Consent to spend

[edit] Introduction

In construction the term 'consent to spend' is sometimes referred to as an ‘if’ contract. A letter with instructions to proceed and consent to spend allows work to proceed up to a certain value while the contract itself is still being drafted. The consent to spend letter can be a legally binding contract that pre-dates the principal contract. Once the principal contract is signed the consent to spend letter can be superseded. Consent to spend can also be captured in a letter of intent.

[edit] Consent to spend letter contents

It is good practice to capture as a minimum the following items in a consent to spend letter:

• The parties involved in the contract.
• A description of the works required to avoid ambiguity.
• A statement of the intention of the parties to enter into a formal contract.
• The price, or if the price is not known, established rates can be mentioned or the contract administrator can detail specific requirements to ensure financial control.
• The maximum expenditure limit relating to the consent to spend contract.
• The date of possession and access to site.
• The completion date if known.
• The contract administrator can refer to a short-term program.
• There might be sectional completion requirements that can be listed.
• Insurance requirements.
• Termination procedure.
• Confirmation that the contract created by the consent to spend will be terminated by the principle contract.

It is advisable to capture as much detail as possible in the letter of consent to spend. The letter can be a great advantage to the construction program, but the risk of not capturing details or covering basic clauses can result in problems.

[edit] An alternative to a consent to spend or letter of intent

An employer can use a pre-construction service agreement (PCSA) if they need the input of a contractor before the construction contract is in place. A pre-construction service agreement is a contract commonly used in two-stage tendering. Two stage tendering involves the employer tendering the project on the basis of an incomplete design. A contractor is then chosen to work with the employer based on its proposal for the pre-construction second stage of the tender.

The employer might want the contractor’s input on programming, designs and buildability prior to issuing the construction contract. In the right circumstances, a PCSA can be beneficial to both parties and bring design improvements and costs savings, and encourage a strong working relationship. A letter of intent/consent to spend is not likely to achieve the same benefits as a PCSA. A PCSA is however a formal agreement and a small-scale project might not have the budget or program to accommodate this type of formal agreement.

[edit] Conclusion

A consent to spend letter can be a good tool to expedite work on site but contract administrators need to be aware of the legal implications to avoid unnecessary risk to the project.

[edit] Related articles on Designing Buildings Wiki

• Construction contract.
• Contract conditions.
• Essentials of a contract.
• Letter of appointment.
• Letter of intent
• Purchase order.
• Pre-construction Service Agreement.