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In some cases, an employer will want a contractor to start developing designs or to start on site before negotiations have been completed and a formal contract signed.
Parties can start work without the comfort of a full contract and still be protected by using a letter of intent, but what is it and what is the effect of using one?
The effectiveness of a letter of intent depends on the form and content. Many people think a letter of intent is just a “statement of intent” but in reality, they often create a contract. Provided that it is drafted correctly, a binding letter of intent (as opposed to a non-binding letter of intent) will be created where there is certainty in the area of offer, acceptance, consideration and intention to create legal relations.
Provided that the operation/work that the contractor is conducting is a “construction operation” within section 105 of the Construction Act then the letter of intent will be a qualifying “construction contract”.
This classification will provide additional implied terms such as:
The parties should ensure that one of the following is achieved:
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