the period for acceptance of his tender and he requires some comfort as to the employer's true intentions. | X | |
|
| b. Final negotiations are proceeding, but the contractor is to start work immediately | |
X | |
| c. All the documents and details have been finalised and the contractor is to start work while the documents are being copied, bound and signed. | |
X | X |
Note that unless a practitioner has been appointed to act as an agent for the client, the relevant letter of intent should be typed onto the employer's headed paper and signed by a duly authorised representative.
Collaboration agreements
Frequently, suppliers and purchasers will wish to create a long-term relationship covering a number of projects. They may wish to record the terms of this collaboration agreement in a form which is not legally binding but which can be referred to on future projects. A letter of intent is an ideal way of recording such an agreement. Such a letter can contain large pricing schedules or significant amounts of technical information, and future projects referring back to this letter of intent need not duplicate this.
Consultant appointments
An unfortunate trend in the use of letters of intent is their migration into the appointment of consultants. The appointment of consultants should be much less complicated than the conclusion of the principal construction contracts and the need to use letters of intent should therefore be greatly reduced.
Where a consultant is being appointed to complete some preliminary work in anticipation of securing work on the remainder of the project, that preliminary appointment should be completed with all of the necessary terms. Letters of intent should not be needed at all.