A Memorandum of Understanding or MOU is the document used to articulate the mutually beneficial agreement between two or more parties outlining the commitment between the parties to work together collaboratively toward the same purpose or goal and share resources or services.
The Memorandum of Understanding allows all involved to concretely see that they are agreeing to the same thing and to act as a tangible reference to review should any troubles arise during the arrangement.
One reason why the Memorandum of Understanding is a wonderful business tool is its flexibility.
You can use it in a variety of settings for a variety of purposes and craft the document to be as simple or complex as the situation calls for.
All you are basically saying to your partner or partners with this type of document is, these are the details of the understanding we’ve made and we are agreeing to move forward on it.
You’re not pressuring them into some heavily binding agreement, you’re not thrusting and contracted them with a bunch of stuff on it they haven’t agreed to, you’re not causing them to incur a lot of legal fees just to begin a business relationship or project with you.
All you’re saying is here’s what we’ve agreed to and we’re committing to that.
Here are some settings in situations where this type of informal contract really makes sense for business people, entrepreneurs and organizations.
So first step we have self-employed and contractors using MOU’s for uncertain deals.
If you are a self-employed business person or independent contractor, you probably find yourself wanting some sort of commitment from clients while not taking up time or money on legal fees.
Memorandum of Understandings are a perfect alternative since you can do them for yourself and you can tailor them to fit the situation at hand.
Perhaps you’re finding that you want some sort of agreement or deposit to begin a project and yet the client is unsure about what they want or need.
You can’t create a contract without all the details spelled out or an idea of what the scope of the project will be or you have a client who thinks you are the right contractor for them but is reluctant for one reason or another to enter into a large contract.
This could apply to situations like the client wants a set of comps or a mock-up of some sort before committing to you for a large project or the client is not sure exactly what they’re looking for in a project.
Maybe the client is reluctant to provide information about the project without protection or the project requires research and strategy and the project scope cannot be determined without the results of that research.
Maybe you want proof that the client is serious about working together and not just harvesting your expertise or you project the cost of a project but are not confident that the project will remain within the scope of that discussion.
In each of these cases the Memorandum of Understanding covers the period when neither party is confident about where the project will lead.
You can soothe your clients worries by giving them protection for their ideas or a trial period to test your skills and determine whether they can work with you to accomplish their goals.
They do risk some money if it doesn’t work out but it’s far safer than entering into much larger and longer contract. The Memorandum of Understanding can also help you to make sure that you’re not taken advantage of and that your skills are valued every step of the way, meaning you’re even getting paid for those quote unquote little or preliminary tasks.
Next we have entrepreneurs using MOU’s for deals on the go. Entrepreneurs, self-employed and small to medium sized business people typically do a lot of mingling and networking.
Memorandums of understanding are especially helpful for verbal agreements that are often made in these types of situations.
The MOU becomes an indispensable tool as you form new business relationships and set up joint venture deals on the go. When you’ve made a verbal agreement it is critical to the success of the venture or relationship as well as to maintaining an aboveboard reputation that you always confirm and solidify the terms you’ve agreed upon.
In the case of forming a joint venture deal or making verbal agreements concrete, a Memorandum of Understanding is mainly used to establish a clear understanding of how the deal will practically function and each party’s role and compensation.
Now I’m not saying that every deal is going to strike gold but at least everyone involved in your projects will clearly understand what they are contributing in order to put their best foot forward, this will give your deal the best chance of success while building trust in your partnerships and preserving your credibility.
Finally we have organizations using MOU’s for high cooperation and low legality situations. A Memorandum of Understanding is an excellent support tool for government departments and agencies wanting to work together with other organizations.
MOU’s can aid the government organization to clarify roles and responsibilities in the arrangement, manage expectations associated with the undertaking and coordinate the sharing of services and resources.
For two or more government parties wishing to work together, the flexibility of a Memorandum of Understanding can be of significant value. Oftentimes to different arms of the same legal entity will be unable to or are legally prohibited from entering into a legally binding contract with each other.
Therefore in drafting an agreement for collaboration between multiple government parties and MoU may be ideal since non-binding MOU’s may be terminated without legal consequences in some circumstances.
For government departments or agencies working with a private party on developing a complex project entering into an MOU may be perfect when the endeavor must progress yet the scope and details are not fully determined.
To this end the Memorandum of Understanding would describe key components of the project the function and interaction of each party, the duration of the arrangement and conditions required for the project to proceed.
Government agents may also find themselves entering into a memorandum of understanding with a private party. As an interim measure to continue the progress of a project while the terms of a formal contract are ironed out.
In this circumstance the MOU may be simply a clause stating something to the effect that the parties will keep negotiating in good faith to finalize a binding contract.
Government and non-profit organizations also will form an MoU agreement for the delivery or funding of services to charity or community education programs.
When creating a Memorandum of Understanding for any use within the government, it is important to consider the effectiveness of an MOU on a project-by-project basis and check the relevant legislation to make sure that legislative requirements are met by the document.
It is critical for the parties to agree on whether or not they intend the document to impose, legally binding obligations when the MOU is created.
If the parties do intend to be legally bound a contract is probably preferable, besides government organizations Memorandum of Understandings are also helpful for nonprofit organizations who would like to form partnerships in exchange for supportive services.
Again how simple or complex you make the MOU and the terms you choose to include in the document really depend on your personal circumstances.
So in our video how to write an advanced MOU we’re going to get into aspects you should consider putting into your MOU. Finally you need to look at each situation individually and carefully consider if an MOU is the best tool.
The biggest factor here is how legally binding you need your document to be and care needs to be taken in drafting your MOU in order to evolve avoid unintended legal consequences and adverse practical implications. So always seek legal advice.
When you do feel ready to apply this information and draft your own MOU, I suggest you visit www.moutemplates.com for lots of excellent tools to create your own Memorandum of Understanding.