Most of the time, LOIs are treated as a non-binding agreement between two parties. LOI gives prefatory commitment of one party to do business with another party. Letter of intent can be issued in the recruitment process (when an organization is willing to recruit new employee, they can issue an LOI for employment).
But in a good LOI should describe the following things to minimize the disputes between both parties.
Effective Date: ________________________________________________
Letter of intent to construct ( ______________________ )
We (Issuers company name) issued this letter expressing our intention to award the contract for the construction of the (______________project name) at (____________Location) to you. Herewith, You are advised to proceed on the following work immediately, all under the quotation (quotation ref) you submitted on (date of the quote).
Work should be executed accord with the building permit drawings dated and the Specifications dated as prepared by . This letter will form an interim agreement between and until the ongoing negotiations have concluded with either a formal contract.
1. The Contractor : ______________________ (“Contractor”).
2. The Client : ______________________ (“Client or Main contractor”).
3. Work scope : Contractor agrees to provide the following services/ any other exclusion etc:
4. Payment terms : Main Contractor/Client shall pay the Contractor the following:
$______________________ for the Services (“Payment”) as per the submitted quotaion ( Quotaion reference).
5. Work commencement Date : Contractor shall be permitted to commence the Services on ______________________ 20____ (“Commencement Date”).
6. Work Completion Date : Contractor should be complete the works or services on ______________________ 20____ (“Completion Date”)
7. Governing law _____________________________________
We (contractors name) here by agreed to all terms and conditions above on this and agreed to carry out works as mentioned above.
Contractor’s Signature ______________________ Date ______________________
Authorized signatory ______________________
MAIN CONTRACTOR/ CLIENT
Signature ______________________ Date ______________________
Authorized signatory ______________________
As per Below case between Tesco vs Costain (1980) clearly shows, why Letter of intent in construction without the above vital points can lead to disputes. Tesco has issued a Letter of intent to costain to build a new store. The LOI is stating that costain should be carried out the works as a Design & built work based on the Tesco standard. Costain is completing the project without any other formal contract except the LOI mentioned above.
After some years suddenly fire broke out in the building. And Tesco is claiming that Costain’s incompetence design measurement is the reason for the incident.
But Costain is pointing out that since there is no formal contract during the construction, they were not responsible for these excess damages. However, the Court has decided that the sign LOI as a contract between the parties. But this did not extend to Costain having liability for the designs subsequently produced.
Therefore what we suggest without searching in the LOI sample or Letter of interest sample on the internet, it is better to concentrate on the above key points whenever you are issuing an LOI
Need more insight? or Bored in reading about the Letter of intent in construction-check this Youtube video by Howcast
