What’s the real intent? – Letters of Intent and common programme delays

Letters of intent (LOI) are common throughout the construction industry. They contain a degree of risk and uncertainty. Letters of Intent are usually subject to a financial ‘cap’. Mobilising a contractor’s workforce or procuring long lead-in items are potentially valid reasons for issuing a letter of intent with good intentions by both parties.

So how can a construction dispute arise without a formal contract between the parties? [1]

For example, a contractor’s ‘programme’ can be impacted by delays from the outset leading to a dispute. So, let’s look at a couple of English common law cases concerning a letter of intent and programme delays.

Diamond Build v Clapham Park Homes [2]

The claimant contractor commenced work on-site in the summer of 2007. The claimant then issued subcontract packages totalling £1.5m. The LOI was capped at £250k. Works progressed onsite without a formal contract; the claimant issued monthly interim valuations and claims for time extensions, thus exceeding the cap. Extensions of time were based on variations issued by the defendant. Then in November 2007, owing to 9 weeks of delay as per the claimant’s programme (revised contractor programmes were also issued), the defendant terminated the letter of intent. The defendant also cited other issues for termination, namely workmen’s unreliable attendance.

From a time-related dispute perspective, the impact of changes issued by the defendant exceeded the LOI financial cap. It was held that due to the instructed variations, additional payment was to be paid on a quantum meruit basis (“as much as he has deserved.”)

This raises the question of how quantum meruit is calculated in construction time-related disputes. This can be complicated for a claimant as there is inevitably no contract. However, quantum meruit is an equitable remedy that a contractor and a client could potentially use (at their discretion) to avoid a construction dispute.

ERDC Group v Brunel University [3]

Another case where quantum meruit was held was in the case of ERDC Group v Brunel University. The project was a new build outdoor athletics track. On February 2002, ERDC (the claimant) was chosen as the successful contractor for the project. However, the following day, the client decided to suspend the implementation of the tender documents until planning permission was obtained.

After three letters of appointment (issued by Brunel and signed by ERDC between February and May 2022), the contractor programmed to commence construction on 27 May 2002 for a period of 24 weeks (8 weeks of design and mobilisation and 18 weeks of construction.)

On 1 July 2002, during construction, Brunel issued a fourth letter of appointment and a fifth letter one month later, on 2 August 2002. ERDC did not sign both of these letters.

Then on 1 September 2002, 97 working days after site commencement, the 5^th appointment letter expired.

To note, ERDC completed the athletics track works on 22 October 2002. Following on from the completion of the athletics track, on 30 November 2022, ERDC completed the ‘remaining’ works in 187 working days. This was 97 working days longer than the practical completion date.

Without going into too  much detail, the main time-related issues which are stated in this case are :

• The works actually commenced on 5 June 2002 instead of the planned 27 May 2002
• The clients planning consultant stated that for the contractor to achieve this “timetable, it is essential that development works commence on site on 29 April 2002″
• On para. 53. “there was no float in ERDC’s programme to allow for overruns”.
• On para. 53. “ERDC had worries about weather and voiced them there was no agreement that ERDC were not to shoulder the risk of bad weather and so the rates and prices are to be viewed on that basis.”
• On para 18. “Nothing was agreed about instructions or variations.”
• On Para 34. “ERDC’s case was that there were considerable variations prior to 1 September and by that date some had delayed the works or disrupted other operations and, as a result, the works carried out before 1 September 2002 were almost unrecognisable from the original Works.”

With regard to time-related disputes, contractors’ programmes may need more float for unforeseen delay events such as inclement weather and client variations. As in the case of Diamond Build, the client issued a number of variations that impacted the programme completion date.

Upon reflection of the case of ERDC, the sharing of risk, late site commencement, lack of float in the contractor’s programme, and no agreement regarding instruction or variations delayed the programme completion date.

Letters of intent can cause headaches for both contractors and clients. Lessons can be learnt from the two cases, and the equitable remedy of quantum meruit may provide a legal solution to such problems.

[1] Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 171 at [280], per Allsop J
[2] Diamond Build Limited -v- Clapham Park Homes Ltd [2008] EWHC 1439 (TCC)
[3] ERDC Group Ltd. v Brunel University [2006] EWHC 687 (TCC) (29 March 2006)