What is the contractor's entitlement where work under a letter of intent exceeds the stated expenditure cap?
A contractor that continues after reaching a stated cap may perform additional work without acquiring a right to payment for the excess.
The contractor should obtain a written increase before the cap is reached; continued work does not ordinarily displace an agreed financial limit
The result depends on the letter and the parties' conduct. Diamond Build, Eugena and Mowlem treated the cap as binding. AC Controls reached a different result because the employer permitted work to continue after the cap was reached. The 2024 TCC decision in CLS Civil Engineering confirms the safer position: repeated written caps remained effective, proposed JCT terms were not agreed and estoppel did not remove the ceiling.
| Issue | Position |
|---|---|
| Express cap | Presumed to control the authorised liability |
| Approaching the limit | Contractor should seek a written increase |
| Work beyond the cap | Recovery is at risk unless the agreement or conduct supports it |
| Subcontract exposure | Downstream commitments should reflect the authorised ceiling |
| Current TCC position | CLS enforced the revised GBP 1.1 million cap |
The contractual risk
A financial cap defines the maximum expenditure authorised under the interim arrangement. The contractor controls its own cost records and is usually better placed to know when the limit is approaching. If it continues without written authority, it assumes the risk that the employer will rely on the cap.
Diamond Build: the cap was enforced
The letter authorised work subject to a maximum reimbursement of GBP 250,000 if the formal contract was not executed. The intended JCT contract was never signed. The court treated the letter as the governing contract and enforced the cap. The contractor could have protected itself by limiting subcontract commitments or seeking an increase before the ceiling was reached.
AC Controls: continued work produced a different result
The letter authorised the works subject to a cap, set initially at GBP 250,000 and raised in stages to a total authorised value of GBP 1,000,000. The court held that the employer could have ended the arrangement when the cap was reached. Because it allowed the contractor to continue, the contractor was entitled to reasonable payment for the additional work.
The decision turned on its own wording and conduct. It does not create a right to disregard every express cap.
Eugena: value received did not defeat the ceiling
The employer authorised work subject to a GBP 50,000 limit. The contractor claimed GBP 76,000 by reference to the value of the benefit provided. The court limited payment to GBP 50,000.
Mowlem: repeated letters remained binding
Fourteen successive letters authorised work subject to rising caps. The final GBP 10 million limit applied to the authorised works, including variations. The contractor did not secure a further letter for expenditure above that figure and could not recover beyond the cap.
The current TCC position
The cap increased by written stages from GBP 150,000 plus VAT to GBP 1.1 million plus VAT. The court held that the revised ceiling remained binding, the proposed JCT terms were not agreed and the contractor's estoppel arguments had no real prospect of success.
Practical controls
Monitor committed cost as well as invoiced cost against the cap.
Give advance written notice when the authorised value is close to exhaustion.
Do not continue without a signed increase, a fresh letter or a concluded contract.
Match subcontract and purchase-order commitments to the authorised ceiling.
Record any employer instruction said to authorise work beyond the cap.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| Diamond Build Ltd v Clapham Park Homes Ltd | [2008] EWHC 1439 (TCC) | Letter-of-intent cap enforced |
| AC Controls Ltd v British Broadcasting Corporation | [2003] 89 ConLR 52 | Reasonable payment allowed after continued work beyond the cap |
| Eugena Ltd v Gelande Corporation | 2004 | Recovery limited to the stated cap |
| Mowlem plc v Stena Line Ports Ltd | [2004] EWHC 2206 (TCC) | Successive capped letters treated as binding contracts |
| CLS Civil Engineering Ltd v WJG Evans and Sons | [2024] EWHC 194 (TCC) | Revised cap enforced; JCT terms not agreed; estoppel failed |