Explain and define what is meant by a Letter of Intent. In a building
construction contract, what are the circumstances under which it may be
issued, what may be its objectives and what are the principal matters that
it should contain?

 

A Letter of
Intent is a document that precedes the entering of a contract, and is used to
confirm the intention of one party to enter into a formal contract at a future
date. They provide no legal binding for either of the two parties involved. A
Letter of Intent can also incorporate in sufficient detail the terms of the
contract the parties intend to enter in the future, meaning that it becomes
fully binding once signed.1
A Letter of Intent, while not strictly legally binding, is still enforceable by
the Courts with regards to both the remuneration and the act. 

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It is
important to note that a Letter of Intent is not a Contract, rather a
Unilateral Agreement in which one party outlines an agreement, and confirms
their intention to enter into a Contract based upon this outline. The LOI must
contain an instruction to act and also a confirmation that a consideration will
be paid.

 

A Letter of
Intent may be supplied to the following ends:

·        
Formally declaring interest to work with a party.

·        
Allowing work to be undertaken quickly before a
fully binding contract is drafted, which takes time.

·        
Verifying complicated issues surrounding payments.

·        
Providing safeguards should a deal fail during
negotiations.

 

A Letter of
Intent is usually issued to the recipient when they are expected to be
incurring costs and overheads. They will always be inferior as a document to a
diligently negotiated and fully binding contract, but their main benefits lie
in allowing work to continue unimpeded while a contract is drawn up, describing
the expenditure of the project and liabilities of the involved parties in a
relatively rapid yet formal manner.

 

 

 

1.5       What are the
principal factors that determine the choice of a particular contract form and
an appropriate procurement route? Clearly explain all of the issues.

 

In order to
determine the Form of Contract, the project must be considered in terms of
time, cost and quality. The Client’s priorities in terms of these three factors
will lead to a specific procurement method. The Client is able to prioritise
two out of the three factors at the expense of the remainder. This is usually
represented in a ‘tradeoff triangle’ and surmises that:

·        
Fast and high quality is expensive

·        
Fast and cheap is low quality

·        
Cheap and high quality is slow

 

Other
factors, such as the Client’s control of the project, its size and value, and
complexity, may also interfere with the Client’s decision.

 

Where cost
is considered important, limitations must be placed on the expenditure of the
project. The accuracy of cost projections depends on the completeness of the
design and its drawings when tendered.

 

Where the
quality of the project is prioritised, the measure of quality must be clearly
defined as early as possible. Specifications are useful in this regard to
determine that a standard will be met upon the completion of the building.

 

Where time
is concerned, the procurement method must allow for all design issues to be
thoroughly considered before a contract is entered. Allowing the contractor to
source materials themselves permits construction to occur more rapidly, as does
overlapping detailed design phases with actual construction.

 

The construction
industry tends to use standardised forms of Contract, each appropriate to the
chosen procurement route. These are particularly useful to Architects as they
cover all the necessary legalities.

 

 

 

1.6       Clearly explain
all the processes that are followed in ‘traditional’ Design and Build
procurement leading to the appointment of a contractor. Clearly explain what is
meant by the term ‘Novation’ in this context.

 

In traditional Design and Build, the contractor is
responsible for both the design and construction aspects of a project.
There are two methods within this procurement route.

 

The first involves the Client consulting an architect in
order to produce an outline scheme complete with a performance specification.
This would be then used as basis for contractors to be invited to prepare a
tender, either through competition or following a pre-negotiated agreement.2 It
is up to the contractor to prepare Contractor’s Proposals using their own
design team, which should satisfy the performance specification supplied by the
Client. This would be submitted with a Tender offer. Should this be accepted,
the contractor is then responsible for all detail design development and
production document stages leading to the buildings completion.

 

Alternatively, the Client may employ a full design team
to prepare Work Stages A-E, ultimately producing the Employers Requirements: a
fully detailed design package which includes a specification. Contractors may
then submit tenders, and then be used to complete the design and construction
of the building.

 

1
Hawkswell Kilvington, Letters of Intent –
5 Key Questions, 2012, http://www.hklegal.co.uk/2012/06/26/letters-of-intent-5-key-questions/,
Accessed 06/01/18

2 NBS, Which procurement method?, https://www.thenbs.com/knowledge/which-procurement-method,
Accessed 08/01/18