Drafting Memos of Understanding and Letters of Intent
Colleagues provided me with a paper they wrote that focused on drafting good memos of understanding and letters of intent. I thought I’d share their insights:
In today’s increasingly cost conscious environment where every dollar must be justified, effecting robust contracts is even more critical. No longer are only contract specialists involved in the contract process, professionals of all disciplines have a vital role to play in the development of successful contracts and their ongoing administration.
Before developing a contract, the parties who intend to enter into a business partnership or negotiate a deal, should have in mind some benefit that they want to obtain from the collaboration as well as an idea of their respective responsibilities. The ideas of one party may not be similar to the other party’s. If these are written down and all parties clearly understand and agree, then there is a meeting of the minds and the agreement drafted by the lawyers based on the memo of understanding (MOU) or the letter of intent (LOI) will be effective.
Going to a lawyer for advice before negotiations and MOU may not be fruitful because the lawyer may put so much fear in the negotiator’s mind that they will lose the business sense and the trust to carry out negotiations. Also, it is easier for the lawyer to draft a legal document if there is prior meeting of minds between the two business leaders who want to partner and see benefits being generated by the synergy. The lawyer’s bill will be appreciably smaller if he starts from a clear MOU or LOI.
Good agreements make the work environment and interpersonal relationships so interesting and positive that everyone wants to get to work resulting in profit for both parties to the agreement. But writing them requires devotion of time and careful planning in order to meet one’s goals. It is also necessary to think creatively to generate new insights.
The objective of this paper is to review the process of producing a memo of understanding or a letter of intent.
An MOU or LOI is a document that outlines a commitment between two or more parties to work together towards a defined goal or outcome. They frequently detail the sharing of resources or services between the parties in a collaborative or non-competitive manner to achieve the defined objective or outcome. An MOU is not as strictly binding as a contract but instead outlines the intended relationship between the parties.
To help ensure a concise and effective MOU, begin by meeting with your potential partners and determine what your objectives are.
Clearly identify each of the parties and their contact information that are participating in the agreement.
Identify what resources are required to meet that objective, which of those resources can be provided by which party and how the various parties will work together (detail what each party will and will not do/contribute) as well as what the expected benefits to yourself and the other parties are.
Clearly outline the main purpose or objective of the agreement and define what specific outcomes are expected as a result of the collaboration. Establish any goals, milestones or measures of success or failure for the intended objective.
In the case of multiple objectives or desired outcomes or if there are phases or stages of the collaboration, clearly indicate by sections or headers the different phases or stages and state the expectations and resource requirements of each party separately to help ensure that each phase is easily identifiable along with its resources and requirements.
Detail what specific actions and/or resources each party will contribute to the collaboration and establish metrics to ensure they are being contributed.
It is also important to define how any money will be handled within the scope of the agreement; who will collect, disperse and how; who will be paid, how much, when and by whom.
Who will maintain accounts and generate periodical reports. Who should receive and analyze these reports.
If desired, a mechanism for review or revision of the agreement can be included to ensure the various parties have ways of revising it.
Establish a timeline as to when the agreement will go into effect and when it will end (can be based on a date or on an outcome). Also include any other termination terms if needed or can/should the agreement be extended automatically after a certain time period?
Once all these details have been outlined and agreed to by all parties, draft the agreement to include all the details from the meeting and circulate to all parties to review and if approved sign (be sure that the signatory has the authority to sign and bind themselves and/or their organization). Be sure to include any definition of terms as well as forms or schedules.
Authors:
Hira Ahuja is the President of EPIC Educational Program Innovations Center and can be reached at hahuja.epic-edu.com
Mike Fanjoy is the General Manager at EPIC Educational Program Innovations Center.
You can connect with him through Linked-In
