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ARTICLE BY NEIL ELDER FRICS Letters of Intent and Quantum Meruit – Easy Street or Skid Row? A significant element of UK construction industry appears content to have their commercial and legal relationships defined on the basis of a letter of intent rather than by clear and definite contracts. As a consequence questions often arise as to whether any liability arises from such letters, and if so, what that liability may be. An example of the problems that can be involved is found in the recent case of ERDC Group Limited -v- Brunel University which arose from the construction of new sports facilities at the University’s Uxbridge campus. Brunel appointed ERDC on the basis of the JCT Standard Form of Contract With Contractor's Design, 1998 Edition, however as the scheme had not received full planning permission Brunel decided that formal execution of contract documents should be deferred until consent had been granted. In order to avoid delay ERDC agreed to carry out design works under the terms of a letter of appointment. In the event five letters were issued for both design and construction work; the first three were returned countersigned by ERDC, the remaining two letters were issued but were not countersigned or returned; authority under the last of these letters expired on 1 September 2002. Following this date ERDC continued with the works even though no further letters of appointment were forthcoming. ERDC left site, by agreement, at the end of March 2003 albeit the works were not entirely complete. The contract documents were never executed. Disagreements arose and in court ERDC claimed that as the work content had significantly changed from that upon which it had tendered and contended that in the absence of a formal contract it was entitled to have the works valued on a quantum meruit or costs plus basis. Brunel argued that the works should be valued in accordance with the arrangements set out in the JCT Standard Form which had, until late 2002, been followed by both parties. In his judgment HHJ Humphrey Lloyd QC firstly summarized the position concerning letters of intent as follows “Letters of intent come in all sorts of forms. Some are merely expressions of hope; others are firmer but make it clear that no legal consequences ensue; others presage a contract and may be tantamount to an agreement "subject to contract"; others are contracts falling short of the full-blown contract that is contemplated; others are in reality that contract in all but name. There can therefore be no prior assumptions, such as looking to see if words such as "letter of intent" have or have not been used. The phrase "letter of intent" is not a term of art. Its meaning and effect depend on the circumstances of each case.” In Galliard Homes -v- J Jarvis & Sons (1999) it was held that an agreement between the parties did not have legal effect until a formal contract, being a contract under seal was executed, however in Harvey Shopfitters Ltd -v- ADI Ltd (2003) it was found the mere fact that the parties had contemplated executing formal documents but had not done so did not detract from the parties intention to be contractually bound. HHJ Humphrey Lloyd QC held that in this case there had been a clear intention to create legal relations albeit it was accepted that Brunel never intended to contract unconditionally for the whole of the Works rather it had offered a limited contract by reference to value that would permit the formal contract, when executed, to take effect in retrospect. The court also had no problem in accepting that the second and subsequent letters were contracts that superseded the previous one and held that the fourth and fifth letters were accepted by ERDC's conduct in continuing to execute the works. On the issue of valuation the court concluded that work done by ERDC up to the expiry of the last contract on 1 September 2002 should be valued under the JCT Valuation Rules that is at the relevant rates and prices from ERDC’s tender; whereas for works executed after 1 September 2002 ERDC was entitled to be paid on a quantum meruit basis. However, it was held by the court that because the conditions after 1 September 2002 were not materially different to those prior to that date it would not be right to change from contract rates to an assessment based entirely on costs plus profit as a ‘reasonable price’ did not become unreasonable simply because the authority in the letter of appointment had expired; therefore the works should be valued by reference to ERDC’s original rates. This decision provides a timely reminder to parties, when assessing quantum meruit payments that they should be made from the standpoint of the financial advantage gained by the party instructing the additional work based on fair commercial rates, rather than purely on costs incurred in executing the work. DELAY ANALYSIS There continues to be a high demand for our services in the area of Delay Analysis headed by Simon Penrose. Simon is currently engaged on a number of very demanding exercises in terms of the size and complexity of the programmes involved NEW INSTRUCTIONS We are very pleased to have received new instructions this month from the following existing Clients:- Fitzpatrick Contracting Ltd EVENTS Trevor and Mark were kindly invited to partake in the annual golf day of Buckles solicitors at Toft in Lincolnshire. We could obviously not turn down such an offer. It turned out to be a fantastic day in terms of the organisation of the event, the condition of the course, the weather and the company of our fellow golfers. We also ended up on the winning podium with Trevor coming second in the overall competition with his partner for the day James Bisley and Mark winning the longest drive. NEW CLIENTS We are pleased to announce that we have been favoured with instructions from the following new clients:- Thyssen Schachtbau GMBH via Eversheds New instructions have also been received this month from the following existing clients:- O'Donnell Developments Ltd APPOINTMENT Neil Elder has been appointed as Quantum Expert by Thyssen Schachtbau GMBH via Eversheds in a case in the Technology and Construction Court, involving the valuation of major civil engineering works at the Cottam Power Station in Nottinghamshire. Brant Associates have been commissioned by Goldsmiths to prepare a cost plan for a barn conversion in Wadenhoe, Northamptonshire. FAREWELL On 26th May 2006 we said a fond farewell to David Kimber, who has moved with his family Heidi, William and Charlie to Canada. Naturally we were very sad to see David leave after 6 years with Brant Associates. We gave him a good send off and wish David and family every success in their chosen country. BRANT ASSOCIATES APPOINTS NEIL ELDER FRICS I am delighted to announce the strengthening of our senior management team with the appointment of Neil Elder FRICS as Director. Neil joins Brant Associates from the multidisciplinary practice of Schofield Lothian and brings over 30 years experience to the role. Neil has been known to me since we worked together 12 years ago. With a strong commercial background Neil has extensive experience in all areas of the construction and engineering industries and has developed a significant reputation for quality of service in the field of dispute avoidance, dispute management and dispute resolution. Neil has wide experience in not only advising clients in dispute but also in representing clients by the preparation of fully evidenced and structured arguments going to claim or defence. He has also acted as named expert in Arbitration and litigation proceedings. Trevor Brant NEW CLIENTS We are very pleased to announce that in addition to new instructions from our curent client base along with ongoing projects, we have been favoured with instructions from the following new clients:- CEL Roofing Ltd |