What is the cost of making a deal?
Intriguing, isn’t it?
According to Trivia Genius, one of the most expensive deals in the history of humanity was the 2015 agreement for the mega-merger of Dow Chemical and DuPont companies.
The deal cost a whopping $130 billion.
Does it have to cost the earth merely to conclude a mutually acceptable agreement?
Indeed, with regards to signing a deal in the mold of a memorandum of understanding, no one needs to break the bank.
Let us now consider just how the signing of MOUs practically saves costs.
Unlike Contracts, MOUs Involve No Exchange of Money
What would it cost to sign a formal contract?
Well, it depends on the type of contract envisaged. Regardless, be prepared; the process of concluding a contract will cost you something.
Indeed, as illustrated above, it can be quite costly.
Whenever an exchange of money is deemed as necessary, a formal contract is generally recognized as the most appropriate document. Further, whenever pertinent issues are touching on the transfer of authority, service delivery, or any other conditions that need to be binding, a contract is generally considered as necessary.
In case there will be a divvying of funds, say from some kind of vendor fees or ticket sales, things will start to walk down the line that separates the memorandum of understanding and a contract.
At this point, it behooves the parties to make a decision on whether they really want a memorandum of understanding or they want to sign a contract.
Notably, this is the situation, regardless of the cost repercussions to the participating parties.
MOUs, on their part, are not generally classified as contracts in the pure sense of the term. A contract may be rightly described as a type of private law made between parties. A court of law can always uphold this kind of deal as legally-binding.
Since an MOU is not usually classified as such, this means that the signing of MOUs should prove to be cheaper. As a rule, MOUs do not involve the exchange of money. This adds to the fact that MOUs are mostly the cheapest way of sealing a deal anywhere in the world.
Yes, aside from the matter of convenience, MOUs can be pretty cost-saving. This fact is bolstered by the reality that the MOU is a powerful tool that calls upon the participating parties to reach a mutual agreement before the eventual deal is concluded.
As a result, an MOU will still be binding when push comes to shove.
MOUs Soak Up Little Time and Energy to Plan, Write and Execute
Many parties find memorandums of understanding to be a favorite and most powerful tool that they can use to seal various deals. The participating parties do not need to do much to make the MOU successful. It is, however, imperative for such parties to put a few things in order before they append their signatures to the ready MOU.
They need to determine their needs and wants well in advance.
This is the ingredient that makes a lasting document that can stand up to scrutiny. In the final analysis, such a deal must also prove to be mutually acceptable and beneficial.
It is clear, from this situation, that most of the time, the parties do not have to hire lawyers using valued resources. Such resources can always be put to better use. MOUs are typically cheap and virtually cost-free since they are simple and unencumbered with complicated legal issues.
Value of MOUs in Spreading Costs Among Parties
A memorandum of understanding is typically the purveyor of the general statement of intention in a budding relationship between parties.
Think of this example:
For purposes of promoting the interests of the arts in a specific community, an MOU may state that two entities will work together to host a street festival.
To make this succeed, one of these organizations may decide to offer a space for rehearsal, or office activities within a building. This would make the organization to be a resident company offering favorable office rates.
If such a deal were made using a formal contract, there would have to be some special clauses outlining the rights and obligations of the parties. Further, a contract would set out the clear penalties for any breaches of the conditions set out in the deal.
As we can well imagine, the consequences can be dire if the deal were made using a formal contract.
In this case, an MOU can come in as a veritable savior.
If the parties opted to sign an MOU to seal the deal, things would be different.
Most likely, the MOU would be crafted with the kind of language that would communicate something to the effect that each of the participating parties will meet their own costs.
Alternatively, an MOU might direct that one of these parties will pay for some of the costs with the other parties bearing smaller portions of the costs.
As a result, the MOU will ensure that the costs are evenly spread out. Ultimately, this would be cost-saving for everyone involved in the deal.
Note that, in all these situations, the MOU will not require any exchange of money between the parties.
MOUs Record, Bind and Offer Rewards Without Undue Demands
Many people regard memorandums of understanding to be the primary stage of a deal-making process.
Of course, the parties may, in time, opt to go for a more binding contract if they consider this to be suitable in the future. Despite this, such parties may still decide to use an MOU to outline the terms of a binding agreement or treaty.
MOUs are particularly dear to most parties in the sense that they set out the parties’ responsibilities and requirements. Most parties utilize MOUs to set down the details of the initial plans and objectives that bind them together.
This can result in a lasting and most rewarding relationship well into the future. When the time eventually comes to consider upgrading the deal to the status of a contract, the original MOU will have served its purpose.
All this is usually achieved without taking a financial toll on any of the partners.
This is what makes MOUs to be much loved.
To some, an MOU is a virtual godsend.
Government and Corporate Agencies Can Save Costs Using MOUs
Certain government and corporate agencies have opted to sign memorandums of understanding as a way to save costs for the institutions.
In one exceptional case, the US Cabinet office opted to sign a memorandum of understanding with HP, which is a leading technology company and digital services provider in the world.
At the time, the Bracknell-based HP Company was the largest provider of IT services to the US government.
The special MOU signed between the government and the leading technological giant stipulated that HP would continue delivering all existent government contracts.
It further outlined that HP would work closely with the Cabinet Office and all the relevant state departments in a plan that would ultimately result in huge cost-savings for both the participating parties.
Notably, it came as a pleasant bonus that this special MOU to save costs also came absolutely cost-free for both parties. Interestingly, as with all other MOUs, the deal between the US government and HP did not involve any exchange of money.
As a result of the historic deal that was sealed using a simple MOU, the HP executives announced that the deal meant that the government would access cheaper IT systems and services.
The Company said that, in addition to caring for the government’s immediate requirements, which revolved around a desire to save on costs, the special MOU included proposals to help the government achieve some broader transformational plans and reforms.
Moreover, the MOU stipulated that the deal would cover some contracts by the Department for Work and Pensions, the Ministry of Defense, and the Atomic Weapons Department.
Remarkably, these deals were worth billions of dollars.
As a result of the MOU, the US government was clearly set to enjoy some huge savings running into billions of dollars.
In light of this, is there any doubt that a simple MOU can result in major cost-saving for all the parties in a deal?
From the foregoing, it does not have to break the back to conclude the signing of a mutually acceptable deal.
The signing of a memorandum of understanding is highly advisable in situations where the matters at stake are generally commonplace and, therefore, the stakes are not high.
Concluding an MOU generally takes less time, effort, and money compared to signing a regular formal contract.
Indeed, MOUs typically don’t involve the exchange of money.
Moreover, sealing an MOU does not compel the parties to hire a battery of lawyers or make them pore through hundreds of pages of documents full of legal jargon.
Instead, overall, making an MOU is a cheap, cost-effective, and straightforward undertaking that anyone would happily invite.
If you want to save costs when sealing a simple deal, go for an MOU rather than a contract.