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A construction letter of intent is an informal agreement between a construction contractor and a client that outlines the services the contractor will complete on a project. This document serves as a placeholder until a finalized legal contract is drafted. The letter contains non-binding provisions such as the contractor’s tasks and duties, the compensation they will receive, and the location and commencement date of the project, as well as binding sections concerning the intent of the parties and dispute settlement.
Contents |
When to Use an LOI
A letter of intent is used in the construction industry when a project needs to be started or completed by a certain date but the parties still need to negotiate important terms. Before signing a final contract, a client and their hired contractor will draft this letter with proposed terms, such as timeline and payment amount, so construction can commence.
Ending the Arrangement
A construction letter of intent is mostly made up of non-binding provisions that can be altered or removed in the final agreement if necessary. If either party wants to end the working relationship, they can usually do so without any real consequence.
If the contractor has already spent time and money on the project, they may still have the right to seek payment from the client. The client’s failure to make a payment could result in mediation, arbitration, or litigation, and the contractor may be owed damages for their work and costs related to legal services.
Enforceability
In order for a written agreement to be binding, it must contain all the material terms and conditions of a legal contract. Letters of intent are generally not used to legally bind the parties to a working arrangement.
These forms are drafted to show that the contractor intends on providing their services on a construction project even if some of the details haven’t been ironed out. Therefore, a letter of intent will contain enough provisions to allow construction to start while leaving certain key sections out so neither party is legally bound to the working relationship.
Essential Clauses
Party Information
The names and addresses of both the client and the construction contractor should be entered into the form.
Services
The work to be completed by the contractor should be clearly relayed in the letter so there are no disputes later on.
Compensation
A letter of intent should include the amount of money the construction worker will receive and the payment method that will be used.
Completion Date
A timeline of the portion of the project that the contractor will be working on should be described in the letter.
Intention of the Parties
This clause defines the relationship between the parties and affirms that most of the terms will be negotiated in good faith (i.e., not legally binding) until a finalized agreement is created.
Governing Law
In case a dispute does arise between the parties, the section pertaining to governing law establishes which county and state laws will apply to the mediation, arbitration, or litigation that is pursued.
Signatures
In order to secure the legally binding provisions, and to prove that both parties read and understood the letter of intent, the client and contractor will sign and date the letter.
Sample
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CONSTRUCTION LETTER OF INTENT
Date: [DATE]
[SENDER NAME]
[SENDER STREET ADDRESS]
[SENDER CITY, STATE, ZIP]
[RECIPIENT NAME]
[RECIPIENT STREET ADDRESS]
[RECIPIENT CITY, STATE, ZIP]
RE: [SUBJECT MATTER]
This Letter of Intent (the “Letter”) sets forth the proposed terms and conditions of the Services described hereunder and shall govern the relationship between the Client and Contractor (the “Parties”) until replaced by a definitive, formal agreement addressing the same services and subject matter (the “Definitive Agreement”). The Services considered in this Letter and in the Definitive Agreement are subject in all respects to the following:
1. THE CONTRACTOR. [CONTRACTOR NAME] (the “Contractor”) with a mailing address of [ADDRESS].
2. THE CLIENT. [CLIENT NAME] (the “Client”) with a mailing address of [ADDRESS].
3. THE SERVICES. The Contractor agrees to provide the following services: [DESCRIBE SERVICES] (the “Services”).
4. COMPENSATION. Payment shall be made to the Contractor as follows: [ENTER COMPENSATION AMOUNT].
5. PAYMENT METHOD. The Contractor shall be paid, in accordance with Section 4, in the following manner: [ENTER PAYTMENT METHOD DETAILS].
6. LOCATION. The Contractor shall perform services for the Client at the following primary location: [PROVIDE LOCATION INFORMATION] (the “Location”).
7. START AND END DATE. The Contractor shall start providing the Services on [START DATE] and the Services shall be completed by [COMPLETION DATE].
8. INTENTION OF THE PARTIES. This Letter sets forth the intentions of the Parties to use reasonable efforts to negotiate, in good faith, a Definitive Agreement with respect to all matters herein. Notwithstanding paragraphs 8 through 10, which shall be legally binding, any legal obligations with respect to all other matters shall only arise if and when the Parties execute and deliver a Definitive Agreement.
9. GOVERNING LAW. This Letter shall be governed by the laws of the State of [STATE NAME].
10. SIGNATURES.
Client Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [CLIENT NAME]
Contractor Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [CONTRACTOR NAME]