They should think of it as a nonbinding communication in writing from a purchaser to a supplier notifying the supplier that there is an intent to finalize the proposed agreement and that the supplier may commence whatever work the supplier deems necessary.

  These letters should have a clause that states, “the buyer is waiting for final authority and their entity cannot be held liable for any costs incurred by the supplier prior to that approval.”

  Letters of Intent are normally utilized in very important, fast tract projects; but buyers are cautioned to use them sparingly, and not allow suppliers to provide more goods than is absolutely necessary prior to formal award. Note that if there is a failure of final award, the buyer must have the authority or the ability to cover payment for goods received and utilized or be able to return the items to supplier.

  Suppliers and construction contractors may use a Letter of Intent as a show of good faith on the buyer’s employer’s part, and the contractor may also depend upon it to order long lead time materials. Suppliers may even use it to set up an account with one of their vendors or to get a loan from a finance institution.

  I don’t suggest that anyone sign a “Letter of Intent” without attorney assistance, as these documents can create contractual obligations if not carefully drafted. In fact both parties should try to avoid them unless the letter is absolutely necessary.

  But these letters do have a place in a professional purchaser’s or contractor’s arsenal of knowledge and should be called into play when needed for a very special project.

© 1997 by Donald L. Woods, All Rights Reserved