Signed, Sealed, Misdelivered? All Award, No Reward? The Risks of Letters of Award and Intent in Construction

Letters of Award (LOA) and Letters of Intent (LOI) are common place in the Construction Industry. They can facilitate project commencement or give comfort to parties that the project is going to go ahead while the formal terms of the agreement are still being negotiated and formalised.  They are often also used as a mechanism to commence “early works”.

However, relying on a LOA or LOI can potentially expose parties to unintended consequences. Below, we outline the key concerns and provide practical strategies to mitigate these issues.

Uncertainty in Contractual Obligations

A LOA or LOI may not create a legally binding contract, particularly if the LOA or LOI explicitly states that the letter is “subject to the contract being negotiated and agreed.” While parties may intend for the letter to be non-binding, this intention can create uncertainty about whether (and what) enforceable obligations exist.

Absence of Key Contract Terms

Without the comprehensive terms typically included in formal construction contracts, parties relying on a LOA or LOI may encounter ambiguity in critical areas, such as:

Practical Steps to Mitigate Risks

To minimise risks associated with using a LOA or LOI, consider the following:

While LOAs and LOIs can facilitate project commencement and assist with commercial practicalities, the most effective approach is to finalise and execute a properly drafted construction contract before commencing substantial work. Each party is motivated to work together to resolve terms. This approach ensures clarity and mitigates risk for all parties. 

How can we help?

For specific advice regarding this article  please contact Isla McRobbie or a member of our Projects, Infrastructure and Construction team.

This article was written by Adam Spragg, Solicitor | Projects, Infrastructure and Construction