Civil Engineering Reference
In-Depth Information
Lettersofintentcommonlystipulateamaximumfigurethattheemployerispreparedtopay.
That is perfectly understandable. The employer needs to know the extent of any financial
liability. Thus the proposed contract sum may be several million pounds, but, pending final
agreementoncontracttermsandothermatters,theemployermightissuealetterofintentin-
dicating that thecontractor mayproceed uptoatotal of£50,000orwhatever sumisdeemed
appropriate. The idea is that before the contractor completes work to that value, either the
contract is agreed and executed or the work is stopped.
Theproblemisthatoncealetterofintentisissued,bothpartiestendtoforgetwhatitsays
and simply get on with the project as though a contract had been signed. Then something
happens that concentrates minds and there is a dispute.
Mowlem plc v Stena Line Ports Ltd
4
is a case in point. The letter of intent concept was taken rather far by the issue of some 14
such letters during the course of the Works. Fortunately, the parties agreed that each letter
superseded the previous one, otherwise the dispute might have been labyrinthine in its com-
plexity. When Mowlem commenced the carrying out of the work described in each letter, a
smallcontractwasformedbywhichStenaagreedtopayMowlemareasonablesum.Ineach
case, the maximum amount of this sum was stated in the letter.
The last letter sent by Stena stipulated a maximum amount of £10 million and a date for
completion. The Works were not finished by the due date, and Mowlem's position was that
the work carried out was worth more than £10 million. Mowlem maintained that Stena had
allowed it to continue the Works even though it was clear that the cost was exceeding the
amount in the letter of intent, and therefore Mowlem ought not to be bound by the amount
in the letter, which should not have any effect once the sum was exceeded. Stena contended
that its professional advice was that the work done did not exceed £10 million.
The court had no hesitation in concluding that Mowlem was entitled to be paid the reas-
onableamountsitcouldsubstantiateunderthetermsoftheletterofintent,butsuchamounts
could not exceed £10 million in total. It would not make commercial sense if an agreement
to a maximum sum could be set aside simply because the contractor continued to work after
the due date or after the limit had been reached.
From this it is to be concluded that letters of intent, like other contractual documents,
mean what they say. Usually, if the contractor is working to a letter of intent that specifies,
say, £20,000 as the limit, this figure will be exceeded at the contractor's peril. Of course,
that is subject to the usual overriding proviso that each set of facts must be considered on
its own merits. Where the maximum is low and the eventual sum would be many times that
