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LETTERS OF INTENT AND LEGAL ISSUES RELATING TO THEIR USE

International Construction Law Review

LETTERS OF INTENT AND LEGAL ISSUES RELATING TO THEIR USE JEREMY COGGINS School of Natural & Built Environments, University of South Australia, Adelaide I. INTRODUCTION Letters of intent have been, and still are, a common occurrence in the construction industry as a mechanism by which to initiate works prior to the signing of a formal contract document. Although the forms and wording of letters of intent are numerous and varied, they all essentially indicate one party’s intention to award a contract to another party at some time in the future. Lake and Draetta 1 define a letter of intent as “ … a precontractual written instrument that reflects preliminary agreements or understandings of one or more parties to a future contract”. For example, typical wording used may state: “As soon as matters outstanding between us are settled, we will enter into a contract agreement with you, and in the meantime please accept this letter as an instruction to proceed with the work necessary to permit you to meet the agreed programme.” 2 Where letters of intent arise on construction projects, they are written and acted upon during the period between the submission of a tender for construction works and the signing of the formal contract for the works. Letters of intent are typically issued either by: (1) an employer to a head contractor; or (2) a head contractor to a subcontractor or supplier. 1. Letters of intent from an employer to a head contractor An employer in the construction industry typically procures works on the basis of a competitive tendering system. This involves an invitation to tender being issued by the employer to a short list of contractors who subsequently submit their tenders to the employer by a specified deadline. The employer’s invitation to tender will usually make reference to a proposed set of contractual documents, including plans, specifications, contractual terms (often by reference to an industry standard form) and, sometimes, bills of quantities to which the employer wishes the successful contractor to be bound upon the award of the contract. 1 R B Lake and U Draetta, Letters of Intent and Other Precontractual Documents (Stoneham, Mass: Butterworths, 8th ed., 1989) at p. 5. 2 Trollope and Colls Ltd v. Atomic Power Construction Ltd [1963] 1 WLR 333 (“ Atomic Power ”) at 335. [2006 The International Construction Law Review 356

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