Can contractor proceed with Letter of Intent

Haresh,
Be careful entering into the obligations using letter of intent. Is it binding or non-binding? If the client failed to comply on the letter of intent then contractors can dispute what is stated on the letter of intent. There is no substitute for the certainty gained by entering into a formal contract that fully sets out the parties’ rights and obligations and using a letter of intent is a potentially risky business. Parties should pay careful attention in drafting the letter of intent to ensure that it properly reflects their intentions; once the letter is signed, equal attention should be given to finalizing the formal contract.

Below link are good reading materials in regards to letter of intent.
Asian Projects and Construction Update
Letter of Intent

Dear Haresh,

It depends on the Conditions of Contract of course. If you are using FIDIC RED book, then you can revert to Clause 8.1. It will clearly state that the Commencement Date Shall be within 42 days from the receipt of Letter of Acceptance.

Of course you have to base your letter on the Conditions of Contract.

With kind regards,

Samer

Hi Haresh,

The commencement of Works shall be within 42d from receiving the LOA but in case there is no LOA, then the expression means the Contract Agreement and the date of issuing or receiving the Acceptance means the date of signing the Contract Agreement

Hence, if there is no LOA (FIDIC 99 doesn’t mention the expression LOI) then the commencement should be defined from the Contract Agreement signing date.

Karim

Hi Haresh

All replies assume that you are working on FIDIC but you have not confirmed this.

A binding contract can be written (or spoken) in three lines.

Offer - Acceptance - Payment terms (sometimes known as consideration)

So a letter of intent can be as simple as that.

But the intention part is that some time in the future a formal contract will be drawn up and signed.

If the intended form of contract is mentioned in the letter of intent then things are simpler because an implied term is that the named form will be binding.

Sometimes the letter will state that it is binding up to but not exceeding $?????.00 in which case if the expended sum is exceeded then there will be big problems in recovering the over expenditure.

In summary you need to read your letter of intent very carefully because it may well be legally meaningless.

Best regards

Mike Testro

Dear Mike,

As long as the document is approved by the Law in that Country, then it is a Contract.

If the wording of the letter differs from the Conditions of Contract for any reason, then you will need to revert to the law of the Country to determine its validity.

With kind regards,

Samer

Hi Samer

The law of the contract need not necessarily be the law of the country where the project is being built.

An implied term of a letter of intent may be that the law pertaining to the contract is that of the country where the project is being built.

The actual contract can state something quite different.

I was recently involved in assisting an Italian cladding contractor sub-contracted to a French main contractor building an office block in Siberia for an American client where the contract law was that of New York USA.

Best regards

Mike Testro

Dear Mike,

This would be interesting to work at. Usually on Major projects it can work.

If a project is done in a certain country by an international company, then that company can write their own Conditions of Contract. If something goes wrong, and one party wants to sue, they will revert to the Law of the Country.

Of course, inside the CoC, then can write up clauses to go for dispute resolution in NYC. But still, the Law of the Country will be applied.

With kind regards,

Samer

Samer,

If the parties are not from the same country then it is quite usual that the law of the contract will be a "neutral" third country law. e.g, American contractor working in Brazil with English law as the law of the contract. There are many good reasons for this.

But in the above example, the law of the contract may be English but the law determining the formation of the contract may be Brazillian law - but that depends on where the contract was executed e.g if the parties met in Sydney airport to finally agree and sign the contracts then it’s arguable that Australian law would apply to the contract formation!!!!!

In an international construction arbitration you often have multiple laws to consider, usually six or seven but can be many more depending on the circumstances.

e.g
1. Law of country where project built
2. Law of the contract (parties choice)
3. Possibly other laws as above, (unusual but not unheard of)
4. Law of the arbitration agreement
5. Law of the seat of the arbitration (2, 4 & 5 often the same but not always)
6. Law of country Employer based in (may or may not be as 1.)
7. Law of country Contractor based in
8. Laws of countries from which witnesses are to be called (living or are currently working in, or both)
9. Law of country that the arbitration award is to be enforced in (may not be 1, 6 or 7 if parties have assets spread over the world)

And throw in a few peculiar circumstances and you may have some more countries laws to think about, e.g consider what law applies for damage that occurs to a piece of plant shipped to Brazil that was manufactured in Spain by a Chinese owned company where the law of the contract was unfortunately not stated - the damage occurred in international waters during shipment on a vessel registered in Panama but which had Romanian owners and Dutch charterers) - it happens.

Answers on a postcard please.

It can be a nightmare and the number of different laws that apply can go well into double figures.

Dear Andrew,

I agree with you, the CoC can have plenty of location. But the project location has certain particulars to it. The Law of the Country where it is being built applies to it. Hence, any cases that might be raised to court, has to go first through the Country’s Law System.

It is only two envelops/spheres:

1. CoC - > you can go anywhere internationally
2. Country - > Any problems that is solved outside the CoC

With kind regards,

Samer

Samer,

I agree about any cases raised to court but the vast majority of international construction projects go to arbitration, not court.

One of the main reasons for this is to keep disputes out of the local court system because the courts may be biased in favour of a domestic employer.

Dear Andrew,

It depends. That is why I highly recommend that the CoC is read carefully before the agreement is signed and that the cost of such clauses are identified and negotiated. A single case will start at 150K and that can be afforded by big projects only.

With kind regards,

Samer