What Is a Letter of Intent in Construction?
By Wyatt Cooper · Published · 3 min read
Key takeaways
- A letter of intent (LOI) bridges award and the signed contract; it should say whether it binds anyone to anything.
- A useful LOI authorizes only named work, such as shop drawings or a material deposit, up to a dollar cap, and says how that work is paid if no contract follows.
- The federal version, a letter contract, is scheduled to become a full contract within 180 days or before 40% of the work is done, whichever comes first.
A letter of intent (LOI) in construction is a short letter from an owner or general contractor telling a contractor it intends to award the work, before the full contract is signed. It may only signal intent, or it may authorize limited work, such as ordering long-lead material, up to a stated dollar limit, until the contract replaces it.
What a working LOI says
Letter of intent: 26 Electrical
- Intent
- To award the electrical subcontract at $412,600, subject to a signed subcontract
- Authorized now
- Shop drawings and release of switchgear for fabrication
- Not to exceed
- $25,000 until the subcontract is signed
- If no subcontract follows
- Authorized work paid at documented cost; materials become the GC's
- Expires
- 30 days from the date of the letter
Everything outside the authorized work waits for the subcontract. Start of field work is usually its own notice to proceed. LOIs are common in buyout when a long-lead item can't wait for the paperwork.
The federal model: letter contracts
Federal rules call it a letter contract: "a written preliminary contractual instrument that authorizes the contractor to begin immediately" (FAR 16.603-1). It is used only when work must start at once and a full contract can't be negotiated in time; when based on price competition it must carry "an overall price ceiling," and its schedule must turn it into a definitive contract "within 180 days after the date of the letter contract or before completion of 40 percent of the work to be performed, whichever occurs first" (FAR 16.603-2). Private LOIs have no such rule, so write the cap and the end date in.
The bottom line
A letter of intent promises a contract; it should authorize only named work, up to a cap, for a limited time.
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Sources
- FAR 16.603-1, Letter contracts: description — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
- FAR 16.603-2, Letter contracts: application — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
Questions
Is a letter of intent binding?
It can be. If it authorizes work and promises payment, courts may enforce those parts. If it says it is non-binding and authorizes nothing, it usually is only a statement of intent.
Should a sub start work on an LOI?
Only the work it names, up to its cap, and only if it says how that work is paid if no contract follows. Anything more waits for the signed subcontract.
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