Starting work on a letter of intent: what you have agreed to, what the cap does, and how you are paid if the contract never arrives

Published 2 November 2026 · Updated 2 November 2026 · By Oliver Stocks-Fryer

Letters of intent in construction, explained for UK subcontractors: the four kinds of letter, when one becomes a binding contract, what a cap does to work beyond it, how you are paid if no contract is ever formed, why the Construction Act can still apply, and what to agree before you start.

The main contractor needs the screed down by the end of the month, and the subcontract is still with their legal team. On Friday a two-paragraph letter arrives: please proceed with the works in accordance with your quotation, our liability limited to £40,000 pending execution of the formal subcontract. You start on Monday. Eight weeks later you have done £68,000 of work, nothing has been signed, and the main contractor says the letter caps you at £40,000.

Whether that is right depends on what the letter actually is. Some letters of intent are binding contracts, some are a promise to pay for whatever you choose to do, and some bind nobody to anything. The words on the page decide which, and so does what both sides did afterwards.

What is a letter of intent in construction?

A letter of intent is a letter from the party that wants work done, telling the contractor or subcontractor that it intends to enter into a contract and, usually, asking them to start some or all of the work before that contract is signed. It is not a legal category with rules of its own. English law asks the ordinary questions about it: did the parties intend to be bound, and did they agree terms certain enough to enforce? The answer changes from letter to letter.

What kinds of letter of intent are there?

• A letter of comfort. It says the writer intends to place an order and asks for nothing. It creates no obligations on either side, and work started on the strength of it is started at your own risk.
• An "if" contract. It asks you to do work and promises payment if you do it, without obliging you to start or to finish. You are paid for what you do and you are free to stop.
• A limited contract. It instructs specified work, such as design, ordering long-lead materials or a first phase, up to a stated value or date, and binds both sides on those terms. Letters of this kind often carry a cap.
• A contract in all but name. It sets out the scope, the price, the programme and the terms that will apply, and asks you to proceed. If you do, the letter may well be the contract, and the formal document that never arrives changes very little.

When does a letter of intent become a binding contract?

When it shows an intention to be bound and contains the terms that matter: what work, for what payment or on what basis, and usually by when. Starting work in response to a letter that asks you to start can be acceptance by conduct. In Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 (TCC) a letter of intent for refurbishment works was held to be a binding contract covering the period until the formal contract was signed. It promised to reimburse the contractor’s reasonable costs, up to £250,000, if no formal contract followed, and the contractor’s argument that the letter had lapsed and taken the cap with it failed.

The leading case shows how far conduct can go. In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH [2010] UKSC 14 work started under a letter of intent, the letter expired, the formal contract was never signed, and the work carried on. The draft contract said it would not take effect until each party had signed and exchanged a counterpart. The Supreme Court held that a binding contract had been made all the same, on the wider terms the parties had agreed, because they had waived the requirement for signed counterparts. Doing the work does not by itself make a contract, and the court said it will not lightly find that a "subject to contract" condition has been dropped. But where both sides’ words and conduct show unequivocally that they have agreed to go ahead without it, a contract can form all the same. The judgment opens with its own advice: agree first and start work later.

What happens if no contract is ever formed?

You are still paid. Where one party asks for work, the other does it and no contract governs it, the law requires a reasonable sum to be paid for it, known as a quantum meruit. In British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 the parties never agreed terms, steel nodes were made and delivered at the buyer’s request under a letter of intent, and the supplier recovered a reasonable sum. Because there was no contract, the buyer’s claim for late delivery fell away with it.

That cuts both ways. No contract means no cap, no retention, no liquidated damages and none of the main contractor’s amendments. It also means no construction contract, so no statutory right to adjudicate: a quantum meruit claim with no contract behind it goes to court, and the reasonable sum is argued from your actual costs and the rates you quoted, which takes time and money you would rather spend elsewhere.

What does a cap in a letter of intent mean?

If the letter is a contract and it caps what you will be paid for the work it covers, expect the cap to be enforced. In Diamond Build it held, and the judge rejected the argument that it was unfair because it was foreseeable it would be reached within a relatively short time. He also said what sits outside it: work ordered that is additional to or different from the work the letter covers is paid above the cap on a reasonable-sum basis, damages for breach of the letter are not limited by it, and a client who insists you carry on beyond the cap faces at the very least an equitable claim for more. Every letter is read on its own words, so the cap in yours may be drafted differently. Either way, the cap is the main contractor’s protection, and it is your exposure.

• Read what the cap limits: the price of the work the letter instructs, or, as in Diamond Build, the costs you are reimbursed if no formal contract follows.
• Record separately any work ordered that is additional to or different from what the letter covers, with the instruction and its date, because that is the work Diamond Build said is paid above the cap.
• Track the value of work done against the cap every week, not at the month end.
• Ask in writing for the cap to be raised before you reach it, and say what you will do if it is not, such as stop when it is reached.
• Note any expiry date. A letter that ends on a date while the work carries on is the RTS position, and the question becomes which contract, if any, governs the later work.

Does the Construction Act apply to work under a letter of intent?

Yes, where the letter is itself a construction contract. Until 2011 the Act applied only to contracts in writing. Section 139 of the Local Democracy, Economic Development and Construction Act 2009 repealed that requirement, which sat in section 107, from 1 October 2011 in England and Wales and 1 November 2011 in Scotland, so a contract that is oral or only partly written is covered too. Northern Ireland’s Order dropped its equivalent requirement in November 2012.

So a letter of intent that binds both sides carries the statutory rights: payment by instalments unless the work is specified or agreed to last under 45 days, adjudication at any time, and suspension for non-payment. Where the letter says nothing about how payment works, the Scheme for Construction Contracts fills the gaps with payment periods, due dates and the payment and pay less notice rules. Apply for payment on those dates while the formal subcontract is being argued over; nothing in the Act waits for it to be signed.

What should you agree before you start on a letter of intent?

• The scope, by reference to your quotation and its date, so it is clear what the letter covers and what is a variation.
• The price or the basis of payment: your quoted rates, a schedule of rates, or costs plus a stated margin.
• The cap, if there is one, and how it is raised.
• How you apply for payment and when you are paid, or a statement that the Scheme applies.
• Which terms govern the work: your quotation’s terms, the main contractor’s standard subcontract or a named form. Ask for a copy of whatever is named.
• The programme and any completion date, and whether liquidated damages apply under the letter. They should not unless the letter says so.
• What happens if the formal subcontract is never signed: payment for work done, for materials ordered and for leaving site, and how either side brings the letter to an end.
• An expiry date, and what happens to work carried on after it.

What should you do while you are working under one?

• Keep every instruction in writing with its date, and confirm verbal instructions by email the same day.
• Raise the cap or stop at it. Carrying on past a cap in the hope it will be sorted out later is how the opening example happens.
• Apply for payment on time, even while the formal contract is being negotiated.
• Read the formal subcontract before you sign it for whether it reaches back over the work already done, and on what terms. A formal subcontract may say it applies to work already carried out under the letter, which can bring retention, liquidated damages and set-off to bear on work you did before they existed.

A letter of intent rewards whoever kept the better record. VariationFlow keeps every instruction, variation and application on the project’s timeline with its date and the evidence attached, so what was instructed, applied for and paid under the letter is already on record when the cap comes into view or the formal subcontract finally arrives. This article is general information, not legal advice. Where a letter of intent covers a significant value, have it read before you start, not after you stop.