What is a Memorandum Of Understanding?

President Donald Trump shocked a reporter with the bold declaration that he did not like memorandums of understanding “because MOUs don’t mean anything.”

Quite intriguing…

The President had been asked to say how long he thought the China-US memorandums of understanding would last. Was he right?

Not really.

While he may have alluded to the fact that MOUs are not legally binding, they can have grave ramifications for the parties involved, depending on varying circumstances.

You might wonder how this relates to your personal or family life, but wait a moment. Before you trash the subject of MOU as merely irrelevant, think of it:

The next time you attend a pre-wedding negotiation involving in-laws, and the prospective bride and bridegroom, you may be wading knee-deep in the tail-end of the latest MOU in town!

But first, what is a Memorandum of Understanding?

Memorandum of Understanding – The Nitty-gritty’s

In a nutshell, a memorandum of understanding is basically a formal agreement that is signed by two parties.

However, it can be a deal that involves more than two groups. Such parties can include organizations and companies that want to initiate binding partnerships linking them on a common mission.

An MOU is fundamentally a legal document that defines a bilateral agreement made between parties.  It is a general convergence of the will of two or more parties. Rather than representing a legal commitment, an MOU merely indicates the common intention and mutual line of action linking the participants.

Overall, compared with a gentleman’s agreement, an MOU is a more formal engagement. It, however, lacks the powerful binding force that is usually packed in a legal contract.

More than a Handshake, Less than a Contract

In terms of status, it’s worth mentioning that a Memorandum of Understanding lies loosely between the ranks of a handshake deal and a formal contract.

An MOU is a written agreement. Before a contract is made, the parties usually ignite the process by drafting this agreement.

This preliminary note (the MOU) is essential because it outlines the terms that would later form the basis of a substantive contract. Moreover, an MOU is crucial in ensuring that all the parties read from the same script, as far as the terms of the future contract go.

Is an MOU a Legal Document?

Strictly speaking, a memorandum of understanding is not legally binding. Regardless, certain factors may often dictate the terms and status of an MOU, therefore tweaking things a little.

For instance, if the contents of an MOU closely mirror that of a formal contract, the parties in the deal may decide that this MOU is legally binding. In such a case, they may choose to go ahead and present it as a legal document. In this way, the document would be granted the full force of the law.

Despite the fact that most MOUs do not have the backing of law, they nevertheless command a reasonable degree of seriousness that transcends the status of the ordinary gentleman’s agreement.

MOU & the US LOI Enjoy Equal Status

Consider this: Memorandums of Understanding are often the first step on the road to the making of a formal contract. In fact, in U.S. law, an MOU is deemed to be synonymous with the significantly important letter of intent (LOI).

In the U.S. context, a LOI is a written agreement that is mostly non-binding. Regardless, the signing of a LOI usually mean that a binding contract between the parties may be imminent. That is how powerful a LOI can be. Notably, an MOU enjoys equal status with a LOI. This underscores its power and binding force.

What Makes an MOU Tick?

A Memorandum of Understanding can work wonders in certain circumstances.

For example, there are situations when a gentleman’s agreement seems to be too casual to achieve the desired results. A contract may, in the same vein, be considered as overly formal and uncalled- for.

In such cases, a memorandum of understanding might save the day as the perfect option that satisfies all the parties.

Today, many nations prefer MOUs as a means to formalize agreements and ratify the domestic interests affecting them. Some MOUs are general in nature. Others are more concise. Yet a few are more detailed and relatively elaborate in their content and scope.

Compared to treaties, for instance, MOUs do not require long periods to ratify and implement. Moreover, they can be used to modify current treaties and are easily kept confidential due to their straightforward, concise nature.

 

Inexpensive MOUs are Everyone’s Darling

Regardless of their complexity or length, Memorandums of understanding are increasingly gaining popularity because they document and specify the mutual expectations of peoples, organizations, or nations. They are excellent as a potent force to pull parties together in pursuit of a common or unified goal.

Moreover, an MOU does not carry the baggage that comes with a full legal document. Often, the ramifications of a full legal document may be unpalatable to some or all the parties involved. The MOU liberates everyone from such commitments.

Lastly, the implementation of MOUs does not require the parties to spend vast sums of money. This is a significant difference from the situation when alternative methods of agreements are used.

The Difference Between MOU, Contract and Agreement

There are significant differences between a memorandum of understanding, a contract, and an agreement. A contract, for one, is defined as a written, legal and private agreement made between two parties.

Because a contract is much more powerful, it can be legally enforced by a judge in a court of law. In a contract, the detailed obligations of each party are always spelt out. In case one party acts in breach of the agreement, there are unpleasant legal consequences on the way.

If either party feels that there is too much at stake in a planned agreement, and that the relationship is at high risk, it is best to opt for a legal contract rather than an MOU. In such a case, a contract is undoubtedly more appropriate as the means to record a high-risk agreement. This is because a contract is legally binding.

A Contract Carries Legal Consequences

Indeed, the sole purpose of a contract is usually to cement a legally binding relationship. It clearly outlines the rights and obligations of the parties involved. For this reason, as noted, the courts can readily enforce contracts. Further, since a contract is binding, any breaches of the articles of the document will have specified legal consequences on the offending party.

MOUs Lack Legal Force

What about memorandums of understanding? An MOU, on its part, is a record of agreements that may not be legally enforceable. Parties can make use of MOUs to record a commercial partnership. This should be differentiated from a document that creates legal obligations. Such MOUs are merely useful for defining the goals and roles of all parties involved in a specific commercial partnership.

In case of breaches of an MOU, it is the business of the signatories or parties to find a way of resolving the matter. Generally speaking, any violations of the MOU will not carry legal consequences in the usual sense of the term.

MOU s are an Evolving Process; Contracts are a Done Deal

A critical difference between these agreements is that, whereas a contract usually has to be sealed as a complete agreement, a memorandum of understanding exists as an evolving negotiation process.

Why is this significant? In a legal document, all parties are expected to strike an agreement touching on the essential aspects of the deal. This is what makes a contract legally enforceable: The parties reached a final agreement on all relevant areas.

In contrast, most parties often sign MOUs while still negotiating the crucial aspects of the agreement. Because contracts exist as formal agreements with clearly specified legal obligations, they are ideally required to contain an exchange of promises that are conclusively agreed upon.

MOUs Work When a Contract is Untenable

For instance, in a supplier contract, the buyer promises to pay a specific amount of money while the supplier promises to deliver the specified goods.

In a situation where the buyer fails to promise anything in return for receiving the supplies, such a contract is not legally enforceable. Indeed, in this case, a contract is untenable.

Memorandums of understanding, on their part, do not have such a clear set of guidelines. As a result, the parties can include whatever they want in an MOU.

Contracts are generally excellent for protecting each party’s interests. For this reason, issues involving financial exchanges are usually cemented in a contract. Ultimately, contracts are essential for bestowing trust in agreements.

MOUs are a Virtual Celebrity

In contrast, memorandums of understanding are less formal. They involve fewer details or complexities compared with a contract.

Overall, the reason why most parties enter into MOUs is that they are more flexible and straightforward than the alternatives.

If an MOU is well-written, it radiates creative and analytical ideas. Moreover, it reflects diplomatic genius. MOUs also serve as an excellent framework for the parties to work towards achieving common objectives.

In the modern world, MOUs have become a virtual celebrity, widely adored as a paralegal document.

 Is an MOU Acceptable on a Letterhead?

The answer is ‘no.’ You should not draft a memorandum of understanding on a letterhead. Most MOU s are drafted on a plain sheet of paper. In this respect, there isn’t much difference with the way contracts, agreements or deeds are written.

It is not a great idea to have an MOU on a letterhead because it can create the wrong impression. It can give the idea that the clauses in the document are one-sided or skewed in favor of one party.

Also, MOUs are usually crafted to serve as a framework of the future contract. In some countries, the registration authorities are likely to turn down MOUs drafted on a letterhead because they expect a less formal document. In most countries, a handwritten MOU is perfectly acceptable and recognized.

An agreement, on its part, is a document that may be enforced by law. In sharp contrast with an MOU, an agreement contains a record of more substantial rights.

Here are the Contents of a Typical MOU

Every type of MOU is different.

Whenever parties decide to draft a memorandum of understanding, it is essential to remember the vital details that have been settled on.

Further, you must keep in mind the mutual goals that are held dear.

A typical MOU usually contains the following details:

  • The precise details on how the parties plan to resolve disputes.
  • The specific roles of the parties.
  • The express purpose of a commercial partnership.
  • The deadlines agreed upon by the parties.
  • The common goals of the signatories.

Situations When it is Best to Craft an MOU

A memorandum of understanding is an excellent document for use in commercial partnerships. It is a great document, suitable for establishing the mutual goals and expectations of the participating parties.

Moreover, the MOU usually outlines the rights and obligations of each partner. These are typically incorporated in a formal contract to be made later.

Parties may especially want to make an MOU in the following situations:

  • In case they wish to outline a commercial partnership with specific mutual goals.
  • In case they do not wish to form a legal relationship.
  • In case they wish to mark a partnership in a potentially beneficial manner.

An MOU may be used to outline the framework of a given partnership. This is especially necessary when sealing a business partnership. It is an excellent document that ensures all parties have the same expectations and know their responsibilities well.

An MOU generally outlines the details that the parties have agreed on. This includes common goals and responsibilities. As noted, these factors are not legally binding.

How MOUs Formalize Agency Agreements

Memorandums of understanding may be used to seal agreements involving case management institutions and agencies that provide direct service.

In most cases, the MOU may be tailored to cater to the specific needs of each agency. The arrangement still works whether an agency provides direct services, case management services, or a combination of these.

How MOUs Work to Seal Corporate Treaties

Most case management agencies are usually expected to develop working relationships with other agencies in their communities.

These relationships may vary depending on the unique needs of the various case management agencies and the ability of the agencies to get involved in these pursuits.

Indeed, many interagency relationships are merely premised on the informal understandings of the executives or workers in such agencies. Regardless, other relationships are usually so important and complicated to the extent that they call for formalization through memorandums of understanding.

Often, an MOU is regarded as a highly useful tool for case management agencies that coordinate client services from community providers. Such a task can be a living nightmare for case managers. This is the case unless specific elements touching on client flow are clearly described in advance.

Fitting Contexts for MOUs to be Used

The memorandum of understanding generally serves as a vehicle for establishing the requirements in a specified agreement. In this respect, MOUs can be useful in the following contexts:

  • Delineating the client flow.
  • Specifying services to be offered to clients by a provider agency.
  • Specifying appropriate clients for a case management agency and how referrals should be managed.
  • Facilitating communication through a definition of the process for data exchange, phone contact, or regular meetings.
  • Protecting the parties from the effects of different interpretations or expectations. This is done by spelling out the details of the relationship.
  • Cutting through the bureaucratic red tape through a definition of new or altered procedures relative to the clients.
  • Enhancing the case management agency’s status through a formalization of relationships with influential agencies.
  • Specifying responsibilities and reducing friction over turf issues.
  • Transferring authority to perform mandated functions from one agency to another.

Note: A successful negotiation of an MOU is no walk in the park. It takes a considerable amount of resources, energy, and time.  A case management agency should, therefore, pursue MOUs with just a few agencies that are essential to its operation.

Factors to Keep in Mind When Negotiating an MOU

How should you negotiate a memorandum of understanding?

There are several important factors to keep in mind during the process of MOU development and negotiation.

Consider the following factors as an essential part of the process:

  • Identifying the right people.
  • Keeping your objectives and goals clear.
  • Keeping the language simple and clear.
  • Defining your role as an agency.
  • Defining what the provider can offer.
  • Setting realistic expectations.
  • Being specific about the functions and understandings of the agreement.
  • Setting the appropriate review dates.
  • Desisting from making the MOU more complicated than necessary.
  • Being cautious not to use the MOU for power play.
  • Defining the units of service, service definitions, and such related terms.
  • Devising ways of making the provider happy for getting into the deal.
  • Encouraging provider agencies’ participation in the process.
  • Clearly specifying the essential procedures for amending the MOU.
  • Handling arrangements correctly to minimize the need for renegotiation.

Caution:

You should always be wary of possible underlying antagonisms or feuds within agencies. These may impact on the MOU’s implementation. If possible, try to resolve such issues in a good time.

The Process of Negotiating a Successful MOU

The following are the essential stages in the process of successfully negotiating a memorandum of understanding.

Please note that, for clarity, we will use an MOU process involving agencies as a typical case study.

Stage I: Planning Stage.

The planning stage is an essential basis of the MOU process. If carefully executed, this stage can form the basis for certain decisions and determinations, which can facilitate a smoother negotiation and implementation of the agreement.

Step One: Brainstorming

You should begin with an internal brainstorming. The case managers, administrators, and others involved in these efforts must identify the following factors:

  • What they want or need the other party to provide.
  • What they are willing and ready to negotiate.
  • What they are willing or ready to forfeit.
  • What is available on the table to offer.
  • Your rationale for entering the process of the MOU.

Step Two: Identifying the potential Needs

Here, you should identify the needs of the parties. Further, explore some viable ways in which you can address these needs. Be realistic about your expectations of what the other party can deliver. In the same vein, be realistic about what you can deliver.

Explore ways to establish the right relationships, therefore maximizing the chances of success in this endeavor.

Step Three: Developing the Objectives

Formulate a specific MOU and be sure to evaluate whether you are capable of accomplishing the objectives. This is a crucial process on the road to success.

Once you clearly define the objectives for the deal, this can gradually translate into the terms and conditions of a potential MOU.

In developing these objectives, make sure to do the following:

  • Determine the targeted needs.
  • Determine the services to be provided.
  • Assess the direct and indirect costs to your party and the negotiating partner.
  • Identify the standards of performance that are minimally acceptable.

These objectives can be used as a point of reference. They are important in weighing the advantages and disadvantages of proceeding with the MOU’s development.

Take the Cue to Consider the Viability of the MOU

Further, considering these factors will help you to determine whether the process of the memorandum of understanding will create needless bureaucracy or otherwise prove to be counterproductive.

If you find that this could potentially disrupt a good relationship with others, it would be the perfect cue to halt the entire endeavors for an MOU.

Finally, this reference can help you set up the criteria for individuals and agencies to negotiate a successful MOU.

Step Four: Involve Selected Staff

Determine the level of staff you want to be involved in the negotiation process. Involve them in the process as early as possible.

Ensure that they are deeply familiar with whatever you want to be accomplished. This will enhance their value in this vital process.

Step Five: Identify Funding agencies

Consider a few ways in which you can identify and tap into agency funding and services to advance the MOU process. For instance, you could put yourself in the pivotal position where you act as the agency’s referral source or, in other ways, perform preauthorization service for them.

Step Six: Identify a few agencies which pay for or authorize services.

Consider this: In what ways can you negotiate for a little transfer of authority to your case management agency?

Step Seven: Influential Individuals

Identify a few influential individuals who are service providers. Enlist their assistance and support.

Stage Two: Negotiation Stage.

The negotiation stage typically begins with contacting the agency. If possible, do this in person. It is a great idea to involve a staff member who will ultimately take responsibility for the MoU’s implementation to accompany you in the initial visit.

Develop a clear agenda for this meeting.

Make sure to describe your agency well. For instance, what do you hope to achieve through your case management agency?

Why is the active involvement of the provider so Important? How will the clients be served better by this joint effort? Ensure these factors are clearly outlined in the agenda.

Do Proper Pitching

It is essential to sell the idea of case management as a process that helps to enhance service delivery. Moreover, it is crucial for the wellbeing of clients and their families.

After this sales pitch, you can be sure that the service providers will be able to anticipate precisely what you expect.

Having spent time during the planning stage to identify what you are ready to negotiate, it is now time to make your expectations clear.

Be Realistic about the MOU

Be realistic about this. Be ready for trade-offs. Prepare a timetable, setting clear deadlines with the provider. It helps a lot if each party would know precisely the time constraints and limitations tied to the whole process.

As you do these, keep reminding yourself that a memorandum of understanding is not legally binding. Instead, it is a written reflection of an agreement involving two parties.

The MOU is made through a process that includes negotiation and mutual consent. It is sealed through acceptance of the instruments of the MOU and approved by authorized representatives.

Eventually, the parties signify this approval by appending signatures to the MOU document.

How to Structure the Instrument of an MOU

The instrument of the memorandum of understanding needs to be written in such a manner that it is clearly understood.

It must define the objectives and be specific about the items agreed on and implied understandings.

The language used to craft the MOU should be straightforward and simple. Avoid complex legal terminology, jargon, and convoluted wording. Just focus on crafting a clear MOU.

Use the Best Marketing Strategy

Employ the best marketing approach. This incorporates the use of concise language. Such a strategy will likely make all the parties feel that they are important in this setup.

While drafting the document, ensure to follow the guidelines that were discussed earlier.

Begin the MOU document with a clear definition of precisely what you want. Outline the interests of the parties in the agreement which must be served or protected.

Is there a Correct Format to Draft an MOU?

There is no standard format for drafting a memorandum of understanding.

You should ensure, however, that the philosophy governing relations with the providers and the agency are reflected in the format.

Simple common sense should guide the development of this instrument. Moreover, it must reflect the decisions touching on inclusions and exclusions.

How to Determine the Terms and Conditions for a Successful MOU

What other elements are crucial in crafting a successful document of the memorandum of understanding?

Consider these vital factors:

  • Relevant Dates

Make sure you include the date when the MOU is initiated. In case problems are anticipated, a precise date for review should be set. This can be done at the tail end of the MOU.

  • Name the Parties

The parties in the agreement must be named. Be concise and clear about who is entering this agreement.

Ensure to include the following details, for good measure:

  • The names of the persons authorized to enter the agreement should be indicated right there, at the beginning of the MOU. Moreover, include the names of individuals who are delegated by their parties to append the signatures. This signifies a formal acceptance of the deal.
  • You may include the names of the umbrella or sponsoring agencies and names of persons who are responsible for the implementation of the MOU.

 The Essential Descriptions to Include in the MOU

Common Objectives

You can describe the common objectives that inspired the parties to enter the memorandum of understanding. Such a description will give the framework for the MOU specifics.

Inter-Parties Understanding

You should outline the understanding between parties in the agreement. This can include the range of services to be provided.

You can specify a referral process, a service, how many service slots should be reserved, and a communication item. Further, where appropriate, you should state the scope, the amount, the nature, and duration of service.

The Referral Process

This is an excellent descriptive inclusion, especially when the client services will come from either party.

Such a well-delineated referral process can work to save valuable time for case managers. Moreover, they help formalize the agreement practice.

You Can Draft a Perfect MOU

Keep in mind that a perfect understanding of the process and development of a good memorandum of understanding can only be mastered through actual practice.

Happily, to succeed, you don’t need anything unusual. The drafters of a good MOU just need to apply common sense, logic, and adhere to the outlined procedures.

If this is combined with a bit of knowledge on how community matters work, any new drafter of an MOU can begin to develop a document that will serve as a perfect instrument of agreement with other parties.

Conclusion

Regardless of our status in life, memorandums of understanding today form an essential part of us. An MOU is fundamentally an agreement created by two or more parties. It comes just before a final negotiated document is drawn.

Yes, an MOU is essentially an agreement crafted before an agreement.

It takes time, energy, commitment, and planning to draft a successful MOU. Considering this is not a legally binding document, a successful MOU relies on the goodwill of all parties to withstand the test of time.

Such parties need excellent dispute resolution skills to deal with issues arising from the deal.

Regardless, an MOU is still a good option in situations where a gentleman’s agreement is not deemed to be satisfactory yet a formal contract is considered unviable. If managed well, an MOU can lead to a desirable win-win situation for all the parties involved.

 

Shawn