Is it safe to start work on a letter of intent?
It can be, but only once you have checked what the letter lets you do, what it caps and what it leaves out.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
If you are already working under one, see how to read a letter of intent like a contract and track its cap.
The answer
A letter of intent lets work start before the subcontract is signed. Its legal effect depends on its wording and on what happens next. So do not assume you will be paid above the cap, or that you have a right to stop work. Check the work it covers, how long it lasts, the cap, how the work will be valued and the payment terms. Check too what happens if the subcontract never arrives. Set the cap against what you will commit in the first weeks, not just what you will invoice. Then ask in writing for a higher cap or a signed subcontract before you reach the limit.
Example
Illustrative example. The scenario and figures are invented.
The facts
A subcontractor is working on a letter of intent with a stated cap. It has already spent money, and the next instruction needs further commitments before anything more is authorised.
What happens
- The subcontractor compares the cap with what it has already spent and what the next instruction will commit.
- It lists any work or period the letter does not cover.
- It gets the decision in writing before it commits any more.
The outcome
The subcontractor knows its exposure, in writing, before it commits more. Whether any excess can later be recovered is left open.
Checking the letter before you start, and setting the rules your team works to until the subcontract is signed, is our Letter of Intent Loss Prevention service.