Notice to Proceed Vs. Letter of Intent

By Wanda Thibodeaux
An letter of intent is like extending a hand for agreement.

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In the business world, many legal and financial risks are best put in writing. Two documents people use frequently in business include a Notice to Proceed and a Letter of Intent. People sometimes confuse these documents because they both signal that an agreement of some kind has been reached between two parties. When a person examines these documents closely, however, the differences become apparent.

NTP Definition

Businessdictionary.com and the U.S. Army Corps of Engineers define a NTP as a notice that authorizes an individual to proceed with work for a project. The NTP states the date that the individual can start so that the project time frame is clearly indicated.

LOI Definition

Businessdictionary.com, investorwords.com and thefreeopendictionary.com explain that a LOI is a document that demonstrates a willingness to do business. It doesn't authorize work, but rather shows that there is the potential for a work, product or investment agreement.

Uses

A LOI typically is used during business mergers or acquisitions, according to Investorwords.com. People also use it to show they're willing to invest financially. In contrast, a NTP typically is used in construction and authorizes contractors to start building or doing related work.

Contract Relationship

A NTP defines the date that a contractor can begin to work, with the contract performance time beginning at the NTP date. This establishes a link between the NTP and the legal contract signed by both parties. An NTP thus may be legally enforced. This is the primary difference between a NTP and a LOI from the legal standpoint. LOI is not a legal contract. It cannot be enforced because it merely shows interest and doesn't always define concrete terms. An LOI thus is much less formal than a NTP. In fact, a LOI doesn't have to be for business at all.

Inter-relationship

People can use LOIs and NTPs. For example, a business owner could purchase office space that needs renovation. He might send a LOI to a construction company to show that he is interested in signing a contract with that company and to detail the kind of work that's necessary. The business owner and the construction company then could strike a deal for the work and draw up a contract. Once the business owner has all the proper documentation and funding, he could send the construction company a NTP to make the contract active and let the contractors start renovating. A LOI usually proceeds an NTP.

About the Author

Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.

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