Category: Contracts & management
Prepared by Eng. Ahmed Fathy, Projects Manager ·
Definition
A letter of intent is sent by the owner to state the intention to award the project to a contractor, and may allow limited works up to a capped value until the contract is signed. It differs from the letter of award, which accepts the tender.
Why it matters on a project
It speeds up the start, but working on a vague letter that does not set value, scope and payment if the contract is never signed exposes the contractor to loss.
Common mistake
Starting full procurement and works on a letter of intent with no cap, then the project is cancelled before signing.
Frequently asked questions
Is a letter of intent binding?
It depends on its wording; it may oblige the owner to pay for work done up to the cap.
What should the letter state?
The permitted scope, the maximum value and payment if the contract is never signed.
Related terms
- Letter of awardThe letter that tells the contractor his offer is accepted.
- Notice to proceedThe formal notice telling the contractor to start work.
- Tender evaluationComparing contractor offers technically and commercially to choose the best.
- Advance paymentAn amount paid to the contractor at the start and recovered from payments.
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