Last edited 04 Mar 2020

Consent to spend

Contents

[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 Once the principal contract is signed the consent to spend letter can be superseded.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:

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.

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