Developers – Why you should start construction with more than just a letter of intent.

The NBS “National Construction Contracts and Law Survey 2012” has reported that a whopping 40% of construction projects start without a proper contract being in place. Since contracts do not need to be in any particular form, many of these projects probably start under a letter of intent.

Letters of intent are letters from the employer (or his representative) sent to the contractor before a full contract has been signed. The letter typically asks the contractor to start work on the project immediately in order to meet the project’s planned timescales, and state the employer’s intention to enter into the full contract later – giving them their name.

Property Aspects Magazine spoke recently to Sarah Fox, a construction lawyer-turned-creative legal trainer. Sarah is also a director of Enjoy Legal Learning.

Her FREE 10 point guide for developers and construction companies is available via email (see below).

Sarah commented: “Letters of intent are like UFOs – most people in the construction industry can identify them easily enough, but nobody really understands them. Not just the lawyers, I mean other construction professionals too.”

She continued: “Letters of intent are short, often no more than 4 pages long, and as a result are ripe for misunderstanding and confusion. In practice, they create two main problems for construction companies. One is, if you don’t know whether your letter of intent is a contract, how can you tell what your duties and obligations are? What does the employer actually have to pay? When is the contractor’s work finished? Even worse, if there is no contract, then the employer cannot recover LADs, there is no defects period and the contractor cannot claim for disruption.

The second problem is, because they are brief, many letters of intent don’t contain enough terms and conditions to cover what necessary to carry out complex construction works. So they might be added to by what are known as implied terms, from cases and also by laws, such as the Scheme for Construction Contracts (as recently amended). If you don’t know what your letter of intent actually requires of you, how can you carry out your role properly?”

“At best, letters of intent result in confusion and, at worst, breach of express and implied terms.”

Sarah concluded: “Letters of intent are often described as a necessary evil. In an ideal world, letters of intent shouldn’t be used at all, unless you want to keep your lawyers busy! If speed is critical, it’s better to relax your timescales than have to rely on a letter of intent. But when you do use them, for everyone’s benefit make sure you get the full contract signed as soon as possible.”

FREE 10 point guide to Making Letters of Intent work for you

Sarah has been Highly Commended in the SCL Hudson Prize competition in 2011 for papers on construction law. She has prepared a handy 10 point guide to help make letters of intent work for you. Please email your request to Sarah via: sarah@enjoylegallearning.co.uk