Letter of Intent to Hire Contractor

A letter of intent to hire contractor is an informal way of forming an agreement between the contractor and the hiring company.3 min read

A letter of intent to hire contractor is an informal way of forming an agreement between the contractor and the hiring company. Companies might use a letter of intent instead of an offer letter because they haven't worked out all the details of the job or they can't legally make an offer yet.

Letters of Intent in the Construction World

Letters of intent are frequently used in the construction industry to lock in a bid or quote from a contractor or supplier. While the letter doesn't mean the hiring company has awarded the contractor the job, it's a way of securing the negotiated price while the company works out matters in their end.

A letter of intent can also give a subcontractor or supplier the time they need to start a part of the job that might take a while. For example, if the hiring company has not had time to put together the full contract but still requires work to start right away, they might send the contractor a letter of intent so they can start on part of the project.

Determining Whether or Not a Letter of Intent Is Binding

When determining if a letter of intent is binding or not, the intent of the parties is the most important factor. As long as the intent of the parties is clearly spelled out in the letter, a court can legally force the party to fulfill their side of the bargain. This is true even if the party in question did not intend for the letter to be taken literally.

Because of this, you need to be extremely careful when drafting a letter of intent. Make sure you're comfortable following the terms spelled out in the letter.

If your intent is not clear in the letter itself and the case goes to court, a judge will look into the circumstances surrounding the letter of intent to determine what was meant by the letter. This might include:

  • Reading correspondences between the two parties from before the letter was issued.
  • Hearing testimony from the two parties.
  • Hearing testimony from outsiders.
  • Investigating how the two parties performed under the letter of intent.

Even if your letter of intent was not specifically a contract, the other party might still be eligible to recover some money if the judge finds you misled them in some way. It all depends on whether or not the other party relied on the terms in the letter. This is a legal principle known as promissory estoppel.

What Is Promissory Estoppel?

The legal principle of promissory estoppel has four main tenets, that — if fulfilled — could require you to follow the terms expressed in the letter of intent:

  1. The promisor made an unambiguous offer to the promisee.
  2. The promisee was counting on the promise.
  3. The promisor knew the promisee would be counting on the promise.
  4. Because the promisee was counting on the promise, they suffered damages when the promise fell through.

Promissory estoppel is very similar to detrimental reliance. However, in the case of detrimental reliance, you don't even need to prove there was an original promise. All you need to show is that another party failed to act when you were relying on them to do so, causing you hardship.

Fees for Breaking a Letter of Intent

If you fail to follow through with a letter of intent and a court finds that the letter was binding, you may have to compensation to the other party. If the court determines that the letter was not a contract for the full scope of work, you'll just be on the hook for whatever the other party spent in preparation for the job. The other party won't be eligible to receive payments for lost profits, lost opportunity of work, or the increased costs of finding subcontractors for the work.

What Should Go in a Letter of Intent?

When drafting your letter of intent, include the following points to make the letter as clear and unambiguous as possible.

  • The compensation you offer to the contractor.
  • The specifics of the work the contractor will perform.
  • The start and end dates of the work.
  • The working conditions involved with the project.
  • Who is in charge of the work site.
  • The number of employees involved.
  • The access required for the job.
  • The times of day the contractor will work.
  • Any insurance or performance bonds required for the work.

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