Contract Practice

Quantum meruit

Quantum meruit is a Latin phrase meaning "what one has earned”. In the context of contract law, it means something along the lines of "reasonable value of services”. This amount may exceed the sum determined

Letter of intent

A Letter of Intent (LOI) lets a contractor start limited works before a formal contract is signed. It sets scope, cost cap, and duration, keeping projects moving but carries risks if poorly drafted or used too long.

Risks for the contractors to use the letter of intent

For contractors, LOIs risk limited payment due to caps, unclear rights to overheads/profit, no firm extension of time or damages relief, and exposure if the main contract fails or scope is exceeded.

Risks for the client with using the letter of inetent

For clients, LOIs risk high costs without a full contract, unclear scope leading to disputes, weak control over programme, exposure to wider claims, and being bound by unintended contract terms.

What are performance bonds

A performance bond is a financial guarantee issued by a bank or insurer ensuring a contractor fulfills contractual obligations. If they default, the bond covers losses or completion costs, protecting the client from risk.

Parent company guarantee

In construction, a parent company guarantee is a promise by the contractor’s parent firm to honor obligations if the subsidiary fails, covering completion, defects, or damages, giving the client added security and reducing performance risk.

The Contract (Rights of Third Parties) Act 1999

The contract rights of third parties allow non-signatories to enforce terms if the contract permits or benefits them, giving funders, tenants, or buyers protection in construction deals without separate warranties.

Collateral warranties

Collateral warranties in construction give third parties, like funders, tenants, or purchasers, direct rights against contractors or designers, ensuring accountability for defects or delays beyond the main contract parties.

Explain what is a bond

A bond is a legally binding promise (usually by deed) whereby the person giving the promise (the bondsperson) promises to pay another person (the employer) a sum of money.

Performance bond

In construction, a performance bond is a guarantee from a bank or insurer that a contractor will meet contract terms. If they default, the bond covers costs for completion or damages, protecting the client from financial loss.