Letter of Intent (LOI)

A Letter of Intent (LOI) is a written communication issued by a government procuring entity to the likely successful bidder, indicating the government's intention to award the contract to that firm, pending completion of certain formalities such as clearances, approvals, or negotiations. An LOI is not the same as a Letter of Award, it does not constitute a final contract, but it signals that the bidder should begin preparatory actions.

What is a Letter of Intent in government procurement?

LOIs are used in situations where the procuring entity is confident about the selection outcome but cannot issue a formal LOA because internal approvals (finance concurrence, higher authority sanction, legal review) are still pending. In such cases, rather than leaving the preferred bidder entirely uninformed, which could cause it to deploy its resources elsewhere, the department issues an LOI to put the firm on notice that it is the selected vendor.

The LOI typically states that the government intends to award the contract to the firm for the described scope of work at the quoted or negotiated price, and it may request the firm to begin preparatory work (mobilisation, procurement of long-lead materials, submission of certain documents) at its own risk, pending the formal LOA. The key phrase "at its own risk" is standard because the LOI does not guarantee the contract, the award could theoretically be cancelled or modified before the LOA if approvals are not obtained.

In large infrastructure contracts, LOIs often serve an important practical function: contractors need months to mobilise equipment, hire crews, and order specialised materials. Waiting for all internal government clearances before giving any signal would delay project start. The LOI balances due process with practical project scheduling.

The LOI does not release the successful bidder from its bid validity obligations. The original bid, with all its terms and prices, remains binding until the formal LOA or contract is signed.

Why it matters for bidders

An LOI is a strong positive signal but not a guarantee. Experienced contractors treat an LOI as a conditional green light: they begin low-risk preparatory work but do not commit major capital expenditure until the LOA arrives. Ordering long-lead equipment (which may take 6-12 months to deliver) is typically justified by an LOI, because the procurement risk is manageable if the award is cancelled. Hiring a large workforce before the LOA is riskier.

Bidders should also note that some departments use LOI and LOA interchangeably, which can cause confusion. Read the document carefully: if it says "we intend to award" or "you are likely to be awarded," it is an LOI. If it says "the contract is awarded to you" or "you are hereby accepted," it is an LOA.

Example

A tunnelling contractor is declared L1 in a metro construction tender. The metro authority issues an LOI informing the contractor of its intention to award, pending final approval from the state finance department. The authority asks the contractor to begin site preparation and submit insurance documentation. The contractor commences site survey and identifies the tunnel boring machine it will deploy, but holds off on mobilising the full crew until the LOA arrives three weeks later.