The Almost-Contract: Agreements to Agree, LOIs, and Deals Half-Made
Judge Richard Posner called this “one of the most difficult areas of contract law,” and it is where construction deals actually live: term sheets, letters of intent, authorizations to proceed, and teaming handshakes. Some bind. Some don’t. A $217 million power plant deal once failed for indefiniteness, and a $12 million verdict was erased because a “teaming agreement” wasn’t a contract at all.
By M. Colby Lewis, Construction Defect Attorney, The Law Offices of Colby Lewis, Houston, Texas
This is Post 6 in our Foundations Series. Post 5, How Is a Construction Contract Formed?, covered the clean mechanics of offer and acceptance. This post covers the gray zone before the clean version: deals the parties started but never finished.
The short version
A contract is enforceable only if its material terms are definite enough to let a court find a breach and fix a remedy. But modern construction deals are deliberately incomplete: prices left open, completion dates unstated, terms deferred “for the lawyers.” Courts respond in three ways. They fill small gaps with “reasonableness” and trade custom. They enforce “preliminary binding commitments” by requiring the parties to negotiate the open terms in good faith, with real damages for bad faith. And when the gaps swallow the deal, they call it an unenforceable “agreement to agree” and walk away, no matter how much money has been spent. Letters of intent and teaming agreements sit exactly on that fault line, and which side yours lands on is usually decided by language written long before anyone was angry.
How Definite Does a Deal Have to Be?
Definite enough that a court can tell what performance was promised, whether it happened, and what the remedy should be. The Restatement’s test says contract terms are reasonably certain if they “provide a basis for determining the existence of a breach and for giving an appropriate remedy.” Restatement (Second) of Contracts § 33(2). Fall short of that, and you do not have a contract; you have an “agreement to agree,” which classical doctrine refuses to enforce.
Here is the complication: real agreements are never complete. As contracts scholar Robert Scott puts it, “All agreements are incomplete,” and many are deliberately incomplete, because negotiating every contingency up front costs more than it is worth. Construction is the extreme case. The industry routinely signs deals with open pricing terms, unstated completion dates, and scopes that everyone knows will evolve, then relies on trade custom, implied obligations, and dispute procedures to fill the gaps.
Courts fill many of those gaps willingly, and the modern trend leans toward enforcement. A missing price is not fatal: Texas courts have enforced construction agreements with no agreed price by presuming a “reasonable” one. Inimitable Group, L.P. v. Westwood Group Development II, Ltd., 264 S.W.3d 892 (Tex. App.—Fort Worth 2008). A missing completion deadline just means performance within a reasonable time.
But some gaps cannot be filled, and Texas shows that line too. An Austin court held a “letter of professional engagement” unenforceable because it never defined “hard costs” or “maximum price,” so no court could ascertain what anyone owed. Martin v. Beitler, 2015 WL 4197042 (Tex. App.—Austin 2015). And the stakes scale up indefinitely: a Massachusetts court held a $217 million power plant construction contract too indefinite to enforce, a mere agreement to agree. PDC-El Paso Meriden, LLC v. Alstom Power, Inc., 2004 WL 1588201 (Mass. Super. Ct. 2004), aff’d, 844 N.E.2d 1124 (Mass. App. Ct. 2006). Nine figures of project, zero enforceable contract.
IN PLAIN ENGLISH, FROM COLBY
So which gaps can a court fill and which ones kill the deal? Here’s the rough rule I give clients. A court can fill in a number if there’s a yardstick for it, a reasonable price, a reasonable time, because the market gives the court something to measure with. What a court can’t do is invent the deal itself. If the papers don’t tell the court what work was promised, or the key words like “maximum price” have no defined meaning, there’s nothing to measure, and the court walks away. And read that power plant case again, $217 million, sophisticated companies, lawyers everywhere, no contract. Size doesn’t save you. Sophistication doesn’t save you. Definiteness does. If a term matters to you, define it on paper, because “we’ll work it out” is exactly the phrase courts refuse to enforce.
The Two Kinds of “Preliminary” Deals, and the Duty to Negotiate in Good Faith
When parties agree on the big terms but leave the rest for later, courts have developed a two-type framework that every owner should know, because it decides what your “deal in principle” is worth.
A Type I preliminary agreement is a complete deal that is “preliminary” only in form: everything material is agreed, and only the formal document remains. Courts enforce Type I agreements as full contracts.
A Type II agreement is a “preliminary binding commitment”: mutual commitment to agreed major terms, with open terms still to be negotiated. It does not bind anyone to the final contract, but it binds both sides to negotiate the open terms in good faith. The leading construction example involved an owner and contractor who agreed on major terms for an apartment project but left risk-allocation terms open; when negotiations over liquidated and consequential damages broke down and the owner walked, the contractor sued for $75,000 in accrued services and $146,000 in lost profits. The appellate court held the parties had a Type II commitment and sent the case back to decide whether the owner had refused to negotiate in good faith. United House of Prayer for All People v. Therrien Waddell, Inc., 112 A.3d 330 (D.C. 2015).
The teeth are real. The Delaware Supreme Court has held that where a Type II agreement exists and the evidence shows the parties would have closed the deal but for one side’s bad-faith negotiating, the innocent party can recover full contract expectation damages, the benefit of the contract that was never signed. SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013). Judge Posner made the same point for the Seventh Circuit: prove that good faith would have produced a final contract, and the lost benefit of that contract becomes recoverable. Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996). Walking away from a “nonbinding” deal in principle can cost you the whole deal’s value.
Letters of Intent: The Same Document, Five Different Endings
A letter of intent is not one legal thing. The same two pages can produce at least five different outcomes, and the case law has produced all of them.
Nonbinding, as written. An LOI that says the parties are bound only upon execution of a formal contract generally means it: courts refused to find a contract from an LOI that expressly conditioned commitment on a signed subcontract. Erection Co. v. W & W Steel, LLC (D. Or. 2011), aff’d (9th Cir. 2013). The famous Illinois case Quake Construction, Inc. v. American Airlines, Inc., 565 N.E.2d 990 (Ill. 1990), litigated to the state supreme court over exactly this: an LOI “awarding” work while reserving the right to cancel.
Binding, because you acted like it. An LOI became a binding agreement where the parties simply performed under it and kept extending it by addenda without ever signing the formal contract. Cherne Contracting Corp. v. Marathon Petroleum Co., 578 F.3d 735 (8th Cir. 2009). Conduct converts.
Binding, but only up to a limit. Courts have enforced LOIs that incorporated the proposal and pricing “up to a monetary limitation,” a common and sensible design: real commitment, capped exposure. Saul Bass & Associates v. United States, 505 F.2d 1386 (Ct. Cl. 1974).
A reimbursement ticket, nothing more. An “authorization to proceed” with preliminary work did not obligate the owner to award the construction contract; the developer’s remedy was limited to the design-cost reimbursement the authorization itself provided. Citadel Group Ltd. v. Washington Regional Medical Center, 692 F.3d 580 (7th Cir. 2012).
A source of obligations nobody noticed. An LOI between a contractor and subcontractor was held sufficient to make the contractor an additional insured under the sub’s policy for an injury that occurred before any contract was signed. American Guarantee & Liability Ins. Co. v. Lexington Ins. Co. (N.D. Cal. 2011), rev’d on other grounds (9th Cir. 2013). The almost-contract carried real insurance consequences.
And one warning for drafters who think magic words settle it: even an LOI stating the “owner has no obligations until the final contract is signed” was held not subject to summary dismissal, because the parties’ conduct raised fact questions anyway. Golden Pond Resident Care Corp. v. Congress Building Corp., 132 N.E.3d 560 (Mass. App. Ct. 2019). Language is your first line of defense. Behavior is the evidence.
IN PLAIN ENGLISH, FROM COLBY
Five outcomes from the same kind of document, right? So what actually controls? Two things: the words, and what you did after the words. If you want a nonbinding LOI, it has to say so in plain language, “no party is bound until both sign a definitive written agreement”, and then, and this is the part everybody botches, you have to behave like it’s nonbinding. Don’t authorize work. Don’t accept work. Don’t pay invoices against it. Because the second the shovels move, your conduct starts writing a contract your LOI says doesn’t exist, and courts believe shovels over adjectives. And if you’re on the other side, relying on an LOI to start spending money? Get the cap and the reimbursement clause in there, like that hospital developer did. He didn’t get the project, but he got his design costs back, because his “almost-contract” said exactly what happened if the deal died. That’s the whole game: decide on paper, in advance, what the almost-contract is worth.
The Missing Completion Date: A Gap Left on Purpose
Here is a gap owners should know is intentional. Completion dates are material terms in any construction contract, yet many subcontracts deliberately omit them, because contractors fear liability to subs if the schedule slips. Instead, the subcontract either empowers the contractor to direct the sequence and timing of each trade’s work, clauses courts enforce when exercised reasonably, or leaves timing for later mutual agreement.
Those later agreements are just as binding as the original contract. In the classic case, a bridge steel fabricator signed on with delivery “to be mutually agreed upon,” then agreed to a June delivery date, then delivered months late, pushing concrete work into freezing weather. The contractor accelerated to catch up and recovered its acceleration damages from the fabricator: the after-the-fact date agreement was fully enforceable. Spang Industries, Inc. v. Aetna Casualty & Surety Co., 512 F.2d 365 (2d Cir. 1975). An open term, once filled, has teeth.
Teaming Agreements: Allies Until the Award
Teaming agreements, two firms combining to chase a big contract, one to lead, one to take a defined chunk if they win, are standard practice in design-build and public contracting. They are also a jurisprudential coin flip, and the reported cases are brutal on both sides.
Heads: enforcement. Two contractors teamed up to win a Greek army communications contract, exchanging a letter describing a “strategic alliance” and detailed draft subcontracts that were never signed. After the award, the prime dumped its teammate for a company $2 million cheaper. The courts enforced the teaming agreement anyway: the letters and drafts outlined the deal with enough specificity, and nothing made the commitment contingent on signing. ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659 (3d Cir. 1998).
Tails: nothing. The Supreme Court of Virginia set aside a $12 million jury verdict because the teaming agreement underneath it was not definite enough to create an enforceable obligation to enter a future subcontract. CGI Federal Inc. v. FCi Federal, Inc., 814 S.E.2d 183 (Va. 2018). Other courts have read teaming agreements as mere agreements to negotiate, unenforceable as contracts. Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), aff’d (4th Cir. 2014).
Two more wrinkles matter. Even a mere agreement to agree can impose a duty to negotiate in good faith. North Star Steel Co. v. United States, 477 F.3d 1324 (Fed. Cir. 2007). And teaming agreement terms can outlive the teaming phase: where the follow-on subcontract never expressly superseded the teaming agreement, a liability cap in the teaming agreement was held to still govern. URS Corp. v. Transpo Group, Inc. (W.D. Wash. 2015). The almost-contract can quietly become part of the real one.
What This Means for a Texas Building Owner
Owners meet the almost-contract in three costumes: the LOI or “deal memo” with a developer or builder, the early authorization to proceed with design or long-lead purchases, and the design-build team assembled to pursue your project. Three rules cover all of them.
First, say what the document is, in the document. Binding, nonbinding, or binding-only-as-to-listed-paragraphs (exclusivity, confidentiality, cost reimbursement, a spending cap). Courts start with your words.
Second, match your conduct to your words. Work authorized, accepted, or paid for under a “nonbinding” paper is the single most common way an almost-contract becomes a real one, on terms nobody finished negotiating.
Third, remember the good-faith trap runs both ways. A signed “deal in principle” may obligate you to keep negotiating honestly, and walking away carelessly can carry expectation damages. Before you sign even the preliminary paper on a significant project, and certainly before a half-formed deal turns into a defect or payment fight, get construction counsel’s eyes on it. That is what we do for building owners across Texas, and our Construction Defects FAQ covers the practical first steps.
Key Takeaways
- A contract must be definite enough to let a court find a breach and give a remedy (Restatement § 33(2)). Courts fill measurable gaps (reasonable price, reasonable time) but will not invent the deal itself; even a $217 million project contract has failed for indefiniteness.
- Texas courts have gone both ways: a missing price was filled with “reasonableness” (Inimitable Group), while undefined core terms like “maximum price” made an engagement letter unenforceable (Martin v. Beitler).
- “Preliminary” deals come in two types: Type I (complete, awaiting formalities, fully binding) and Type II (major terms agreed, open terms remaining, binding duty to negotiate in good faith). Bad-faith walkaways from a Type II deal can cost full expectation damages (SIGA v. PharmAthene).
- The same letter of intent can be nonbinding, binding by conduct, binding up to a cap, a mere reimbursement ticket, or a source of insurance obligations. The drafting and the parties’ behavior, not the label, decide.
- Subcontracts often omit completion dates on purpose; timing terms agreed later are fully enforceable, including for acceleration damages (Spang Industries).
- Teaming agreements are enforced when specific (ATACS) and voided when vague, even after a $12 million verdict (CGI Federal), and their terms can survive into the final subcontract if never expressly superseded.
Frequently Asked Questions
Is a letter of intent legally binding?
It depends on its language and the parties’ conduct. An LOI that expressly conditions any obligation on execution of a final written contract is generally nonbinding, while an LOI the parties perform under can become fully binding. LOIs can also be partially binding, for example as to exclusivity, cost reimbursement, or a spending cap, and can create a duty to negotiate remaining terms in good faith.
What is an “agreement to agree”?
An understanding whose material terms are too incomplete or indefinite for a court to determine breach or fashion a remedy. Classical doctrine refuses to enforce it as a contract, though courts increasingly find either enforceable terms through gap-filling or a binding duty to negotiate open terms in good faith.
Can I owe damages for walking away from a deal that was never signed?
Potentially yes. Where the parties made a preliminary commitment to agreed major terms, courts can impose a duty to negotiate the open terms in good faith, and a bad-faith refusal to close can support damages, in some jurisdictions the full expectation value of the contract that would have been signed.
Are teaming agreements enforceable?
Sometimes. Courts enforce teaming agreements whose terms are specific enough to define the promised subcontract, and void ones that amount only to a promise to negotiate later. Outcomes vary sharply by drafting and by state, so a teaming agreement should be written as if it will be tested, because on a big award, it will be.
What happens if my construction contract has no completion date?
The contract is usually still enforceable. Courts imply performance within a reasonable time, enforce clauses letting the contractor reasonably direct sequencing, and enforce completion dates the parties fix by later agreement, including damages measured against those later-agreed dates.
Coming Next in the Foundations Series
We have covered contracts made properly and contracts half-made. Post 7 covers the last and strangest category: contracts nobody made at all, obligations the law itself constructs when one party enriches another without any agreement. Implied-in-fact contracts, quantum meruit, unjust enrichment, and promissory estoppel: the doctrines that decide who pays when work gets done and there is no contract to point to. If Post 6 was about deals half-written, Post 7 is about deals never written that courts enforce anyway.
The full series lives in our Knowledge Center.
About the Author
- Colby Lewis is a seventh-generation Texan, trial lawyer, and the founder of The Law Offices of Colby Lewis, with offices in Houston, San Antonio, Corpus Christi, McAllen, and Brownsville. Over a two-decade career he has recovered more than $200 million for his clients, including public entities such as Harris County, the Houston Community College system, and dozens of Texas school districts and cities in construction defect and insurance matters. He is AV Preeminent rated by Martindale-Hubbell, has been named a Texas Super Lawyer every year from 2016 through 2026, and was named to the Top 100 Houston Super Lawyers list for 2025 and 2026. He represents building owners, not builders, in construction defect litigation across Texas. Meet Colby, or call (866) 265-2948.
Sources and Authorities
- Restatement (Second) of Contracts § 33(2) (1981); U.C.C. §§ 2-204
- United House of Prayer for All People v. Therrien Waddell, Inc., 112 A.3d 330 (D.C. 2015)
- SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013)
- Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996)
- Inimitable Group, L.P. v. Westwood Group Development II, Ltd., 264 S.W.3d 892 (Tex. App.—Fort Worth 2008); Martin v. Beitler, 2015 WL 4197042 (Tex. App.—Austin 2015)
- PDC-El Paso Meriden, LLC v. Alstom Power, Inc., 2004 WL 1588201 (Mass. Super. Ct. 2004), aff’d, 844 N.E.2d 1124 (Mass. App. Ct. 2006)
- Quake Construction, Inc. v. American Airlines, Inc., 565 N.E.2d 990 (Ill. 1990); Cherne Contracting Corp. v. Marathon Petroleum Co., 578 F.3d 735 (8th Cir. 2009); Saul Bass & Associates v. United States, 505 F.2d 1386 (Ct. Cl. 1974); Citadel Group Ltd. v. Washington Regional Medical Center, 692 F.3d 580 (7th Cir. 2012); Golden Pond Resident Care Corp. v. Congress Building Corp., 132 N.E.3d 560 (Mass. App. Ct. 2019)
- Spang Industries, Inc. v. Aetna Casualty & Surety Co., 512 F.2d 365 (2d Cir. 1975)
- ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659 (3d Cir. 1998); CGI Federal Inc. v. FCi Federal, Inc., 814 S.E.2d 183 (Va. 2018); Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), aff’d, 549 F. App’x 211 (4th Cir. 2014); North Star Steel Co. v. United States, 477 F.3d 1324 (Fed. Cir. 2007)
- Robert E. Scott, A Theory of Self-Enforcing Indefinite Agreements, 103 Colum. L. Rev. 1641 (2003); Schwartz & Scott, Precontractual Liability and Preliminary Agreements, 120 Harv. L. Rev. 661 (2007)
This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Whether a letter of intent, teaming agreement, or preliminary deal is enforceable depends on your documents, your conduct, and current Texas law; consult a licensed Texas attorney about your specific situation. Attorney M. Colby Lewis is responsible for the content of this page. Principal office: Houston, Texas.
