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Letter of Intent

9 replies [Last post]
Mon, 2005-05-30 04:30
Sunil Kumar
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Hellow Jaco,

I am a bit confused here cause in my present Project the nominations and finalising of contract is made by the client, what happens then...

Cheers
Sunil
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Mon, 2005-07-04 20:26
#1
Andrew Flowerdew
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Vishwas,

I could say it’s up to the main contractor to negotiate this when they agree the contract, if they don’t then tough luck, but it often the case that pressure to win work etc put’s the contractor in a less than favourable bargaining position.

You mention that the LD’s are maximum limits, I assume that they are probably time related in some way otherwise (at least in the UK) the LD’s could be held as a penalty and not enforceable.

Your approach seems good but the apportionment of risk is then set against the employer, which in some cases may be suitable. In your example, if the true losses to the employer were 1,000,000 and he’d agreed to limit it to the same as that of the nominated sub contractor then his recovery would be only 100,000 - therefore the employer would loose out for something that is not his fault. There is the arguement to be had in English law that as the employer nominated the sub contractor for his own advantage then the employer should pay for the nominated sub contractors defaults, or at least some of them which can be defined in the contract, the main contractor taking on other risks of default. (Usually in the case where the main contractor’s actions cause the delay to the nominated sub contractor)

If the nominated sub contractor had to pay the 1,000,000 then it would probably in alot of cases bankcrupt them and then the main contractor would be able to recover nothing (or very little) from the nominated sub contractor but still have to pay out the 1,000,000. Therefore not an ideal situation either.

I personally think that split of risks based on cause of delay is fair but it doesn’t help you. In your case, I hope the main contractor has deep pockets but it’s a good incentive make the nominated contractor perform and finish on time.
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Mon, 2005-07-04 04:07
#2
Vishwas Bindigana...
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Andrew,

The LD issue is a major one in the UAE.

Many of the contracts state specifically that the Main Contractor is solely responsible for the Nominated Sub-Contractor. Only the monthly payments are made directly by the employer to the nominated sub-contractor. This is the only advantage.

There is no ‘collateral contract between the nominated sub contractor and employer which allows the employer to claim LD’s directly from the nominated sub contractor’.

Let me illustrate this issue with an example –

Assume that the Main Contract Sum is 1000,000,000 (Thousand Million) and the Nominated Subcontract Sum is 100,000,000 (Hundred Million).

Now the contract says that, the nominated subcontractor should pay a maximum of 10% his subcontract sum if at default, i.e. 10,000,000 (Ten Million), to the main contractor.

(The Tricky Part starts here……..)

Since the main contractor is responsible for the nominated subcontractor; the contract says that the main contractor should pay a maximum of 10% the main contractor’s contractual price, i.e. 100,000,000 (Hundred Million) to the employer, even though there is no default of his.

So, the obvious question now is – Why should the main contractor pay 90,000,000 (Ninety Million) more (100 million minus 10 million) when he is not in breach of the contract?

I have argued successfully with many of my employers to reduce this amount to the subcontractors’ LD plus 5 % (the OH & Profit the main contractor allowed for in his tender); i.e. the main contractor will not be liable to pay anything more than 15 million (in the above example) to the employer if the nominated subcontractor is found in breach of the contract. Secondly, I have increased the nominated subcontractors’ LD percentage to 15-20% to cover the difference. Afterall, it is the main contractor’s responsibility to execute a formal contract with the nominated contractor.

Rgds,

p.s. – Sunil, U should do the same thing. Take the employer into confidence and reach an amicable solution.
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Sun, 2005-07-03 21:07
#3
Andrew Flowerdew
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Sunil,

First place to look is in all the contracts. I assume the nominated contractor is employed and paid by the main contractor as usual, is there any collateral contract between the nominated sub contractor and employer which allows the employer to claim LD’s directly from the nominated sub contractor? Nomination is abit of a minefield but as a very very general rule, a nominated sub contractor is deemed to be employed for the benefit of the employer and the main contractor does not always incur losses by the employer as a result of some of the nominated sub contractors actions.

However, I can’t overstate that this is a very general rule, every contract seems to treat nominated sub contractors differently and so the answer is in there. Without knowing the exact wording of the contract/s no one can give you a definitive answer.
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Sun, 2005-06-26 02:23
#4
Sunil Kumar
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Hi Viswas,

It was a discussion on Liquidated damages on the Main Contractor because of the Nominated Subcontractor. As you know the contract for Nominated and Main contract are different and in the event the Nominated Contractor delays then Main Contractor gets affeceted in a big way
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Sun, 2005-06-26 01:39
#5
Vishwas Bindigana...
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Sunil,

Are you speaking about Provisional Sum Items mentioned in your contract? If so, as a Main Contractor, you’ll have to advise the client as to when you require the particular nomination to be done and include the same in your contract programme.

Rgds,
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Thu, 2005-06-23 13:19
#6
Andrew Flowerdew
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Stuart

I couldn’t agree more - potential legal minefield should things not go according to plan.
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Thu, 2005-06-23 07:05
#7
Stuart Ness
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Shahzad,

I would suggest that an LOI is not a pre-requisite to Contract Award; in fact, I would discourage the use of LOIs as much as possible, and they should only be used in exceptional cases.

Cheers,

Stuart

www.rosmartin.com
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Thu, 2005-06-23 00:50
#8
Shahzad Munawar
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That happens then:.

a) Employer will issue Letter of Intent (LOI)

b) After LOI, Contract will be signed by both parties.


After Signing the said Letter of Intent (LOI) and Contract Agreement, you may execute the Works. Without above, you cannot commence the Works.
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Mon, 2005-05-30 05:07
#9
Jaco Stadler
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Hi Sunil

Please use the right button Post Reply.

Alway’s remember when you sign a contract no gun is against your head. You have the right not to sign the contract if you feel it is unfair. Especialy if it is not as per the specification you have priced. You know the thing
1) The owner issue you with a spec
2) You Price the spec
3) The Owner award the contract
4) You agree to the contract

Remember until such time as you have signed the letter of intent/contract no contract has commenced.

Cheers

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