Letter of intent

A letter of intent is a pre-contractual letter from a prospective principal notifying a prospective contractor (tenderer) that the principal intends to award the contract to the contractor. A letter of intent will generally not bind the principal to either proceed with the contract or to pay the contractor for work it does in reliance on the letter. It is merely the principal’s written intention to enter into a contract at a future date and subject to its specific terms has neither binding effect nor creates any liability in regard to the future contract (Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20). It does not amount to an offer that can be accepted by the contractor, since key terms remain to be negotiated (Abigroup Contractors Pty Ltd v ABB Services Pty Ltd (formerly ABB Engineering Construction Pty Ltd) [2004] NSWCA 181).

If work is undertaken due to a request in a letter of intent, then payment may be claimed for quantum meruit (reasonable remuneration) (British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504). See also Chapter 3 – Managing the main risks of tendering. Generally, no claim can be made for breach of contract, since there is no contract.

A letter of intent may create a binding contract where it includes the key terms and satisfies the elements of agreement including consideration, capacity, intention and formalities as described above (Diamond Build v Clapham Park Homes [2008] EWHC 1439 (TCC)). Terms as to payment for any work performed and the basis for payment may be included to rebut an assumption of entitlement to quantum meruit. It should also state that the terms of the letter of intent are to apply to the main contract work if no formal agreement is ever reached (Monk Construction Ltd v Norwich Union Life Assurance Society (1992) 62 BLR 107).