Poorly written contracts often lead to misunderstandings and ultimately lawsuits between the parties involved. Contractual lawsuits also result from parties that never read or fully understood the terms of the contract. Although a subcontractor’s letter of intent is not a contract, this document provides many of the details of the formal contract in a condensed form. The contractor gives this letter of intent to the subcontractor to specify the details and compensation of the work the subcontractor will perform.
What Needs to Be in the Letter?
The contractor should make sure that the letter of intent is as clearly written as possible. In most cases, a formal contract follows the letter of intent, and the specific terms of this letter become the terms of the actual contract. The contractor should clearly state the value of the compensation offered to the subcontractor and the specifics of the work the subcontractor will perform. This document should list the starting and completion dates for the work the subcontractor will perform. Further, the letter of intent should specify any insurance or performance bond requirement associated with the subcontracted work.
The subcontractor’s letter of intent also should identify the specifics of the working conditions associated with the project. The letter should indicate who holds responsibility for giving instructions and is in charge of the work site, whether the contractor or subcontractor. Specific information in the letter of intent includes the number of employees needed, the access required to finish the work, the hours during the day that the subcontractor will work and other considerations such as noise and waste.
Time Limit of the Letter
A letter of intent is not the same as the finalized contract. For this reason, the subcontractor’s letter of intent is a temporary document used until the contractor and subcontractor sign a formal contract. Both parties always should insist on signing an actual contract prior to the start of the project. A complete and well-written contract that both parties fully understand helps reduce the chances of a lawsuit.
The letter of intent also can inform the person or business that hired the contractor of the specific tasks the contractor has delegated to a subcontractor. If the subcontractor assumes all of the liability and responsibilities of the original contract, the subcontractor’s letter of intent should clearly identify this responsibility.
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.