Started Work Under a Letter of Intent and Still Not Paid?
If you started work under a letter of intent and the full contract was never signed, you will usually still have routes to get paid. This article explains when an LOI becomes a binding contract, when you can claim a reasonable sum (quantum meruit), how caps and payment notices affect recovery, and the key steps and deadlines that protect your position.
Started Work Under a Letter of Intent and Still Not Paid? How to Recover What You’re Owed
You mobilised on the strength of a letter of intent. The client wanted you on site, the programme was tight, and signing the full contract could wait. Months on, that contract was never finalised, the scope has grown well beyond what anyone first discussed, and the money has slowed to a trickle or stopped altogether. It is one of the most common and most stressful positions a contractor or subcontractor can be in, and the legal picture is rarely as bleak as it first appears.
The absence of a signed contract does not usually mean you have no right to be paid. The law of England and Wales has dealt with letters of intent for decades. It provides several routes to recover payment for work genuinely carried out. What matters is understanding which route applies to your situation. You need to act before the position hardens against you, and avoid the handful of mistakes that turn a recoverable sum into an expensive lesson.
This article explains where you stand, what you can claim, the deadlines that apply, and the practical steps that protect your money.
What a letter of intent actually is, and why it leaves you exposed
A letter of intent, often shortened to LOI, is a document an employer issues so that work can begin before the full contract is in place. They are used for sensible commercial reasons: programmes are immovable, planning conditions or funding remain outstanding, or the final contract terms are still being negotiated. The LOI is meant to be a short bridge to a signed contract.
In practice, that bridge often becomes the only paperwork governing the relationship for months, sometimes for the entire project. That is where the trouble starts. Many LOIs are drafted quickly, capped at a modest figure, and given a short life, while the work they authorise quietly expands. As the scope grows, two problems commonly surface. There is often no agreed mechanism for valuing the extra work. On top of that, the parties end up disagreeing about whether it was authorised at all.
It also helps to understand what an LOI is in legal terms, because they are not all the same. Some operate as what lawyers call an “if” contract, sometimes described as a conditional contract. In plain English, the deal is: if you carry out the work, you will be paid for it. Under that type of arrangement, you may not be obliged to continue beyond the authorised scope, depending on the wording. The employer’s promise to pay may also be limited by the precise words used. Others go further and impose binding obligations, for example, a duty to proceed with defined works or to use reasonable endeavours to agree the full contract. Everything turns on what your particular letter says. Do not assume you can simply walk off site without exposure until that wording has been checked.
Do you have a contract, or not? Why that answer changes everything
The first question any construction solicitor will ask is whether your letter of intent created a binding contract. The answer determines what you can claim and how you claim it, so it is worth understanding the two possible outcomes.
When a letter of intent becomes a binding contract
The courts do not care whether a formal document was ever signed. They look at substance. Were the essential terms agreed, such as the scope, the price or a mechanism for fixing it, and the identity of the parties? And did both sides intend to be legally bound? A contract can come into existence purely through conduct. In one well-known case, a contractor was held to a contract on standard industry terms even though the employer never countersigned it. The key terms had been agreed and the works had been performed. Letters of intent also frequently incorporate a standard form contract, such as the JCT suite. That can happen by express reference, or through the way the parties then behave, and those terms can go on to govern the relationship. If a binding contract exists, your claim is for the sums due under it.
See our guide to NEC and JCT Construction Contracts.
When no contract is formed
Sometimes the court concludes that no binding contract ever came into being. That can happen where significant terms were left open, where the letter was marked “subject to contract,” or where the price was never agreed. A “subject to contract” label is strong evidence that the parties did not intend to be legally bound yet. Only in rare and fact-specific cases can conduct displace that presumption. This sounds alarming, but it does not mean you worked for free. It simply moves your claim onto a different legal footing, and that footing has a name.
If there’s no contract: recovering payment through quantum meruit
Where work is requested and carried out under a letter of intent but no contract crystallises, you will often be entitled to claim a “quantum meruit.” The phrase is Latin for “as much as is deserved,” and in plain English, it means a reasonable sum for the work you have done. It is rooted in the law of restitution and the principle of unjust enrichment. The law will not allow someone to take the benefit of your labour and materials without paying a fair price. This principle has been settled since the leading case of British Steel v Cleveland Bridge in 1984. There, a contractor manufactured steel under a letter of intent, but no contract was ultimately agreed. The court held that it was still entitled to a reasonable sum for the work.
How is a “reasonable sum” valued?
A quantum meruit is not a blank cheque for whatever figure you would like. It is a reasonable sum, often assessed by reference to the market value of the work and the benefit the employer actually received. Where the parties disagree, expert evidence is used to fix it. There is a further trap here. If your tender or the letter of intent referred to particular rates, a court may apply those rates. That can hold even where they are less favourable to you than the actual cost of the work. This is exactly what happened in one case, where a contractor hoped to be paid on a cost-plus basis but was held to the tendered rates instead. The lesson is that uncertainty is the enemy. The figures you signalled at the outset can come back to define what you recover.
Several factors drive the value of a quantum meruit claim:
Your tendered rates and any figures in the letter
If you submitted a priced tender, or the LOI named a sum, a court is likely to treat those as the benchmark for a reasonable price. That can work against you if your real costs ended up higher than you priced.
The market value of the work performed
The valuation reflects the objective worth of what the employer received, not simply your costs with a margin bolted on. Where the parties cannot agree, this is established through expert evidence.
The quality and benefit of the work
A quantum meruit depends on the employer having received a genuine benefit. Defective, incomplete, or rejected work can reduce the sum recoverable or defeat the claim for that element altogether.
The strength of your records
Your claim stands or falls on contemporaneous evidence of what was instructed, what was done, and what it was worth. Thin or reconstructed documentation is the single most common reason that otherwise sound claims unravel.
The cap trap: when working beyond the limit means working for free
Many letters of intent contain a financial cap, a maximum sum the employer commits to pay, and often an expiry date or a value limit as well. Treat these as hard lines, not formalities, because the courts will usually enforce them strictly.
In a leading case, a contractor continued working after its costs exceeded the cap set in the letter of intent. It then claimed a reasonable sum for the excess. The court refused. It made no commercial sense, the judge said, to let a financial limit be sidestepped simply by carrying on working beyond it. The work done over the cap was at the contractor’s own risk, and it went unpaid. There are limited exceptions. They might apply where the employer has agreed a higher figure, issued fresh instructions that amount to a separate contract, or behaved in a way that prevents it from relying on the cap. Even then, these are difficult to establish, and you should never count on them.
The practical implication is clear. If you are approaching the cap, the value limit, or the expiry date, that is the moment to stop. Secure written authority to continue first, whether through an increased cap, an extension, or a fresh letter. Pressing on in the hope of arguing about it later is precisely the trap that leaves contractors working for nothing. Our Construction Contract Review & Procurement Advice service can help you check and negotiate those terms before the position becomes critical.
Adjudication: often the fastest route to getting paid
If your letter of intent amounts to a construction contract, you have a powerful tool at your disposal. It is adjudication, under the Housing Grants, Construction and Regeneration Act 1996, usually called the Construction Act. Adjudication is a fast, interim process in which an independent adjudicator decides the dispute, ordinarily within around 28 days. The decision is binding and enforced by the courts on a “pay now, argue later” basis. You can refer a dispute to adjudication at any time, which makes it far quicker and cheaper than court proceedings. This route is only available where your arrangement falls within the statutory definition of a “construction contract.” A minority of letters of intent sit outside it, for example, certain professional appointments or work that the Act treats as excluded operations.
Why does this matter so much for letters of intent?
Until October 2011, a construction contract had to be in writing to qualify for adjudication, which excluded many informal arrangements. Since the amendments brought in by the Local Democracy, Economic Development and Construction Act 2009 came into force on 1 October 2011, oral and partly-oral construction contracts are also covered. That change was significant for exactly this scenario, because letters of intent are so often incomplete, evolving, or supplemented by conversations on site. Even a partly documented LOI arrangement may give you the right to adjudicate and force the issue of payment.
How the payment notice regime can work in your favour too
The Construction Act also imposes a structured payment process. The payer must serve a payment notice for each payment. If it wants to pay less than the sum applied for, it must serve a valid pay less notice in time. Where the employer misses the deadline or gets the notice wrong, the amount you applied for can become the sum due, known as the “notified sum.” That holds regardless of the underlying valuation, and it is the basis of a so-called “smash and grab” adjudication. All of this depends on your own payment application being valid in the first place. It must comply with the contractual and statutory requirements needed to trigger the regime. If your letter of intent qualifies as a construction contract, these protections apply to you. It is always worth checking whether the correct notices were served before you assume the dispute is purely about value.
Practical steps to protect your position and recover payment
Whether your route is negotiation, a payment application, or adjudication, the following steps put you in the strongest position:
Pin down exactly what you are working under
Find the letter of intent and read it closely for any cap, value limit, expiry date, or reference to standard terms. These details determine whether you have a contract, what you can claim, and how much you can recover.
Stop before you breach the cap or expiry
If the work is nearing the financial limit or the letter’s end date, do not simply carry on regardless. Secure written authorisation to continue, an increased cap, or a replacement letter before performing more work.
Build your evidence now, not later
Keep dated records of instructions, variations, progress, correspondence, and valuations as the project runs. A reasonable-sum claim depends almost entirely on contemporaneous documentation, and it is very hard to recreate convincingly after the event.
Raise payment promptly and in writing
Submit applications for payment and chase them formally rather than relying on verbal assurances. Informal arrangements and silence weaken your position and muddy the timeline if a dispute follows.
Take advice early, while your options are open
The sooner a construction solicitor is involved, the more leverage you retain. Recovery also tends to be faster and more cost-effective, whether that means negotiating a settlement, serving a properly drafted payment application, or commencing adjudication. Delay steadily narrows the choices available to you.
Time limits and consequences you can’t afford to ignore
Although you can refer a live dispute to adjudication at any time, your underlying right to recover does not last indefinitely. As a general rule, a claim for breach of a simple contract or for a reasonable sum must be brought within six years. That rises to twelve years where the contract was executed as a deed. The clock starts at different points. For a contract claim, it generally runs from the date of the breach. For a quantum meruit claim, it runs from around completion of the work or the date payment fell due. Once that limitation period expires, the claim will generally be time-barred, regardless of its merits.
The cost of delay. Limitation is only part of the picture. Delay erodes the very evidence your claim relies on, hardens the other side’s account of events, and weakens your negotiating hand. The longer a letter of intent runs without a signed contract, the less likely the parties are ever to sign one. The eventual reckoning also becomes messier.
The consequences of getting it wrong. Working beyond a cap, failing to document instructions and variations, or missing a limitation deadline can each turn a recoverable sum into an unrecoverable one. The figures involved are rarely trivial. On commercial projects, unpaid work under a letter of intent routinely runs well into six figures. That is precisely why these situations reward early, decisive action.
How JLN can help
JLN’s Construction and Building Disputes team acts for contractors, subcontractors, developers, and employers caught in exactly these circumstances. We move quickly to establish whether you have a binding contract or a quantum meruit claim. We then value your position realistically rather than optimistically. From there, we pursue recovery by the fastest and most cost-effective route, whether that is negotiation, a payment application, or adjudication. If you come to us early, we can sometimes head off a dispute altogether. Early intervention secures the right authorisations, notices, and records before the position hardens.
If you have started work on a letter of intent and the payment has stalled, one of the most common and risky responses is to keep working and hope it resolves itself. Get in touch with our construction team for a clear, commercial assessment. We will set out where you stand, the likely cost and speed of each option, and what to do next.
We will respond to most enquiries with both an indicative scope of work and a fee estimate, as well as the offer of a complimentary 20-minute discovery video call to discuss your issues and how we can help, before sending a more considered formal fee estimate via email.
In some limited cases, if you would just like initial advice and guidance on a call, we may instead offer a fixed fee appointment (commonly charged between £280 to £500 + VAT) whereby we will review the information you provide, hold a video call consultation and then follow up with an advisory email (as well as a fee estimate for any further work identified).
Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. We first need an overview of the background and your issues, together with any significant documents, to provide an indicative scope of work and fee estimate.
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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.
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