Should You Start Work on a Letter of Intent? What Every Subcontractor Should Know Before Mobilizing

A letter of intent (LOI) is a preliminary document that signals a party intends to enter a full contract later. In construction it travels under many names — limited notice to proceed, early work authorization, limited authorization to proceed, term sheet, early start agreement — but the common thread is that it comes before the deal is fully papered. It is not, in most cases, a substitute for a signed subcontract, and treating it like one is where subcontractors get hurt.

The distinction that matters is what each document actually fixes. A fully executed subcontract nails down scope, price, payment terms, indemnity, insurance, flow-down, and dispute resolution — the whole risk allocation. An LOI typically fixes almost none of that. It may authorize a narrow slice of early work (procuring long-lead materials, mobilizing, site prep) while the real terms are still being negotiated. You're being asked to start performing before the rules of the relationship exist.

It's worth separating an LOI from a genuine notice to proceed. A notice to proceed is usually issued under a contract that's already signed — it triggers performance obligations both parties have already agreed to. An LOI, by contrast, often precedes any binding agreement at all. The construction firm Smith, Gambrell & Russell notes that these letters almost always create uncertainty, and uncertainty invariably leads to disputes. The label on the page tells you far less than the terms inside it.

Whether an LOI is legally binding doesn't turn on what it's called. It turns on the parties' intent and how definite the terms are. An LOI can become enforceable when the essential terms are clear and both sides act as though a deal exists; but courts routinely treat vague LOIs as unenforceable 'agreements to agree,' which the law generally won't hold either party to. That thin, fact-specific line is exactly why LOIs generate so much litigation.

The practical problem for a subcontractor is that you often don't know which side of the line you're on until it's too late to matter. You read the LOI as a commitment; the GC reads it as a non-binding placeholder. You mobilize and buy material on the strength of it; the GC treats the real negotiation as still open. When the two readings collide — usually because the deal changed or fell apart — you're litigating whether a contract ever formed, with real money already spent.

There are cleaner instruments for the situation an LOI is trying to solve. ConsensusDocs 203, the Interim Directive, was written specifically to let an owner or contractor order work to proceed before cost and time are finalized, without the ambiguity of a bare letter. If someone needs you to start before the full contract is ready, a purpose-built interim agreement is far safer for everyone than an improvised letter no one can later agree on.

This is the risk that a letter of intent quietly loads onto the subcontractor. You've cleared your schedule, turned down other work, bought material, and put a crew on the job — and then the negotiation collapses or the GC awards the scope elsewhere. If no binding contract ever formed, your breach-of-contract claim may simply not exist. You're left trying to recover the value of what you actually did through equitable theories like quantum meruit or unjust enrichment.

Those theories are a lawsuit, not a safety net. Quantum meruit lets you recover the reasonable value of work performed when no contract governs — but it's jurisdiction-dependent, unpredictable, frequently measured at the rates in the LOI rather than the price you expected, and generally unavailable if an express contract already covers the work. You may recover something; you may recover far less than you're owed; and you'll spend money and months fighting for it.

The leading cautionary tale is Skyrise Construction Group v. Annex Construction. A framing subcontractor cleared its schedule and declined other work after a general contractor emailed a 'letter of intent'; when negotiations broke down, the Seventh Circuit held the LOI was an unenforceable agreement to agree and rejected the sub's breach-of-contract, promissory-estoppel, and misrepresentation claims. The sub had reorganized its business around a letter that turned out to bind no one. That is the outcome an LOI makes possible.

Sometimes the schedule genuinely can't wait, and starting on some form of authorization is a business decision you're willing to make. If so, don't sign a bare letter — negotiate the LOI so it protects you where a subcontract would. Start with a hard cap on committed spend: a dollar ceiling on what you'll incur before the full contract is executed, so your exposure is bounded and known rather than open-ended.

The single most important clause is an explicit payment obligation for authorized work performed even if the full subcontract is never signed. Get it in writing that you will be paid for the specific work the LOI authorizes, regardless of whether the larger deal closes. Pair it with a tightly defined, limited scope — procurement and mobilization only, for example — and language making clear that no contract is formed for anything beyond that narrow authorization until the formal agreement is executed.

Two more guardrails. Put an expiration date on the LOI — a hard deadline by which the full subcontract must be signed or the authorization terminates — so you're not left performing indefinitely under a placeholder. And state plainly which provisions are meant to be binding and which aren't, so there's no later fight about intent. None of this replaces the protections in a real subcontract, covered in our red-flags checklist, but it keeps a necessary early start from becoming an uncapped gamble.

The instinct to keep the customer happy by jumping in early is understandable — but it's exactly the instinct that leads to starting on terms nobody has actually agreed to. The same pressure drives the broader habit of rubber-stamping GC contracts: the immediate relationship feels more real than the abstract risk, right up until the risk materializes. An LOI concentrates that risk into a single decision to mobilize before the terms exist.

The disciplined move isn't to refuse every early start — it's to make the early start on paper that actually protects you. Know before you mobilize what your scope is, what triggers your payment, and what happens if the deal changes. If those answers aren't in the document, they're not protecting you, no matter how warm the phone call was. Getting scope and payment defined up front is the same discipline that prevents scope-of-work disputes later.

A fast contract review turns this from a gut call into an informed one. Before you commit crews and material to a letter, know exactly what it does and doesn't obligate the other side to do — in minutes, not days. See how RCS reviews a letter of intent or subcontract against your standards and flags the missing protections, so you're never mobilizing on terms you haven't actually read.