What is Letter of Intent ( LOI ) ?
Definition of Letter of Intent ( LOI ) in Construction
Formal letter to a contractor or subcontractor, that notifies the recipient of the intent by another party to award a contract or sub contract on a project.
An LOI allows the contractor or sub contractor to start the formalities on the project, such as the shop drawings and submittals. In many cases an LOI is issued to allow the ordering of long lead items on the project such as the light fixtures, windows, hardware, etc. The LOI is supposed to be followed by a formal contract, however there are occasions, where the LOI is the only formal representation of a contract award. This is a dangerous procedure and a formal contract should always follow an LOI. The use of an LOI is in many cases a short cut to acknowledge agreement, however, using the LOI as a shortcut does not protect the parties involved with all the formal amenities of a formal construction contract. LOI format should be used sparingly and only when there are immediate concerns for long lead items or there is some other reason to initiate a formal agreement immediately.