Commercial & Contract · Best Practice · Pre-Construction

Letter of Intent

A letter authorising the contractor to commence preliminary works before the formal contract is executed.

Last reviewed: 29 March 2026 — This guide reflects UK law as of this date. Contract Law remains current with no amendments enacted as of 29 March 2026. Next scheduled review: 29 March 2027.

Legal basis	Contract Law (offer, acceptance, consideration, intention to create legal relations)
CLLS 2024 edition	The City of London Law Society 2024 edition of the standard form letter of intent has been updated to reflect the Building Safety Act 2022 dutyholder requirements
Industry view	Letters of intent have been described as “playing with fire” — they create risk for both the employer and the contractor and should be kept as short-lived as possible
Essential content	Intended contract form, limited scope of authorised work, payment cap, expiry date, and a clear stop instruction mechanism

1. Letter of Intent

A letter of intent (LOI) is the necessary risk of construction procurement. It exists because of programme pressure — the contract negotiations are not yet complete, but the employer needs the contractor to start preparatory work, order long-lead materials, or mobilise to site in order to protect the programme. The LOI authorises the contractor to carry out a limited scope of work, on defined terms, pending execution of the main contract.

The danger of a letter of intent is that it can take on a life of its own. What starts as a short-term measure to authorise enabling works or material procurement can, if not managed properly, become the basis on which extensive construction work is carried out without the protection of a fully executed main contract. Letters of intent should be kept short-lived, tightly scoped, and treated as a bridge to contract execution — not a substitute for it.

The CLLS (City of London Law Society) 2024 edition of the standard form letter of intent has been updated to reflect the requirements of the Building Safety Act 2022, including dutyholder appointment provisions. This is now the most widely referenced standard form for LOIs in the UK construction industry.

Never allow extensive construction under a letter of intent

If significant construction work is carried out under a letter of intent without a payment cap or expiry date, the employer is exposed to a quantum meruit claim — where the contractor is entitled to be paid a reasonable sum for the work carried out, which may exceed the tendered contract sum. The contractor is exposed to the risk of working without the protections of a full contract, including defined variation mechanisms, extension of time provisions, and dispute resolution procedures. Both parties lose. Execute the main contract as quickly as possible.

2. Content

A well-drafted letter of intent must contain the following elements. Every element serves a specific purpose in limiting the risk to both parties during the interim period before the main contract is executed.

Element	Detail
Parties	The employer and the contractor, identified by full legal name. The LOI must make clear that it is issued by the employer (or the employer's agent on the employer's behalf) and addressed to the contractor.
Project	A clear description of the project, including the site address, the nature of the works, and any project reference numbers. This identifies the specific project to which the LOI relates.
Intended contract	The form of main contract that the parties intend to enter into (e.g. JCT DB 2024, NEC4 ECC Option A). This establishes the framework within which the LOI work is being authorised and provides context for the governing terms.
Limited scope	A precise and specific description of the work that the contractor is authorised to carry out under the LOI. This must be limited — typically enabling works, site setup, long-lead material procurement, or design development. The contractor must not carry out work beyond this scope.
Payment cap	A maximum financial limit on the employer's liability under the LOI. The contractor must not incur costs beyond this cap without further written authority. The cap protects the employer from open-ended financial exposure and gives the contractor a clear boundary.
Expiry date	A fixed date on which the LOI expires, regardless of whether the main contract has been executed. This prevents the LOI from running indefinitely and creates urgency for both parties to finalise the main contract. Typical LOI periods range from 4 to 8 weeks.
Stop instruction	A clear mechanism allowing the employer to instruct the contractor to stop work under the LOI at any time. Upon receipt of the stop instruction, the contractor must cease work and is entitled to payment for work properly carried out up to the date of the instruction, subject to the payment cap.
Governing terms	The terms that will govern the work carried out under the LOI. These are typically a subset of the intended main contract terms — covering payment, insurance, health and safety, and confidentiality — applied on an interim basis until the main contract is executed.
Signed by	The LOI must be signed by an authorised representative of the employer (or the employer's agent). The contractor should countersign and return the LOI to confirm acceptance of the terms. An unsigned or unacknowledged LOI creates uncertainty about whether the terms have been accepted.

3. Common Mistakes

No payment cap

A letter of intent without a payment cap gives the employer no control over the financial exposure arising from the LOI. The contractor may incur costs far in excess of what the employer anticipated, and in the absence of a cap, the employer may be liable to pay a reasonable sum for all work carried out. This can result in a quantum meruit claim that exceeds the tendered contract sum. Every LOI must include a clearly defined maximum payment cap.

No expiry date

A letter of intent without an expiry date can run indefinitely, with the contractor continuing to carry out work on interim terms that lack the protections and mechanisms of the full contract. Without the pressure of an expiry date, there is less urgency for either party to finalise the main contract. The LOI must include a fixed expiry date, and both parties must treat that date as a genuine deadline for contract execution.

Scope expansion

The most dangerous failure in LOI management is allowing the scope of work to expand beyond the limited authorisation in the original LOI. What starts as enabling works or material procurement gradually becomes substructure, then superstructure, then fit-out — all under a letter of intent with no proper variation mechanism, no extension of time provisions, and no defined dispute resolution process. If the scope of work needs to expand, the main contract should be executed first.

Not following the stop instruction

The stop instruction is the employer's primary control mechanism under a letter of intent. If the employer issues a stop instruction and the contractor continues to carry out work, the contractor may not be entitled to payment for the additional work. Conversely, if the employer fails to issue a stop instruction when the LOI is clearly running beyond its intended purpose, the employer loses the ability to control costs. Both parties must understand and respect the stop instruction mechanism.

4. Frequently Asked Questions

Is a letter of intent a binding contract?▾

It depends on the drafting. A letter of intent can range from a non-binding expression of intent (which creates no legal obligations) to a fully binding interim contract (which creates enforceable obligations on both parties). Most construction letters of intent are intended to be binding in relation to the limited scope of work they authorise, the payment cap, the expiry date, and the governing terms. The key question is whether the LOI satisfies the requirements for a binding contract: offer, acceptance, consideration, and intention to create legal relations. If the contractor carries out work in reliance on the LOI and the employer accepts that work, a binding contract is likely to exist — even if the LOI was poorly drafted. The terms of that contract may, however, be uncertain, which is precisely the risk that a well-drafted LOI is designed to manage.

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