Should a QS steer clear of letters of intent?

The case of Cunningham vs. Collett & Farmer (2006) involved an architect who was accused by his client of being negligent. QSs operating in the modern world could however find themselves in a similar situation. Mr Cunningham and Ms Good employed the defendant to act as architect in respect of the refurbishment of a property in Hertfordshire.

The intention was to use a JCT Minor Works form of contract and the architect produced drawing and a specification which were sent to two contractors with a request for them to submit tenders. A budget of £500,000 had been agreed by the clients but unfortunately the lowest tender which was submitted by Eugena exceeded £600,000. The clients were anxious to get on with the project but did not wish the price to exceed the budget. This is not an unusual situation and the architect discussed the matter with the client following which it was decided to work on the exercise to reduce the price but in the mean time to get the work started. The architect advised the clients that it would be appropriate to use a letter of intent in advance of the reductions being properly sorted out and the contract drawn up.

A dispute arose between the clients and the architect concerning the payment of fees which was referred to adjudication. The adjudicator found in favour of the architect in the sum of £21,464 which the clients refused to pay. Enforcement proceedings were commenced which were resisted by the clients on the basis that the architect has been negligent. It was alleged that the recommendation by the architect that a JCT Minor Works Form constituted negligence as the Guidance Notes produced by the JCT indicated that the Minor Works Form was suitable for contracts up to a value of £100,000. The clients subsequently received advice that the Intermediate Form was more suitable. The court disagreed and considered that as there was nothing complex about the project it did not matter that the value exceeded £100,000.

The recommendation that a letter of intent should be used was also alleged to amount to negligence as it was considered to have been sent prematurely. It was explained by judge Coulson that there are two types of letter of intent. The first is a simple expression of intent to enter into a contract at some stage in the future. In the second type which applied in this case the letter gives rise to limited rights and liabilities. To be effective this type of letter of intent should provide:

1. Contract work scope and price either agreed or a mechanism in place for them to be agreed

2. Contract terms agreed or likely to be agreed

3. Start and finish dates and programme broadly agreed

There should also be good reasons for the work to start in advance of the contract being agreed.

The judge considered that letters of intent are often used unthinkingly and can create more problems than they solve. However in the circumstances of the current case the letter of intent was not premature.

Finally it was alleged that there were insufficient tenderers to allow a properly competitive price to be identified for the project. It seems that in all five contractors were initially approached but only two tenders were eventually received. Again the judge found there was no negligence. This was no doubt of great comfort to the architect but he will have incurred considerable unrecovered costs and management time in defending the action.

Whilst in this case it was an architect who found himself alleged to have been negligent, in this day and age QSs often provide a great deal of procurement advice. With such a great many procurement options available any QS who advises a client as to which route should be taken needs considerable knowledge of the subject matter to avoid the situation in which this architect found himself.

One of the lessons to be learned from this case is that if possible it is good advice for clients to steer clear of letters of intent.