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Letters of intent in construction project negotiations

Anyone who works in the construction industry knows how important it is for everybody to have the same understanding about the terms of a project, including the materials needed, deadlines to be met, and the procedure for resolving disputes. Without a reasonable degree of certainty about these things, there is always the risk that something will go wrong and that money will be lost.

Before all of the details for a construction project are hammered out in a contract, though, there is the negotiation process. Oftentimes, parties begin to take action and invest in a project before a formal contract has been reached. One tool that is sometimes used to prevent financial loss before a contract has been reached is a letter of intent. 

A letter of intent is a document that provides a general statement of an agreement that has yet to be finalized. Letters of intent are not contracts, though they may still be enforced in court, at least as to some provisions. Exactly how a letter of intent is treated by a court when disputes arise is not an easy question to answer, partly because the law differs from state to state and partly because it depends on the intention of the parties with respect to the letter of intent, whether they intended to be bound by the letter.

In determining whether parties intended to be bound by a letter of intent, courts don’t simply take parties’ word for it. Rather, they consider the specific language of the agreement and other signs that speak to each party’s intent. This can sometimes include actions taken by the parties after the letter of intent is signed.

In our next post, we’ll continue this discussion on letters of intent and how they should be approached in the negotiation process. 

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