Letter Agreements: Risks, Purpose, And What To Include

In the fast-paced construction market, contractors on smaller projects, and even some contractors on bigger projects, might be asked to begin work before entering into a formal written contract. While oral agreements can be binding and enforceable¹, they are not recommended because they leave the substantial possibility that the parties will later disagree over their respective interpretations of the agreement or whether an agreement was reached at all. At the risk of stating the obvious – it always makes sense for construction professionals to put their agreements in writing before any work begins.

When a formal contract is not possible, parties should consider entering into a letter agreement that, at minimum, includes the essential terms of price, scope of work, and location of the project.² A letter agreement reduces important business terms to writing to allow work or services to start before a more definitive agreement is signed. "Letter agreement" is not a