Starting work before a contract is signed: risks, realities, strategies

Originally published to the Oregon Daily Journal of Commerce on February 19, 2026

Construction projects are almost always a race against time. Owners want shovels in the ground as quickly as possible, and starting sooner generally means finishing sooner. Yet modern construction contracts are complex documents — often running dozens or even hundreds or thousands of pages — and can take weeks or months to draft and negotiate.

This creates a recurring tension: How can parties advance a project while the contract is still being negotiated? And how can they do so without inadvertently creating obligations — or liabilities — they never intended?

Below are the common approaches, associated pitfalls, and practical strategies for managing the desire to move forward before the contracts are complete.

Letters of intent and memoranda of understanding

Letters of intent, also known as memoranda of understanding, are used when parties want to begin negotiating while making it clear that there will be no deal until the parties sign a definitive agreement. These agreements can be binding or nonbinding. Binding letters of intent usually require the parties to perform certain limited obligations necessary to advance negotiations and may also assign payment for this limited work. Nonbinding letters of intent typically disclaim all obligations or liability unless (and until) a definitive agreement is signed.

The risk with both types of agreements is that the parties, through their conversations, correspondence or conduct, can override the initial terms in the letter of intent. For example, extensive negotiations followed by a project owner’s press release and the contractor’s attendance at a ground-breaking ceremony can be used as evidence that an agreement was formed.

While these risks can be addressed in the legal terms of the letter of intent, the parties should be vigilant about honoring those terms and conduct themselves accordingly.

Moving forward without a written agreement

All too often, project teams begin scheduling, planning, mobilizing, and even performing work before a written agreement is executed. The intention is that the contracts will follow.

This approach is fraught with risk because the terms of the deal are often unclear. A written agreement is a must, because without it disputes can arise about scope, deadlines, compensation, and risk allocation. In the absence of a written agreement addressing these key terms, it is difficult to predict how such disputes will be resolved.

Authorizations to proceed with construction work

Authorizations to proceed typically are letter agreements authorizing the contractor to start construction while a written contract is being negotiated. These agreements generally take two forms: The first is nearly devoid of any legal terms and simply authorizes the contractor to proceed with the construction work. For the party authorizing the work, this type of agreement is not much better than the absence of a written agreement.

The second — and better — approach is to enter into a letter agreement that includes a limited scope of work, a schedule for performing that work, a maximum cost to be incurred, and other legal terms such as indemnity, termination, insurance, dispute resolution, and other important terms. The letter agreement also should include a provision stating that the parties are negotiating toward a definitive agreement and that nothing in the letter agreement creates a binding obligation beyond what is expressly stated.

Because letter agreements include key legal provisions, they often require additional time to negotiate. Those negotiations also distract the parties from negotiating the construction contract. In addition, starting work typically results in a significant loss of negotiating leverage for the nonperforming party, as it can be costly to change contractors after the work has started. Finally, letter agreements give the parties more time to negotiate the construction contract, often prolonging those negotiations.

An even better approach is to avoid letter agreements altogether and use urgency as the impetus to conclude negotiations and sign a final agreement.

Conclusion

Starting work before a final agreement may be desirable, but it is important to evaluate whether the benefits outweigh the risks. With careful drafting, disciplined communications, and consistent behavior, parties can maintain flexibility, preserve their negotiating leverage, and avoid unintentionally creating binding obligations before they are ready to be bound.