Letter of Intent with Provision for Pre-Contract Services or Works

Letter of Intent with Provision for Pre-Contract Services/Works

BS.DC.30

This Letter of Intent with Provision for Pre-Contract Services/Works is a relatively fairly simple form of letter of intent (“LOI”). It is suitable for use where the parties to a proposed commercial arrangement have:
• had some discussions about a proposed deal;
• reached agreement on most or all of the detail of services/works to be carried out;
• not yet negotiated or agreed the commercial and legal terms which will govern the transaction; and
• decided that there is or may be a need for some pre-contract preliminary services/works to be carried out and paid for before the time when the parties are likely to be able to finalize and sign a detailed, definitive binding contract for all services/works required. If you do not wish to make provision in your LOI for the possibility of such pre-contract work, you should instead consider using either the form of Letter of Intent for Commercial Transactions or the form of Memorandum of Understanding (Commercial Transactions) which both accompany this LOI.

The appropriate content for this LOI and many other forms of LOI and MOU commonly used will need to vary according to their subject matter, the industry concerned, what is intended to be achieved by the document, timescales, and what the parties wish or need to do pending signature of a definitive contract.

A preliminary document such as an LOI provides a practical means of showing the intent of the parties to go ahead with a deal, reducing the potential for misunderstandings, and avoiding the parties becoming legally bound before they have fully negotiated a deal and have set down the details in a formal binding contract.

Although a letter of intent can be very useful in that way, it is incomplete by nature, and it can only set out the legal position of the parties on a temporary basis. This means that it can and should only ever only be used as a short term measure, and any form of LOI, including this template letter, should therefore always be replaced by a definitive detailed contract as soon as possible. Otherwise the parties will be left in a very uncertain legal position which can lead to disputes and legal problems.

LOIs are also commonly known as “Heads of Terms”, “Memorandum of Understanding”, or “Term Sheets” and such documents are often also headed “Subject to Contract” and/or “Draft Contract” but it is inadvisable to use such headings because of the legal uncertainty they create. It is important to recognise that any such titles or headings do not themselves establish the legal status or effect of the document: their legal status and effect will depend instead on all of the content of the document.

The purposes of this document and the accompanying form of Memorandum of Understanding (Commercial Transactions) (“MOU”) in this subfolder are very similar but, unlike that form of MOU, this LOI template contains provision for some pre-contract services/works to be carried out. This template is also better suited than the MOU form to a case where none or few of the commercial and legal terms of the proposed transaction have yet been discussed or agreed.

As this template letter makes clear, it is not intended to be legally binding except as to the provisions set out in it which state that:
(i) neither party will misuse or disclose any confidential information provided to it by the other party; and
(ii) if the parties at any time agree that the contractor will carry out certain services / works before any definitive contract is signed by the parties, the employer must pay an amount for them as calculated in the way prescribed in the document.

Use of this LOI will help to ensure that, pending signature of a definitive contract, the parties are not legally bound by anything either in the LOI itself or in, say, draft documents, emails, letters etc. (except for the two points above which the template says are to be binding pending signature of a definitive contract). However, even if you use this LOI template or any other form of LOI, you need to take care subsequently not to create any formal or informal document (or do anything else) which legally binds either party until you sign a definitive full written contract to which you are content to be bound.

Once the LOI is signed, the parties can go on to provide information to each other, and, negotiate and resolve all commercial and legal terms and any adjustments to the specification of services/works before finally setting down in full all those details of their deal in a definitive binding contract.

This Letter of Intent with Provision for Pre-Contract Services/Works contains the following clauses:
1. Definitions
2. Status of this LOI and other documents
3. Ongoing discussions and negotiations
4. Pre-Contract [Services] OR [Works] and Payment – Procedure
5. Pre-Contract [Services] OR [Works] - Miscellaneous
6. Confidentiality
7. Law and Jurisdiction

This document is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.

Optional phrases / clauses and notes are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

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