There are standards for determining whether an MOU might be binding. If either party violates such provisions, they may be held liable. In another instance, although MOUs aren't binding, they may include provisions that are, such as privacy or nondisclosure agreements. This being law, there are always exceptions, and as you'll find out on the next page, if one or both parties aren't paying close attention, contract-flavored memoranda of understanding can leave behind a very bad taste. Once they come to an agreement on those details, both parties sign the MOU.Īll of these might sound like elements that would appear in a contract, but remember that MOUs are not legally binding. An MOU can also have disclaimers and restrictions, as well as privacy statements. Other specific terms of the agreement are usually included, too, such as when the agreement begins, how long it lasts and how one or both entities can terminate the MOU. The MOU may also document contact information for each party's representatives, set dates for performance reviews and create processes for dispute resolution. Many MOUs spell out communication details, such as descriptions of both parties' capabilities and how they related to each other's' interests. Perhaps most important, the MOU spells out the parties' common objectives.Īfter the initial draft is written, representatives for the parties meet in person to negotiate and haggle over the MOU's finer points. Generally, each party starts in a planning stage to determine what they want or need the other party to provide, what they have to offer, what they are willing to negotiate, and the rationale for an MOU. In other words, MOUs don't require either side to " lawyer up" and prepare for hard-core, hairsplitting contract talk.Īlthough each side must put some thought into the MOU, the process for creating one is pretty straightforward. In these kinds of situations, an MOU is an appealing option because it's simple and direct, without the kinds of complex and combative standard terms and conditions of contract law. They require the parties to come to some sort of mutual agreement, and in order to do that, they have to take stock of their needs and wants and put them to paper. In some cases, a party is legally required to create MOUs, such as when housing authorities negotiate with tenants.īut MOUs hold a lot of potential power because of the time and energy they take to plan and write. You may wonder why two parties would go to the effort of putting together an MOU, especially considering that it's not an enforceable document. On the next page, you'll see why memoranda of understanding are virtual celebrities in the legal world. They also provide a mutually beneficial framework that both entities can work within to achieve shared goals. Well-written MOUs reflect diplomatic savvy and creative analytical thinking. But ultimately, the reason that parties opt for MOUs is because they are simpler and more flexible than contracts. All sorts of entities use MOUs to create guidelines for each party as they contribute their efforts and resources toward important projects. MOUs are less formal than contracts, and typically include fewer details and complexities, but they are more formal than handshake agreements, sometimes called gentlemen's agreements. Contracts are necessary when there is any sort of exchange of money because they help to protect the interests of both parties and ensure trust. A contract is a written, private agreement between two parties that is legally binding and can be enforced by a judge.Ĭontracts spell out the nitty-gritty obligations of each party which, if breached, can spell dire consequences for the entity that breaks it. You might think that memoranda of understanding sound suspiciously similar to contracts, but there are actually significant differences between the two. And here are two other touchstones of MOUs - generally they're not legally binding, in part because neither party wants to deal with the ramifications of a binding agreement, and they don't involve the exchange of money. No matter their length or complexity, MOUs specify mutually-accepted expectations between two or more people or organizations as they labor together toward a common objective. Others are long-winded and extremely detailed. MOUs are very common and are used for domestic purposes and agreements between nations.
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