A memorandum of understanding (MoU) is an agreement between two or more parties. An MoU is not a legally binding contract but can often serve as the first step toward a formal contract. MoUs can be executed between private businesses, national governments, and state or local agencies.
What Is a Memorandum of Understanding (MOU)?
Legally speaking, a memorandum of understanding -- also sometimes referred to as a memorandum of agreement or letter of intent -- lies somewhere between a simple handshake agreement and a binding, enforceable contract. A memo of understanding is an agreement between two parties in the public or private sector that outlines expectations and responsibilities for each party.
An MoU has five basic components:
- Names of the parties.
- Addresses of the parties.
- Date of the agreement.
- Description of the agreement, including terms and responsibilities. Provisions such as jurisdiction, waiver of jury trial, costs, and provisions for notices, assignments, and amendments may also be part of an MoU.
- Dated signatures of the parties.
Again: MoUs are not legally binding contracts, although they can serve as a precursor to them. They don’t imply a lack of trust in a party, but often when working with other people (or agencies), it’s simply best to have clear expectations and requirements to avoid later conflicts.
MoUs are especially common among government agencies that are cooperating with one another. A public health department, for example, may sign an MoU with a transportation agency to ensure that disabled constituents are able to receive special services. Interagency MoUs are common since they’re much less time- and labor-intensive than contract negotiations.
In some cases, MoUs cross national boundaries. For example, seven European countries signed an MoU in March 2023 with the U.S. Department of Justice to coordinate any probes into alleged Russian war crimes in Ukraine. MoUs are also common in international relations since it’s not always possible to persuade governments to approve special treaties, especially when issues are time-sensitive.
Advantages and disadvantages of an MoU
The biggest advantage of an MoU is that it can provide a clear statement of objectives and goals, preventing future disputes. They can either lay the groundwork for a legally binding contract or provide an easy exit if the partnership doesn’t work out.
Unlike handshake agreements, an MoU also provides a clear paper trail of terms and requirements discussed in negotiations. There’s little room for a dispute after the fact if one party doesn’t live up to obligations spelled out in the MoU; likewise, it’s difficult to blame another party for not doing something if the task wasn’t spelled out in the MoU.
The flip side of an MoU is that it’s not legally binding. There are basically no consequences (other than reputational) if one party decides it doesn’t want to live up to the requirements spelled out in the memorandum. And since it’s not legally binding, either party can simply exit the MoU at any time, for any reason.
