“Letter of Acceptance” means the letter of formal acceptance of the Contractor’s Letter of Tender. It is issued and signed by the Employer and usually one to two pages long.
It can contain annexed memoranda comprising agreements between the Parties. However, those agreements need to be signed by both Parties.
What is the purpose of Letter of Acceptance?
The purpose of the Letter of Acceptance is to confirm that the Employer accepts technical and commercial part of the Contractor’s Letter of Tender, except the Contract Terms and Conditions. While Parties are negotiating the Contract Terms and Conditions and before they sign Contract Agreement, it is usually wise to start with Works execution in order not to waste precious time for Works execution. To enable start of the Works before the Contract Agreement is signed, protecting the rights of both, the Employer and the Contractor, the Employer should issue Letter of Acceptance.
As per FIDIC General Conditions of the Contract, Letter of Acceptance can be signed instead of Contract Agreement i.e. the Contract Agreement document does not have to exist. On the other hand, if there is no such letter, the expression Letter of Acceptance means the Contract Agreement and the date of issuing or receiving the Letter of Acceptance means the date of signing Contract Agreement.
In certain jurisdictions, receipt of Letter of Acceptance represents start of the Contract between the Parties. However, local legislation should be checked before this letter is signed and considered as Contract Agreement.
Limited Instruction to Proceed
Optionally, if the Employer wants to limit the value of the Works which can be executed before the Contract Agreement is signed, the Employer can issue so called Limited Instruction to Proceed. That Limited Instruction to Proceed can contain value of the Works which the Contractor is entitled to execute before the Contract Agreement is negotiated and signed between the Parties.
By limiting the value of the Works which the Contractor can execute before the Contract Agreement is signed, the Employer is limiting the time for negotiations and avoids strengthening of the Contractor’s negotiation capacity.
Usually, Limited Instruction to Proceed is used for execution of the preparatory works on the Site and contains limitation which is usually equal to the value of preparation works.