Key Takeaways

  • A subcontractor letter of intent is commonly used in construction to outline preliminary terms before a full contract is signed.
  • These letters can be binding or non-binding, depending on how clearly the parties express their intent.
  • Essential elements include scope of work, payment, timeline, insurance requirements, and responsibilities.
  • Courts may enforce letters of intent under promissory estoppel if one party reasonably relied on promises.
  • Using clear, written terms helps prevent disputes over whether work or payment obligations exist.

A letter of intent to hire contractor is an informal way of forming an agreement between the contractor and the hiring company. Companies might use a letter of intent instead of an offer letter because they haven't worked out all the details of the job or they can't legally make an offer yet.

Letters of Intent in the Construction World

Letters of intent are frequently used in the construction industry to lock in a bid or quote from a contractor or supplier. While the letter doesn't mean the hiring company has awarded the contractor the job, it's a way of securing the negotiated price while the company works out matters in their end.

A letter of intent can also give a subcontractor or supplier the time they need to start a part of the job that might take a while. For example, if the hiring company has not had time to put together the full contract but still requires work to start right away, they might send the contractor a letter of intent so they can start on part of the project.

Common Uses of a Subcontractor Letter of Intent

A subcontractor letter of intent serves several practical purposes in the construction industry:

  • Securing pricing and availability – General contractors often use these letters to confirm subcontractor bids while final project financing or permitting is finalized.
  • Starting preliminary work – Subcontractors may order materials, reserve equipment, or mobilize crews based on the assurance provided by the letter.
  • Reducing project delays – A letter of intent allows work to begin on time even before the final subcontract agreement is executed.
  • Providing clarity during negotiations – These letters help outline the expected responsibilities and avoid misunderstandings while parties finalize details.

By clarifying expectations early, a subcontractor letter of intent functions as both a scheduling tool and a safeguard against last-minute disputes.

Determining Whether or Not a Letter of Intent Is Binding

When determining if a letter of intent is binding or not, the intent of the parties is the most important factor. As long as the intent of the parties is clearly spelled out in the letter, a court can legally force the party to fulfill their side of the bargain. This is true even if the party in question did not intend for the letter to be taken literally.

Because of this, you need to be extremely careful when drafting a letter of intent. Make sure you're comfortable following the terms spelled out in the letter.

If your intent is not clear in the letter itself and the case goes to court, a judge will look into the circumstances surrounding the letter of intent to determine what was meant by the letter. This might include:

  • Reading correspondences between the two parties from before the letter was issued.
  • Hearing testimony from the two parties.
  • Hearing testimony from outsiders.
  • Investigating how the two parties performed under the letter of intent.

Even if your letter of intent was not specifically a contract, the other party might still be eligible to recover some money if the judge finds you misled them in some way. It all depends on whether or not the other party relied on the terms in the letter. This is a legal principle known as promissory estoppel.

What Is Promissory Estoppel?

The legal principle of promissory estoppel has four main tenets, that — if fulfilled — could require you to follow the terms expressed in the letter of intent:

  1. The promisor made an unambiguous offer to the promisee.
  2. The promisee was counting on the promise.
  3. The promisor knew the promisee would be counting on the promise.
  4. Because the promisee was counting on the promise, they suffered damages when the promise fell through.

Promissory estoppel is very similar to detrimental reliance. However, in the case of detrimental reliance, you don't even need to prove there was an original promise. All you need to show is that another party failed to act when you were relying on them to do so, causing you hardship.

Fees for Breaking a Letter of Intent

If you fail to follow through with a letter of intent and a court finds that the letter was binding, you may have to compensation to the other party. If the court determines that the letter was not a contract for the full scope of work, you'll just be on the hook for whatever the other party spent in preparation for the job. The other party won't be eligible to receive payments for lost profits, lost opportunity of work, or the increased costs of finding subcontractors for the work.

Risks and Limitations of Subcontractor Letters of Intent

While useful, subcontractor letters of intent carry risks if not carefully drafted:

  • Unintended obligations – Vague language can make a non-binding letter appear binding, exposing one party to liability.
  • Limited enforceability – Even when non-binding, courts may award costs for reliance under principles like promissory estoppel.
  • Insurance and bonding issues – Without a formal contract, subcontractors may struggle to obtain insurance coverage or payment bonds.
  • Scope creep – If the letter is used too broadly, subcontractors may begin work outside the intended scope without a signed contract.

To minimize these risks, it is best to clearly label whether the document is binding or non-binding and specify which provisions (such as confidentiality or indemnification) should be enforceable.

What Should Go in a Letter of Intent?

When drafting your letter of intent, include the following points to make the letter as clear and unambiguous as possible.

  • The compensation you offer to the contractor.
  • The specifics of the work the contractor will perform.
  • The start and end dates of the work.
  • The working conditions involved with the project.
  • Who is in charge of the work site.
  • The number of employees involved.
  • The access required for the job.
  • The times of day the contractor will work.
  • Any insurance or performance bonds required for the work.

Sample Structure of a Subcontractor Letter of Intent

While each project is unique, a well-drafted subcontractor letter of intent often follows this structure:

  1. Introduction – Identify the contractor, subcontractor, and project details.
  2. Scope of Work – Describe the specific services or materials the subcontractor will provide.
  3. Compensation – Outline payment terms, including rates, retainage, and invoicing procedures.
  4. Timeline – Note anticipated start and completion dates, and key milestones.
  5. Conditions Precedent – State that the letter is contingent upon execution of a formal subcontract agreement.
  6. Insurance & Bonds – Require proof of liability insurance, workers’ compensation, and performance bonds where applicable.
  7. Termination Clause – Allow either party to end the agreement if a full subcontract is not finalized.
  8. Binding vs. Non-Binding Language – Explicitly state whether the letter creates enforceable obligations.

Including these elements ensures clarity, prevents disputes, and protects both the contractor and subcontractor as negotiations continue.

Frequently Asked Questions

1. Is a subcontractor letter of intent legally binding?

It depends on the wording. If the document clearly states it is binding, courts may enforce it. Otherwise, it may only bind parties to limited obligations, such as reliance costs.

2. Can subcontractors start work with just a letter of intent?

Yes, but it is risky. Work can begin under a letter of intent, but subcontractors should confirm whether payment and insurance protections are in place.

3. What should be included in a subcontractor letter of intent?

Essential terms include project scope, compensation, timeline, insurance requirements, and whether the letter is binding or non-binding.

4. How does a subcontractor letter of intent differ from a subcontract?

A subcontract is a finalized, legally enforceable contract. A letter of intent is typically preliminary, outlining expectations until the full subcontract is signed.

5. What happens if a subcontractor letter of intent is broken?

If binding, the breaching party may owe damages. If non-binding, the subcontractor may recover reliance costs such as materials ordered or work started.

If you need help with a letter of intent to hire contractor, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.