Financial Times Q&A on Letters of Intent

16/01/2010

By Chris Kirby-Turner, Solicitor in Construction. Featured in The Financial Times.

Q) "I am a contractor based in Kent and recently carried out work in a mixed use development. I have been involved in a dispute with a sub-contractor over extra work and extra costs which were not included in the initial Letters of Intent. Does the subcontractor have a claim against me?”

A) This will depend upon exactly what the letter of intent says. It may or may not say enough to be a legally binding contract. If it constitutes an offer, which has been accepted, and for which consideration has been given, there will be a binding contract. What will be key here is whether it sets out the original scope of work, the price agreed for it, and how variations are to be dealt with. 

Variations under a letter of intent often make for a difficult situation. If no procedure for dealing with variations was agreed, and nothing was agreed at the time specific extras were instructed, then your subcontractor is probably entitled to additional payment for the "reasonable" value of instructed extra works. I'm afraid there are no hard and fast answers as to what will be "reasonable", as it will all depend on the background of your particular project. 

If the letter of intent is not clear about what was originally included, it may be that, if you cannot reach agreement, the courts (or an adjudicator) have to resort to relying on a quantity surveyor's assessment of a fair value for all of the works actually undertaken.