Posts Tagged 'letters of intent'

Something might turn up…

Now this is a word of warning for those of a nervous disposition……don’t read this! Why?

Well I could be writing about anyone you know in construction right now…..

I read the article The Eye Test in last Fridays ‘building’ magazine, page 42/43 if you happen to get a paper copy, or here’s the link if you subscribe.

It’s a message for all company directors out there, don’t take risks at the expense of the support of your creditors.

The gist of the case was about a property company continuing to trade beyond the point any reasonable person would, on the blind belief ‘that something might turn up’ and the consequences this had.

The thing is it really is quite a difficult call to make, as if you are certain you’ve got a deal that will make you a fortune, and you’ve got all your eggs in that basket, and bang! All of a sudden things don’t quite fall into place. Suddenly you could be in a very cold and lonely place! And who wouldn’t think…..something might turn up…… invariably if you put the effort in, make a few calls, ask a few favours ……… does. But be warned it might not, and there are consequences…..

The judgment in the case itself is a message to company directors, but the key principles apply to anyone involved in running a business these days when they get to that point of no return.

So the messages from the article that came out to me were:

  • Look after you creditors and their interests – surprising that to some people you might think
  • Monitor your cash flow intensely, identify any irregularities that highlight the company cannot make its payments by the due dates – basic common sense isn’t it?
  • Investigate all available options for putting the company back on track – and don’t delay in doing so, it takes time
  • Hold regular board meetings, and keep notes of why you have decided to act in that way, what facts did you have that made you take a particular decision – you’ll never remember in time to come.
  • Consider the need to keep all stakeholders in the business informed at the appropriate times – everyone has an interest in keeping the business alive
  • Don’t place orders for work when there is no prospect of you paying for that work – common sense again!
  • Don’t put personal or any other interests before those of the company – difficult one to judge but don’t go for short term greed

And………….don’t continue to trade on the basis that ‘something might turn up’…..

For anyone interested to read more on this, the case is Roberts vs Frohlich and if you do read it, it has some great insights into the way or industry works with developers and contractors jostling in the formation of contracts. It also has around paragraph 43 a great quote from the letter of intent and the problems of naming individuals in any such letter. Fancy naming the Chairman of an organization as the only person you could negotiate commercial matters with!

Couldn’t resist this one either……….there’s also a Spanner in the works too!

Letters of Intent and all that….

Now here’s a thing who works on a letter of intent….no one in their right mind would? Surely?

Ah but oh yes we do, and there are lots of you out there doing it.

We did a state of the economy survey at the beginning of this year (we’ll do another one next year) and a massive 75% of respondents said they worked on them…….so what of the pitfalls?

Why do we do it? We haven’t got time……then make time I say, it’s so vitally important to establish the correct contract at the outset.

If you find you really really must, then use them ever so sparingly……make sure that if you do enter into such an agreement that the formal contract is executed as quickly as possible thereafter, and at least before the expiration of any financial cap or time limit you have imposed/agreed to and that you include provisions for ‘what if’ it all goes wrong too.

Otherwise if you fall out…….. you could be asking yourself……
what are the terms
have they been varied
did you do what was agreed
have there been subsequent variations to it
were the variations recorded and agreed
was the original letter of intent revised/amended
if so by whom
did they have the authority to do that
was it sent correctly
did you receive it
have you been paid by the terms
do we pay/charge VAT
did we sign a copy
have we got a copy of the letter
is there a dispute
what mechanism is there to resolve disputes ………..

And then you’ll be asking yourself why on earth did we start on a letter of intent and not get the contract sorted in the first place?

If you wanted some further examples of cases to read when things went wrong then have a read of this! (number 4 on the list)

Happy reading……of your contract that is!

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About Me

I’m now the Managing Director of Mynott Associates Limited my own specialist measurement business. I’ve been in the industry all of my life since I left school. My first job was with Bovis Construction as a management trainee where I trained to become a quantity surveyor. I’ve worked for contractors all through my career, I am FRICS, FCIOB and MCIHT qualified and act as an RICS assessor. I’m also a keen Arsenal supporter having followed them from a young boy

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