Letter of Intent

A letter of intent (LOI) is a pre-contract communication used in public procurement to bridge the gap between the formal contract award decision and the execution of a fully signed contract. It is most common on large, complex, or time-sensitive contracts where early mobilisation activities are commercially necessary but where final contract drafting or negotiations are still in progress.

What is a Letter of Intent?

A letter of intent typically confirms that the contracting authority intends to award the contract to the named supplier, pending completion of the standstill period, finalisation of contract terms, or both. Depending on its drafting, an LOI may:

• simply inform the preferred bidder of the intention to award, with no authorisation to incur costs,
• authorise specific, limited preparatory activities (such as recruiting key staff, procuring long-lead materials, or beginning design work) up to a specified value,
• provide a degree of financial protection if the contract is not ultimately signed for reasons outside the supplier's control.

The legal status of a letter of intent varies by jurisdiction and by how it is drafted. An LOI that authorises specific expenditure and contains terms on reimbursement may create limited contractual obligations, even if it falls short of a full contract. Suppliers should always have any LOI reviewed by legal counsel before committing costs on its basis.

EU procurement law does not specifically regulate letters of intent, but they must not be used in a way that circumvents the standstill obligation under Directive 2014/24/EU. Authorising substantive work before the standstill period expires, in a way that makes the award practically irreversible, could undermine the purpose of the standstill regime.

Why it matters for bidders

For winning bidders, a letter of intent offers commercial reassurance and may enable earlier mobilisation, which can be critical for contracts with fixed commencement dates (such as term service contracts replacing an incumbent). However, relying on an LOI as a substitute for a signed contract carries risk: if the procurement is challenged and the contract is not ultimately awarded, reimbursement of pre-contract costs depends entirely on what the LOI says.

For unsuccessful bidders, the issuance of an LOI may signal that the authority is proceeding with intent to sign. The standstill period remains available regardless of whether an LOI has been issued.

Example

A Swedish transport agency awards a rail maintenance contract. Due to the complexity of the mobilisation plan, the agency issues a letter of intent authorising the winning supplier to recruit up to ten engineers and begin depot access planning, with costs reimbursable up to SEK 500,000 in the event the contract is not signed. Full contract signature follows twenty days later after the standstill period has expired without challenge.

Frequently Asked Questions

Is a letter of intent legally binding?

It depends entirely on the document's wording. An LOI that simply states an intention to award is generally not legally binding. An LOI that authorises specific expenditure and commits to reimbursement may create enforceable obligations. Always read the document carefully and seek legal advice before incurring costs on its basis.

Can a contracting authority withdraw an LOI?

In principle, a contracting authority can withdraw an LOI if the procurement is cancelled or a standstill challenge succeeds. Whether the supplier can recover costs incurred in reliance on the LOI will depend on the LOI's terms and applicable national contract law.

Does every procurement include a letter of intent?

No. Many contracting authorities proceed directly from the contract award decision to contract signature without issuing an LOI. Letters of intent are more common on large infrastructure, defence, or complex service contracts where early mobilisation is essential.