Letters of intent


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Letters of intent are like smoking. Your doctor/lawyer warns against them but, somehow, you cannot give them up. You possibly have a suspicion that the flexibility or vagueness of a letter of intent is of some advantage, or that a signed contract is an unnecessary luxury if the works are proceeding satisfactorily.

Let a salutary tale persuade you otherwise.

Turner and Townsend (Trustees of Ampleforth Abbey Trust v Turner and Townsend Management Limited [2012] EWHC 2137 (TCC)) were the project managers for the construction of boarding accommodation at Ampleforth College, for the Trustees of the Ampleforth Abbey Trust. The construction work was carried out and completed on the basis of letters of intent, the terms of the building contract having never been finalised and signed between the contractor and the Trustees. The works were completed late and the Trustees expected to be able to recover liquidated damages. They were unable to do so because there was no contract in place providing for payment of liquidated damages for delay.

The Trustees sued their project managers, Turner and Townsend, alleging negligence in failing to finalise the building contract terms. The court held that Turner and Townsend owed a duty of care to procure an executed building contract and were in breach of that duty by failing to exert sufficient pressure on the contractor to finalise and sign the contract. The Trustees’ loss was the loss of a chance to recover liquidated damages.

The case shows yet again the importance of having a signed building contract in place to clarify and regularise the relationship between the contractor and the employer. The importance is such that a project manager (or a contract administrator) was found to owe a positive duty to do everything possible to have a contract agreed and executed.

Frances Alderson, Partner, Fladgate LLP (falderson@fladgate.com)

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