ERDC Group Ltd. v Brunel University

Letters of intent have no fixed legal effect. Their meaning depends on the wording and circumstances. They may create binding contracts for limited work pending a contemplated formal contract.

Where such a contract is sufficiently certain, work performed under it is valued according to its agreed valuation mechanism, rather than on a quantum meruit. Work performed after the limited contract expires may be recoverable on a quantum meruit. The assessment should consider the parties’ previous rates and prices, reasonable cost, appropriate profit, the value of the benefit conferred, and any prolongation costs. It must exclude payment for delay, inefficiency and defective work. A quantum meruit assessment cannot ordinarily produce a negative balance against the contractor.

ERDC carried out sports facilities works for Brunel University after the parties exchanged several letters of appointment pending planning permission and execution of a formal JCT contract. The first three letters were countersigned. ERDC accepted the later letters by continuing the works, but no formal contract was executed.

The final letter expired on 1 September 2002. ERDC continued working and later claimed that all work should be valued on a costs-plus quantum meruit basis. Brunel contended that work before 1 September should be valued under the JCT valuation provisions and that later work should be assessed by reference to the same rates and prices. Issues also arose concerning delay, disruption, defective work and Brunel’s counterclaim.

1. Letters of intent. The letters and ERDC’s acceptance created binding, conditional contracts. The letters displayed an intention to create legal relations and were sufficiently certain. The expression “letter of intent” is not a term of art. The court must examine the wording and circumstances in each case.
2. The contracts identified the work, payment basis, relevant periods and limits of authority. The reference to the normal JCT valuation and certification rules was sufficiently certain. Matters not expressly addressed could be supplied by interpretation or implication. The absence of agreed liquidated damages or a detailed extension-of-time mechanism did not prevent contractual enforceability.
3. Work before 1 September 2002. That work was to be treated as performed under the contract contemplated by the final letter and valued under the relevant JCT valuation rules. It was not to be valued generally on a quantum meruit or costs-plus basis. Appropriate alternative rates or cost-based valuations could be used where the contractual rates were unsuitable.
4. Work after 1 September 2002. The work was recoverable on a quantum meruit because no contract remained. However, the quantum meruit was to be assessed on the same basis as the earlier work. The parties had continued to use the existing rates and prices, and those rates were objectively reasonable. The assessment had to include an appropriate profit element, fixed at 0.7 per cent in this case, and could include reasonable time-related costs where the works were prolonged beyond the period contemplated by the rates.
5. The assessment had to take account of the value of the benefit realised or realisable by Brunel. Brunel could not obtain a contractual-style set-off for remedial costs, but the value of work could be reduced where defective or incomplete work meant that the benefit was reduced or absent. Payment could not be negative. Delay, inefficiency, defective work and rectification work were not themselves remunerable.
6. The court rejected ERDC’s critical-path case and made only limited allowances for delay, principally in relation to lighting. It assessed the balance payable at £360,110.09 plus VAT, producing a total of £423,129.35. Interest was not part of the quantum meruit assessment but could be awarded in the usual way.