Construction Contract Law and Dispute Resolution - Assignment Example

As such, it is common in the construction industry for negotiating parties to rely on the letter of intent to address long-term delivery requirements and materials purchase orders2. However, ambiguity as to the contractual status of such letters of intent lends itself to dispute as to the extent of liabilities and obligations under the letter of intent. The focus of this analysis is to critically evaluate the extent to which contractors who commence work in reliance on a letter of intent can rely on enforcing payment obligations for work completed, with particular reference to the dictum in the case of British Steel Corporation v Cleveland Bridge & Engineering Co Limited3 In the British Steel case, the judge noted that in the majority of cases where work was undertaken pursuant to a letter of intent, it would not matter whether the contract did or did not come into existence.

If the parties had acted on the letter of intent, the payments claim would be based on a quantum meruit basis under the law of restitution regardless of whether the claim was in contract4. However, the inherent difficulty with a letter of intent is where a party is seeking to claim damages for breach of contract and it is argued that no contract is entered into. Accordingly, the issue of whether a contract is in existence is vital. Moreover, if there is no contract, it begs the question as to what sums the prejudiced party is entitled to under the restitution based quantum meruit principles.

On the particular facts of the British Steel case, it was held that the letter of intent covered pre-contractual negotiations and as no terms had actually been agreed and therefore there was no binding contract on the parties. Therefore, the extent to which a contractor can rely on the letter of intent to enforce their rights will inherently be dependent on what terms are agreed to in the letter of intent itself.