What is a Letter of Award?
In many construction or development projects (“Projects”), an employer (“Employer”) will usually invite contractors (“Contractors”) to submit their respective bids and offers (“Tenders”) towards a specific scope of work of the Project, such as the supply of goods and rendering of works and services. Where the Tender of a Contractor is successful, the Employer will notify the Contractor of such success by way of a letter of award (“Letter of Award”), which is sometimes referred to as a letter of acceptance.
Terms of a Letter of Award
A Letter of Award sets out the key terms and conditions which will be included in the formal contract between the Employer and the successful Contractor (“Contract”). Terms contained in a Letter of Award typically include the following:
- Date of the Letter of Award;
- Reference to the relevant Project;
- Reference to the successful Tender;
- Scope of Work awarded;
- Contract Sum;
- Contract Period, including the Date of Commencement and the Date of Completion;
- Contract Agreement, which is the Standard Form of Contract under which the Contract will be governed;
- Other documents (“Contract Documents”) forming part of the Contract;
- Requirement of a Performance Bond or Performance Security;
- Requirement to obtain the necessary insurance policies;
- Permitted area(s) of operations and access; and
- Acceptance of the Site.
Is a Letter of Award legally binding?
Generally, a Letter of Award is not legally binding if the Letter of Award is not signed and indicates acceptance by the successful Contractor and returned to the Employer. A Letter of Award will commonly include a term where the Letter of Award, together with the successful Tender, will be a legally valid and binding contract once the Letter of Award is accepted and signed by the successful Contractor. An example of such a term is as follows:
“Until such time the formal Contract and the supporting Contract Documents are being prepared and executed between [the Employer] and the [successful Contractor], the duly signed copies of this Letter of Award, together with the [successful Tender], shall constitute a legally valid and binding between the Parties.”
In addition to the above, the signed Letter of Award may be binding on the relevant parties in the event there is no subsequent formal Contract to be entered into. An example of such a term which may appear in a Letter of Award is as follows:
“This Letter of Award shall constitute a legally valid and binding contract between the Parties hereto unless a definitive agreement is entered into between the Parties, in which case, such definitive agreement shall supersede this Letter of Award.”
It is important to note that there is a possibility that the formal Contract may contain several amended or varied terms and conditions, and that the formal Contract will supersede any other terms and conditions agreed between the parties before the formal Contract, which may include the Letter of Award. An example of such a term in the formal Contract may appear in the following form:
“This Contract, together with the Contract Documents, shall constitute the entire agreement between the Parties relating to the subject matter contained in or the obligations to be performed under this Contract, and shall supersede all communications, negotiations, commitments, understanding and agreements previously agreed to between the Parties, whether oral, written or otherwise.”
Whilst Contractors will be pleased with the success of their respective Tenders and thereafter with the receipt of a Letter of Award from the Employer, such Contractors should read and understand the terms and conditions as set out in the Letter of Award. Contractors must always keep in mind that once a Letter of Award is duly signed and returned to the Employer, the Letter of Award may very well be legally binding between the Employer and the relevant Contractor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.