A talk on letters of intent in construction

1. Francis Ho, Head of Construction | Tuesday, 1 September 2015
francis.ho@olswang.com | +44 20 7067 3505 | @fkyh
Construction Law Masterclass Series 2015
Letters of Intent: Tips and Tactics

2. |
Types of Letter of Intent
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20152
•LOI is non-binding (“gentlemen’s agreement”)
•LOI is partially-binding (e.g. confidentiality and lock-out provisions)
•LOI is fully-binding (final Contract documents agreed but not yet
assembled)
•LOI is fully-binding (certain terms or provisions of final Contract yet to
be agreed)

3. |
Non-binding and partly-blinding LOIs
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20153
Non-binding:
• “Agreement to agree”–not legally enforceable
• Contractor only entitled to reasonable (quantum meruit) sum
• Parties not able to enforce other terms
• Take care when LOI not intended to be legally binding
Binding:
• If detailed provisions are included, more likely to be binding
• Certain key provisions (e.g. confidentiality or lock-out) more like to be enforceable
• Draft clearly to be binding

4. |
Binding LOIs
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20154
Two types:
Contract agreed but not yet assembled
• Less common –parties usually go straight to Contract
• Tends to be used when Contract documents substantial/complex
Aspects of contract still to be agreed
• Much more common in construction industry
• Relies on parties proceeding in good faith and agreeing issues once works are
commenced

5. |
Binding LOIs: What should you do? #1
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20155
• Express clear in intention to create binding LOI
• Define scope of works (part/whole of full Contract works)
• Define basis of payment, including any ceiling on price
• State standards of design/workmanship expected
• Include time limits for performance
• Include constraints/provisions for entering into commitments with sub-contractors
• Include practical provisions following termination (e.g. demobilisation)
• Set out clearly those parts of full Contract still to be negotiating and agreed
between parties (note Twintec Ltd v Volkerfitzpatrick Ltd [2014])

6. |
Binding LOIs: What should you do? #2
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20156
• State in LOI that:
• LOI falls away
• Contract supersedes LOI in its entirety
• Contract applies retrospectively to cover LOI works
• What happens if Contract not signed?
• Respective liabilities of the parties
• Longstop date
• When Contractor can stop work
• How payment calculated
• Insurance obligations
• Individuals with authority to issue instructions
• Execution by both parties (to be binding)

7. |
LOIs: What you should not do
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20157
•Beware when incorporating a number of documents by
reference which may conflicting provisions
•Do not treat LOI as full Contract
•Do not delay in completing Contract
•LOIs are a last resort but often necessary on many projects
to avoid delay –legal advice should be sought in putting
them together

8. |
Forms of LOI
constructiveblog.comConstruction Law Masterclass | Letters of Intent: Tips and Tactics | 1 September 20158
•Primary standard form is City of London Law
Society’s Standard Letter of Intent (published 2005)
•Can be awkward to use
•Out of date –second edition proposed in 2015/16
•Generally LOIs several pages long but seldom
negotiated