Letter of Intent s4

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Letter of Intent

A letter of intent or LOI is a document outlining an agreement generally between two parties before a formal Contract or Agreement is finalized and /or signed so as to start performance of the Works/Services ahead of the formal Contract signatures. It is often referred to by courts as an “agreement to agree”.

If the language in an LOI manifests an intention to do something at a later date and leaves out substantial and necessary conditions of a contract, it is not a Contract and cannot be enforced in law. LOI’s have generally contained wordings such as “the parties hereby agree to finalise terms and conditions, etc …….” Meaning there could be fundamental conditions that are yet to be finalised. In this case it could just be expressing / stating serious intent of each of the Parties to carry out certain activities. They are a sort of substitute for a written Contract or Agreement, but are usually not binding on the parties in their entirety, hence known as Letter of Intent.

However, over the years, LOI’s have evolved and developed into a document that secures firm commitment and is a binding agreement to initiate serious actions by both contracting parties (secured thru inclusion of substantial and necessary conditions) such as starting Works/Services envisaged in the proposed Contract by Party1 and Party 2 paying for such Works/Services provided by Party1 in the interim. They contain provisions that are binding on parties and contain a covenant to negotiate and conclude the Contract or Agreement in good faith. Gradually, in large and complex Contracts involving cumbersome documentation and/or procedures or where lengthy negotiations on terms and conditions have preceded a conclusion of the Tender process, LOI’s have come to be a tool to allow time to prepare and ready the final Contract for signatures. In situations where there are no outstanding issues to be agreed between the parties, a LOI is a virtual Contract and in almost all cases are packed with enough conditions to ensure performance of obligations by both parties and properly enforced under applicable law in case of breach.

However, the purposes of an LOI could be to:

· clarify key points of a complex transaction for the convenience of the parties;

· declare officially that the parties are currently negotiating certain provisions of the proposed Contract (generally Terms and Conditions);

· provide safeguards in case a deal collapses during negotiation

A LOI may also be referred to in situations as a memorandum of understanding (MOU). Although the term could refer to mean a different document, the differences are often formal in nature, reflecting different drafting styles or business customs, not a substantive difference in what these various documents accomplish.

Sample forms of Letters of Intents

LoI with negotiations ongoing
LoI with no outstanding matters but limiting Commitment Value Sample 1
LoI with outstanding matters clearly stated in the LoI
LoI with no outstanding matters but limiting Commitment Value Sample 2

LoI with Negotiations Ongoing

To: [Name and address]

Attention:

Reference:

Date:

DESCRIPTION OF WORK/SERVICES: ______

CONTRACT NUMBER ______

LETTER OF INTENT

1) We refer to our Invitation to Tender enquiry reference ...... dated ...... and your tender offer reference ...... dated ......

and the following subsequent relevant correspondence as listed hereunder:-

(insert list of post-tender correspondence containing relevant information between Client and Tenderer)

2) by this letter we notify you that it is our intention to award you the Contract for this Work/Service generally in accordance with the terms of the documents listed in paragraph 1) above and it is our understanding that you will enter into the Contract on that basis subject to the resolution of any outstanding matters between us.

3) this letter does not constitute nor shall it be construed to mean or evidence a Contract between us and merely serves as notice of our intentions with respect to the above Tender.

4) any work which you may elect to do in anticipation of a Contract between us shall be entirely at your own risk and we will not be liable for any costs incurred by you prior to execution of any future contract between us with respect to the subject Work/Service.

If all negotiations are complete insert

5) we are currently preparing Contract Documents which we will forward to you for execution in the near future.

If negotiations are on-going insert

6) subject to a satisfactory conclusion of our current negotiations, we expect to be in a position to commence preparation of Contract Documents shortly which when ready will be forwarded to you for execution.

7) in the event that no formal Contract is entered into between us neither you or us will have any liability to the other in respect of the subject matter of this letter.

8) kindly acknowledge receipt of this Letter of Intent and confirm your willingness to enter into a Contract if requested to do so by [Client].

For [Name of Client]

LoI with no outstanding matters but limiting commitment value

To: [Name and address]

Attention:

Reference:

Date:

DESCRIPTION OF WORK/SERVICES: ______

CONTRACT NUMBER ______

LETTER OF INTENT

1) we refer to our tender enquiry reference ...... dated ...... and your tender offer reference ...... dated ...... and the following subsequent relevant correspondence as listed hereunder:-

(insert list of post-tender correspondence containing relevant information between Client and Tenderer)

Either (If matters remain outstanding)

2) it is our intention to award you the contract for this work generally in accordance with the terms of the documents listed in paragraph 1) above and it is our understanding that you will enter into the contract on that basis.

4) pending the execution of a formal contract between yourselves and [Client], the following arrangement shall apply between us:-

5) this Letter of Intent constitutes an instruction by us to you to make all necessary arrangements to commence, and actually to commence, the work envisaged in the documents listed in paragraph 1) herein. you shall carry out the work in accordance with the terms and conditions contained herein.

6) under this Letter of Intent you shall perform the work and we shall pay you for it in accordance with the provisions of the documents listed in paragraph 1), all the terms of which form the basis of this Letter of Intent, and which are to be incorporated in the formal contract which is to be executed between us.

7) notwithstanding paragraph 6) above, we shall have the right to terminate this Letter of Intent at any time by giving written notice of this to you, but should we exercise this right we shall pay you the audited amount due to you in respect of work carried out by you from the date hereof up to the date of termination provided that the reason for termination is not a default on your part. the sum to be paid to you hereunder in respect of the said work shall be calculated in accordance with the terms of the documents listed in paragraph 1) herein.

8) no information concerning this Letter of Intent or in respect of any formal contract which is to be executed between us shall be released publicly by you without our written approval.

9) the contract price for the work envisaged in the documents listed in paragraph 1) of this Letter of Intent is:

Dhs...... (Words...... )

Note: Following section in [] is optional if further clarification is required

[which sum includes the following:-

(If the intention of the Letter of Intent is to limit initial exposure to enable work to start, list items covered by this arrangement)

but excludes the following:-

(If optional items/daywork or other Prime Cost sums exist exclude these)

the limit of [Client’s] expenditure under this Letter of Intent shall not exceed ...... ( ...... ) without [Client’s] prior authorisation given in writing.]

10) you should make immediate contact with (Mr...... telephone ...... ) for agreement of your programme and procedures for this work.

11) this Letter of Intent shall become binding on both of us on the date that you dispatch your unqualified acceptance of this Letter of Intent which should be sent by return fax/email/letter confirming the contents of this Letter of Intent.

12) within ...... days of receipt by [Client] of your unqualified acceptance of this Letter of Intent you are to submit to [Client] the performance bond/parent company guarantee (delete as applicable) as specified in the conditions of contract referenced in paragraph 1) above.

13) it is understood and agreed that upon your acceptance of this Letter of Intent you further undertake on request by [Client]to enter into a formal contract with [Client]in accordance with the terms of the documents listed in paragraph 1) herein. the execution of the formal contract between us shall supersede this Letter of Intent and all work performed and payments made under this Letter of Intent shall be deemed respectively performed under the contract which shall be deemed to have been executed on the date of your signed acceptance of the terms and conditions contained therein.

14) you agree that your refusal or failure for whatever reason to enter into a formal contract in the terms of paragraph 13) above shall be deemed a default by you under this Letter of Intent.

please confirm your unqualified acceptance of this Letter of Intent by return fax/email/letter.

for [Client]

LoI with outstanding matters clearly stated in the LoI

Letter of Intent

1) we refer to our tender enquiry reference ...... dated ...... and your tender offer reference ...... dated ...... and the following subsequent relevant correspondence as listed hereunder:-

(insert list of post-tender correspondence containing relevant information between Client and Tenderer)

Either (If matters remain outstanding)

2) subject to agreement being reached on the outstanding matters which are referred to in paragraph 3) below, and which are the only matters remaining for discussion between us, it is our intention to award you the contract for this work generally in accordance with the terms of the documents listed in paragraph 1) above and it is our understanding that you will enter into the contract on that basis.

3) the matters upon which agreement has yet to be reached are as follows:-

(Insert list of all outstanding matters to be resolved)

4) pending agreement upon these outstanding matters and the execution of a formal contract between yourselves and [Client], the following Letter of Intent Letter of Intent shall apply between us:-