vol. iv issue no. 6

1. Volume IV Issue No. 6
The Global Leader in Managing Construction Risk
Letters of Intent
A Letter of Intent is a document often pending the preparation and issuing to request to pay a reasonable sum for such
sent before entering into a Contract. you of the official from of subcontract”. work as has been done pursuant to that
Indeed, what constitutes a Letter of request’.
Returning to Judge Fay’s definition, the
Intent is perfectly summed up by Judge
letter sent by Cleveland certainly sets out In summary, Letters of Intent should be
Fay in the case of Turriff Construction
the intention to enter into a future avoided if at all possible. However, if this
Limited v Regalia Knitting Mills Limited
contract. is not possible and to avoid any mis-
[Queens Bench Division (1971)] who
interpretation they should include the
considered a Letter of Intent to be: No contract came into existence and
following as a minimum:
British Steel found themselves faced with
”.. no more than the expression in writing  the terms and the scope of
the possibility of receiving no monies for
of a party’s present intention to enter into works to be carried out;
the works they had executed.
a contract at a future date. Save in  a statement of one party’s
exceptional circumstances it can have no Now one must ask whether this would intention to accept the other’s
binding effect..”’ represent one of the exceptional offer;
a Letter of Intent is usually sent by an
circumstances referred to by Judge Fay in  a limitation on the value of
that British Steel’s acceptance and works;
Employer to a prospective contractor and
pending such contract being signed and
subsequent actions upon receipt of the  a commencement date and
Letter of Intent from Cleveland had duration;
entered into, asks for certain
created a binding agreement between the  a specific instruction to
arrangements or works to be carried out.
parties. commence the works involved;
The objective of a letter of intent can  the letter will be superseded by
therefore be described as an attempt to Judge Goff in the Cleveland case had this the contract;
create a limited contractual liability to say about letters of intent:  terms of payment; and
pending execution of a formal Contract.  the procedure for resolving any
”There is no hard and fast answer to the
One often quoted example of a Letter of question whether a letter of intent will dispute
Intent being accepted and acted upon by give rise to a binding agreement; - Michael Jolly, Associate Director
the contractor as a request for certain everything must depend upon the
of Hill International, Inc.
works to be carried out is that found in circumstances of the particular case”.
British Steel Corporation v Cleveland
Bridge and Engineering Limited Company From the observations of both Judge’s
[Queen’s Bench Division (1981)]. views; what is of importance is whether
or not the parties intended to create legal
The facts of the case were relatively
liability.
simple. Cleveland was constructing a bank
in the Kingdom of Saudi Arabia and was in
Judge Goff’s view in the Cleveland case
negotiation with British Steel to supply
was:
certain steel nodes. On 21 February 1979,
‘Both parties confidently expected a
Cleveland issued a letter of intent to
formal contract to evaluate. In these Hill International, with 3,200
British Steel instructing them to employees in 110 offices
circumstances, to expiate performance
commence works, in recognition that a worldwide, provides program
under that anticipated contract, one
contract had still to be finalised. management, project management,
requested the other to commence
construction management and
contract work, and the other complied construction claims and consulting
The Letter of Intent stated:
with that request. If thereafter, as services. Engineering News -
‘’we are pleased to advise you that it is
anticipated, a contract is entered into, the Record magazine recently ranked
our intention to enter into a subcontract
work done as requested will be treated as Hill as the 11th largest
with your company, for the supply and
having been performed under that construction management firm in
delivery of the steel castings which form the United States.
contract; if contrary to their expectation,
the roof nodes on this project...we
no contract was entered into, then the
understand that you are already in For more information on Hill,
performance of the work is not referable
possession of a complete set of our node please visit our website at
to any contract the terms of which can be
drawings and we request that you www.hillintl.com.
ascertained, and the law simply imposes
proceed immediately with the works
an obligation on the party who made the
David Brodie-Stedman David Merritt
Disclaimer: This article does not constitute advice, legal or
Senior Vice President & Managing Director Senior Vice President & Managing Director otherwise, and is provided only as general
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