A memorandum of understanding is a document which outlines the details of an agreement between two or more parties who intend to work together toward a common goal, sharing resources and services in the process.
With a memorandum of understanding you solidify an intent to work together without necessarily forming a legally binding agreement.
Since the MOU is an informal contract you can use it very flexibly and scale the MOU to suit your personal circumstances, you can make it as simple or complex as formal or casual sounding as you need to get the job done.
So the question is what do you need to get the job done? How much detail do you need to communicate around what is being exchanged for what by whom and in what time frame?
Many times a simple statement consisting of the basic parts of the understanding signed by both parties will suffice to form the Memorandum of Understanding.
In other circumstances a more detailed MOU may serve the situation better if the project is more complex or the people involved want a more detailed document for clarity or security.
Really only you can judge the situation. Here’s a couple of examples where a quick MOU may work very well.
One situation is paying Commission for referrals. Let’s say you eat someone named Phil while mingling at a networking meeting and during the course of conversation you learned that he has a lot of business he could refer to you, now of course what’s going to end up coming up in your conversation.
Eventually he’s gonna say hey we should do business if you want your conversation to be more than just a nice passing thought here’s what you say, Phil that is an excellent idea.
I pay a 10% commission on all sales resulting from referrals for the lifetime of that customer. To show you I’m serious about working with you I’ll draft a Memorandum of Understanding and get back to you to make sure we have a viable deal in place. Now with that verbal understanding in place you can use a simple statement like this one to get the job done.
You state your name Rebecca agrees to pay Phil ten percent of all income received in payment for web design services, after the deduction of GST as a result of business generated by Phil. Rebecca agrees to pay Phil this 10 percent commission by cheque by regular mail, within 10 days of receiving customer payment.
The most important aspect of this MOU statement is how payment will operate and for what Phil generates business for Rebecca and she pays him a timely commission. The intent and purpose of working together are inherently understood.
The only timeframe that needs to be specified is the payment schedule since the deal begins and ends with the event of Phil generating business. Getting back to the scalability of an MOU, you can make your document as large or small as you want including as few or as many details as you need to get the job done.
In this example we made sure to stipulate that Phil’s 10% is after the deduction of tax not from the gross sales amount. Details like this may be an important in order to avoid confusion and misunderstandings. Now you can also use a memorandum of understanding as a project stopgap.
Here’s what I mean by that, another area where an MOU may serve you very well is as a stopgap.
Something has to happen in order for a larger commitment to be made such as, the client wants a set of comps or a mock-up before committing to a large project or the client is not sure what they want and needs a consultation, maybe the project requires research and strategy and the project scope cannot be determined without the results of that research.
So what you want to do is create a short statement to fit the needs of the immediate situation and leave the negotiations of the larger project until afterward. So use a statement something like this.
Again state your name, Rebecca agrees to perform a one-hour consultation to determine Sandy’s project needs for the caring kids daycare. Create three project mock-ups within three days and another one hour review to discuss the mock-up and further project needs. In exchange Sandy will pay Rebecca $300 at both the first and final consultations.
Well this is a very simple agreement, this MOU gets the job done in clearly communicating the exchange of resources, the money for the services and the expected timeframe for both.
So what you want to do is review the MOU with your partner or client and ask if they see anything that needs to be added or changed.
Once you have a Memorandum of Understanding that you can both agree to print off a copy for each person involved and each sign a copy and keep a copy.
A Memorandum of Understanding can really be that simple. Quick and simple MOU such as these work better for agreements involving few people and simpler exchanges.
We’ll go into more detail about writing a much more complex Memorandum of Understanding and what terms you may want to include in that type of document in our video how to write an advance Memorandum of Understanding. In the meantime if you want to get going on drafting your own MOU.
I suggest you check out www.moutemplates.com for more excellent tools and fantastic templates to create your own Memorandum of Understanding.