Revealed: Why MOUs are Here to Stay

As long as the sun rises from the East and sets in the West, men will continue cutting deals, striking agreements and signing contracts.

Yes, this is a universally accepted fact of life.

One such lasting deal involves the signing of Memorandums of Understanding.

Why can we be sure that MOUs are here to stay and that they constitute a crucial segment of man’s life?

Let’s dive right in and find out.

MOUs Help Organizations Circumvent Legal Conundrums

Often, when making agreements, many organizations would rather avoid the complexities and intrigues associated with various legal and ultra-formal documents that are available for such purposes.

One of the most notorious formal and legalistic documents of this type is the ordinary contract form.

To solve this conundrum, a memorandum of understanding comes in as a natural option. Indeed, MOUs are often used in private and international law as a convenient vehicle of sealing risk-free agreements.

Moreover, MOUs are routinely signed with glee between many governments and non-government companies and agencies for their relative risk-free nature and great convenience. In such cases, an MOU is primarily an instrument of the negotiating parties’ intent and goals.

Further, in some instances, an MOU is usually used as an exclusive agreement created by two parties in the period preceding the negotiation of a final document. Some have justifiably described the MOU as primarily being an agreement that is made before the proposed deal is sealed.

In this context, an MOU practically serves as a collection of the vital points of the accord, linking parties that wish to establish some kind of a working relationship.

Considering these facts, isn’t it reasonable that many organizations continue using MOU’s as a viable option to circumvent the potential hurdles that come with engaging in contract agreements?

Perfect for Sealing Landlord & Tenant Engagements

Some marvel why people would go to the extent of signing a memorandum of understanding when most of these agreements lack legal force.

Regardless, there are good reasons why MOUs still represent a reasonable option for parties that share common goals and interests.

Think, for instance, about the relationship between many housing authorities and tenants. In some cases, it all boils down to the laws of the land and other attendant regulations. There are specific situations when the prevailing legal requirements dictate that such authorities must sign MOUs with tenants as a means to outline a mutual business relationship.

MOUs wield a powerful potential as a favorite option for sealing deals. In the first place, MOUs do not require much time and energy to plan and write. All that the parties have to do is to explore their needs and wants before coming up with a mutually acceptable agreement.

At this point, what remains is the putting down of pen to paper and voila!

A deal is struck.

In such instances, an MOU retains a virtually irresistible appeal among many entities that wish to make agreements. As noted, MOUs are clear, direct, and straightforward. They are typically devoid of combative and complicated standard terms and conditions that usually characterize contract law.

Yes, to seal an MOU, you don’t have to prepare yourself for a bruising legal tussle, complete with a battery of seasoned lawyers. In most cases, using an MOU is more of a straightforward, tame game.

MOUs are Cost-Saving

Making a memorandum of understanding, it behooves each side of the participating parties to put some thought into the whole deal-making process. Nevertheless, the overall process for creating such a document is usually simple and unencumbered with complex jargon.

This is another point that attracts many to use MOUs in their agreements.

Generally, in crafting MOUs, all that matters is for each of the parties in the deal to ensure they know precisely what they want. Each party must conceive what they expect the other party to fulfill on their side of the bargain.

Moreover, each party must know precisely what they are carrying to the negotiating table on offer. Further, they must determine beforehand whether they are willing to negotiate some aspects of the deal and what they consider to be the rationale for engaging in the MOU.

Finally, they must know what their objectives are with regards to the making of this deal.

Once the above elements are settled, the parties are ready to sign the agreement. The cost of doing all these are minimal compared to what it takes to seal a formal contractual agreement.

MOU: The Perfect Vehicle to Skirt the Bureaucratic Red Tape

Memorandums of understanding may present the perfect way for the parties to avoid the usual legalistic red tapes associated with most corporate treaties. Indeed, as we know, most contract standards and formalities can result in endless rounds of legalistic negotiations and convoluted red tape in tow.

In comparison, the processes that drive the making of most MOUs are usually far less informal. MOUs also come with the advantage of significantly expediting agreements by working to thrash out contentious issues in no time. This further makes MOUs a darling of many potential deal- makers.

Notably, most bureaucrats are genuinely in love with MOUs since the informal nature of such agreements usually allows them the convenience of neatly dodging scrutiny and other associated red tapes. The latter is a well-known primary characteristic of a plethora of plague-ridden contracts and treaties.

Typically, MOUs are ‘experts’ at skirting the processes that normally slow down the mechanisms of cooperation and implementation in the making of agreements. For this reason, MOUs are the perfect instrument that ensures that the parties in the deal get things done fast.

Generally-speaking, MOUs are useful for expediting such processes in a manner that is quicker than using other legal and formalistic channels.

Sealing Inter-governmental Agency Pacts

Consider the situation where government agencies wish to pool their resources and define responsibilities with regards to a specific project. In such cases, these agencies are likely to opt for memorandums of understanding rather than sign contracts.

Why?

Often, some types of contracts involving certain divisions of government are restricted by law.

Further, although some specific interagency relationships may be formed and maintained via informal understandings linking workers and executives, other relationships are usually more complicated since they require a paper trail to implement.

And that’s precisely where an MOU comes in.

It usually requires little paperwork.

It is, however, loaded with efficiency and lethal force.

In this sense, the MOU comes in much like a savior flying in at just the right moment.

Sealing Government- to -Government Treaties

In practice, memorandums of understanding are usually a signed commitment binding various agencies in a precise, fine-tuned working relationship.

For instance, in one case, the Indian Health Service and the U.S. Department of Veteran Affairs wished to make a deal that would improve the health care process of American- Indian Veterans.

To achieve this, the two sides decided to sign up for a plan that would improve the sharing of resources and enhance coordination between the two agencies.

A second case involved yet another interagency deal between the U.S. National Institutes of Health, and the Food and Drug Administration.

This MOU was effected in 2011.

The deal aimed at protecting the welfare of laboratory animals. The MOU specifically outlined the use and proper care of the animals. Moreover, the agreement aimed at preventing the duplication of efforts between the participating agencies.

These two examples are the perfect illustration that MOUs can work excellently to cement intergovernmental relationships. Further, such agreements can expedite the crucial negotiations on time-sensitive issues involving various parties. Such parties can include intergovernmental agencies.

Yes, MOUs can work well to effect both the mundane and dramatic deals.

Further, in 1972 Cuba and U.S. authorities signed an exclusive MOU.

This MOU made it an international crime to hijack airplanes and associated vessels. Iraq similarly signed an MOU with the U.S. outlining that the former accepted the terms of a special U.N. oil-for-food program.

In this plan, Iraq was allowed to sell oil to buy food for citizens. Before this MOU, Iraqi citizens had suffered for decades under U.N.- imposed sanctions that prohibited the sale of Iraqi oil in the international markets.

Finally, Brazil and Canada also signed an MOU in 2004 that allowed each of these countries to collaborate on best practices touching on compensation systems, occupational safety, labor inspections, and more.

MOUs are Preferable to Formal Treaties

Notably, memorandums of understanding, despite their power and potency, are not perfectly binding in crucial international pacts. They are still considered as a kind of soft law.

This simply means they are less enforceable and weaker than traditional laws.

Regardless, MOUS are effectively used to furnish evidence of the intent by both parties to follow through on specific agreements. In fact, softer laws like MOUs typically offer an appealing way for nations to cooperate without using regular treaties.

Why are MOUs so attractive in such contexts?

Most laws or treaties signed between countries are often considered to be binding. As such, in case a country signs a treaty and then, for some reason, breaks it, this can result in unpalatable consequences and other repercussions.

Many countries generally decide to circumvent this by opting to sign an MOU rather than a contract.

The U.S. Securities Exchange Commission, for instance, has, for decades, relied on MOUs to investigate companies and people who work abroad.

These are often suspected of attempting to undermine the country’s financial laws. In this case, such regulators use MOUs to avoid time-consuming procedures linked to treaties.

MOUs, thus, provide a more flexible and faster means of controlling international securities measures.

Isn’t it clear why the use of MOUs is so widespread in our era?

Indeed, it seems to beat logic why some still go for binding contracts while the doors to using the more liberal MOU agreement are ever wide open.

A Single MOU Forestalled a Nuclear Holocaust

In the past and recent times, some powerful politicians have successfully used memorandums of understanding in a special effort to prevent war.

Former U.S. President Richard Nixon did precisely that.

In 1972 President Nixon and the Soviet authorities agreed to sign an MOU that initiated a direct telecommunications link connecting the two powerful nations.

The MOU was intended to ensure that such a unique communications system would help to prevent potential misunderstandings that could lead to a mutually destructive nuclear war between the two superpowers.

Later still, in 1997, U.S. President Bill Clinton formulated an MOU that aimed to update the Anti-Ballistic Missile Systems Treaty of 1972 to reflect the changes made when the former USSR dissolved and became a multiplicity of states.

The new MOU was crafted at a definitive moment when the world was anxious about the security status of the nuclear stockpile held by the former USSR as a superpower.

Yes, in effect, the world leaders used an MOU to prevent a catastrophic nuclear disaster.

MOUs Successfully Tackle Simmering Social and Humanitarian Challenges

Memorandums of understanding have played a vital role around the world on matters of social and human interest. For instance, in 2005, the United Kingdom signed an MOU that sought to deport unwelcome Nigerian nationals from the U.K. back home.

Most of the target victims were people who had overstayed their visas. The purpose of the MOU was to allow the authorities in London to repatriate the victims in a more humane manner. The terms of the MOU involved the Nigerian authorities who would provide a safe escort to their citizens on their way home.

In a similar deal, Kenya signed an MOU with the U.N. in 2011. The agreement obligated the U.N. to swiftly address the condition of refugee camps located within the borders of Kenya. The MOU clearly specified the security measures as well as the means for delivery of goods and services to the impoverished refugees in the camps.

Notably, MOUS are the darling of many business and industry mandarins who find them simple, straightforward, and well- suited for their interests. Moreover, many government bureaucrats love MOUs primarily because of their simple pedigree. These characteristics allow such officials to conveniently sidestep the pestilent officialdom and extend the timelines usually associated with formal contracts.

Yes, from the foregoing, MOUs have clearly become the most important vehicle for business, government, and political interests. It does not matter that some consider MOUs as carrying the baggage of nefarious purposes; MOUs are today an established form of a unique written communication that works as a powerful channel for pushing through essential projects.

Moreover, MOUs are useful for the implementation of government policies as well as beating essential deadlines.

Businesses Utilize MOUs as a Deal that Supersedes the Handshake

For years, most business partners simply used a handshake or a gentleman’s agreement to seal their deals.

In time, it became apparent that a handshake was merely a considerate signal of good intentions that needed further backup. In time, it became the norm for business people to put everything down on paper.

This would ensure that the agreement made is upheld.

At other times, the parties perceive that the nature of their engagement does not require them to sign a formal contract. In such a case, a non-binding agreement is deemed to be especially attractive.

Often, such a document is considered to be far more attractive and practical for the present purposes. 

This type of a practical, non-binding agreement that supersedes the traditional handshake is what people refer to as a memorandum of understanding.

Typically, an MOU is a type of agreement that outlines the details and terms of a specific understanding or agreement involving two or more parties. The MOU usually includes the requirements and responsibilities of each party.

MOUs are especially attractive to many due to the fact they do not require an exchange of money.

MOUs represent the initial stage in the making of a formal contract if the parties wish to go that far. They are quite useful for recording the preliminary plans and general understanding between parties that plan to enter a future formal contract.

In various settings, MOUs are commonly referred to asa letter of understanding, memorandum of agreement, or letter of intent. Regardless, the MOU usually serves a singular intended purpose as a simple, practical deal for sealing a lasting relationship between parties.

MOUs: The Perfect Seal for Related Parties’ Agreements

A memorandum of understanding is a fitting document to seal most agreements involving related parties.

On the other hand, a contract is a more fitting document for transactions involving parties that are not directly related.

Overall, an MOU is popular because it works well for the following special types of relationships and agreements:

  • Corporate inter-departmental agreements.
  • Agreements reached between state or central governments.
  • Agreements reached between different entities of a business group or regional offices of large organizations.
  • Cooperation agreements involving the governments of different countries through various entities of diplomatic relationships.
  • Community development agreements tailored to meet the common objectives of organizations for mutual benefit, especially where there are no profit-making intentions.
  • Agreements reached between different ministries or associated power generation entities.
  • Collaboration agreements made to undertake social, public or moral causes as a volunteer.

The above factors make MOUs quite popular.

Significance of MOU Agreements

We can discern the importance of memorandum of understanding agreements considering a few pertinent points:

An MOU may not be perfect for binding the parties in the legal sense. Regardless, an MOU is useful for clearly outlining the understanding reached between the parties. It helps put these on record, besides immortalizing the broad terms that are already settled on.

Thus, by signing MOUs, the parties in the agreement are essentially binding each other with regards to the agreed terms. This facilitates the process of discharging their duties smoothly.

Further, as a formal document, an MOU is excellent for imparting a full clarity on the responsibilities and requirements of each party. 

The document outlines the action to be taken by each side of the participants in the quest to achieve a common goal. In this regard, an MOU is useful for binding the parties both professionally and morally. It also makes the parties fully accountable for the terms that are agreed upon.

Considering such facts and keeping and mind that an MOU is a formal, signed document, each party is, to a large extent, fully bound by the terms of such an agreement.

None of the parties can directly back out from the stated commitments without risking the loss of respect, reputation, and even suffering financial repercussions.

The significance of MOUs is well demonstrated by these factors.

Sealing Commercial Contracts

There are situations where a memorandum of understanding is the best instrument for sealing specific agreements.

One of these is a case where commercial entities wish to initiate a relationship using some ‘lower-tier’ agreement before they proceed to sign a formal contract.

An MOU can be used successfully in the following commercial and business situations.

They work well in:

  • Specific- emerging business circumstances where the rules of the game are not yet set.
  • Situations involving first-time experiences, or new experiments where the parties desire to test the strength of their relationship using a non-binding MOU before engaging in a formal contract.
  • Such a step may be necessary for situations where the parties wish to limit the risk of undue exposure.
  • Commercial or business relationships where the parties want to enter into an initial deal using the MOU to test the waters before getting into a legally binding contract.
  • Circumstances where the parties sign an MOU first as a record of a broad level understanding. Such a deal may be followed by a more detailed formal engagement at a later stage.

This kind of MOU can be used as a foundation or basis for drafting a formal contract. Moreover, the MOU becomes an appropriate reference point to facilitate the review, negotiations, and finalization of the eventual deal.

How the MOU Works in the Corporate World

A memorandum of understanding can be quite a useful mechanism in efforts to facilitate a comforting commitment involving two corporate parties.

It can be an authoritative guide, helping the parties to informally agree or accept to later negotiate a detailed agreement.

Of course, for some, this potential may excite confidence and help in speeding up negotiations. For others, the MOU is regarded as nothing more than a useful benchmark for drafting a future formal contract. 

The latter category of people may have such feelings because, to them, an MOU is a mere non-binding document that cannot work on its own.

Regardless of such misgivings, many governments and corporate institutions usually employ MOUs to foster relationships between their agencies or to enhance inter-departmental relations.

This works exceptionally well in circumstances that rule out engagements in a formal contract.

Also, most companies usually choose to go for MOUs rather than engage in a contract for various reasons. First, an MOU is widely considered as a more bipartisan, and friendlier expression of a working relationship compared to a contract.

Moreover, may companies and corporate agencies prefer to use MOUs for formally documenting the agreements made between charities and nonprofit organizations with regard to the sharing of information or use of space.

In this context, MOUs are usually perceived as less threatening or intimidating in nature when compared to an official partnership agreement.

Further, MOUs are typically used in situations where the parties neither wish to craft a legally enforceable document nor imply a legal commitment of any kind.

In most cases, MOUs are best suited to clarify the roles and responsibilities of various agencies. Moreover, they are useful in helping to manage the expectations of parties that may be involved in joint projects.

Private entities can significantly benefit from using MOUs in specific circumstances. Consider the situation where a development project proves to be unusually complex. The details may also be undermined.

In such a case, it may be entirely appropriate for the parties to sign an MOU first. Further, the MOU might be useful for outlining the commercial goals of these parties or the transaction framework.

Dealing with Confidentiality Clauses in Corporate MOUs

While considering how a memorandum of understanding will be implemented in the negotiation stage, the parties should make sure to determine whether or not they want this document to impose some legally- binding obligations.

This is the essential element that strengthens an MOU.

In case they decide to do this, they may have to sign an agreement or deed. This might be better suited to protect the engaging parties. It might also help them to avoid the duplication of work.

If the parties decide that they do not wish to have such legally- binding clauses, then they should ensure that the MOU states explicitly that it is not binding. Alternatively, the parties can clearly indicate that specific clauses are binding. These may include the exclusive dealings or confidentiality clauses.

Notably, common law generally supposes that all MOUs are mostly non-binding.  Also, note that a presumption of intention will automatically apply in situations where the terms are clear, the intention is unclear, and the consideration is present.

Admittedly, an MOU may not be legally enforceable, considering that its level of specificity is generally insufficient to resolve conflicts when they arise.It does not matter much that an MOU is usually devoid of the details of implementation, as found in a formal contract.

An MOU still carries the skeletal structure of a possible future contract involving the parties. That is all that matters for most agreements of this nature.

It is, however, essential to conduct due diligence before signing any agreement or contract. Of course, one of the essential considerations in doing this is the confidentiality clause. Indeed, the importance of confidentiality should always be topmost in the mind of anyone who wishes to participate in such agreements.

The parties may decide to insert non-disclosure clauses as binding in the MOU. They may also choose to sign a separate Non-Disclosure Agreement if this will serve them better.

Truly, MOUs are considered as absolutely appropriate in certain circumstances. They should, nevertheless, not be used as the first step in signing a new deal.

A Brief Outline of the Practical Purposes of the MOU:

A memorandum of understanding is typically used to achieve the following goals:

  • To indicate the intentions of the parties engaging in negotiations, reach a common goal, and probably enter into a future contract.
  • To discuss the main points of a proposed contract, thus giving assurance to all the parties in the deal.
  • To ensure that everyone is reading from the same page regarding the essential terms of the agreement.
  • To craft a structured engagement that includes the extent and scope of all future negotiations.
  • To keep the parties in the deal properly updated on the negotiation’s progress by recording the essential points, milestones and decisions reached.
  • To make a public declaration that the parties in the negotiation are planning to enter into a future contract.
  • To act as proof to potential investors regarding future business transactions.

As noted, an MOU is usually useful in the early negotiation stages when the parties are still thrashing out the details of the desired transaction. 

Generally, at this point, the parties seek to agree on the essential terms of a business transaction and to set out a broad framework for mutual engagements.

Final Thoughts

The long-term practice of engaging in memorandums of understanding is a popular concept that is based on goodwill between various parties. MOUs generally spell out the understanding of the signing parties in a contemplated binding relationship.

As noted, an MOU can form the first stage in the making of a future contract.

Since all parties routinely sign an MOU, this document carries a degree of substance and mutual respect that is lacking in most agreements. Moreover, the MOU is usually crafted and signed in a relatively peaceful environment.

This enhances the qualities of such an agreement in effectively sealing deals involving multiple parties.

Thus, an MOU is more reliable than the typical gentleman’s agreement.

Further, it carries the advantage of clearly documenting each party’s actions and intentions in a permanent written form.

From the foregoing, an MOU is a powerful document that is commonly used by governments, corporate agencies, and private organizations to seal deals.

Yes, the MOU is, clearly, here to stay.