What Is a Memorandum of Understanding (MOU)?
A memorandum of understanding (MOU or MoU) is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract.
The MOU can be seen as the starting point for negotiations as it defines the scope and purpose of the talks. Such memoranda are most often seen in international treaty negotiations but also may be used in high-stakes business dealings such as merger talks.
Memorandum Of Understanding (MOU)
How an MOU Works
An MOU is an expression of agreement to proceed. It indicates that the parties have reached an understanding and are moving forward. Although it is not legally binding, it is a serious declaration that a contract is imminent.
- A memorandum of understanding is a document that describes the broad outlines of an agreement that two or more parties have reached.
- MOUs communicate the mutually accepted expectations of all of the parties involved in a negotiation.
- While not legally binding, the MOU signals that a binding contract is imminent.
- The MOU is most often found in international relations.
Under U.S. law, an MOU is the same as a letter of intent. In fact, arguably a memorandum of understanding, a memorandum of agreement, and a letter of intent are virtually indistinguishable. All communicate an agreement on a mutually beneficial goal and a desire to see it through to completion.
MOUs communicate the mutually accepted expectations of the people, organizations, or governments involved. They are most often used in international relations because, unlike treaties, they can be produced relatively quickly and in secret. They also are in use in many U.S. and state government agencies, particularly when major contracts are in the planning stages.
Contents of an MOU
An MOU clearly outlines specific points of an understanding. It names the parties, describes the project on which they are agreeing, defines its scope, and details each party's roles and responsibilities.
While not a legally enforceable document, the MOU is a significant step because of the time and effort involved in negotiating and drafting an effective document. To produce an MOU, the participating parties need to reach a mutual understanding. In the process, each side learns what is most important to the others before moving forward.
The process often begins with each party effectively drafting its own best-case MOU. It considers its ideal or preferred outcome, what it believes it has to offer to the other parties, and what points may be non-negotiable on its side. This is each party's starting position for negotiations.
An MOU communicates the mutually accepted expectations of the people, organizations, or governments involved.
The Disadvantages of an MOU
Not everyone agrees on the benefits of an MOU. During trade talks with a representative of China in Washington in April 2019, President Donald Trump was asked by a reporter how long he expected U.S.-China memorandums of understanding to last. "I don't like MOUs because they don't mean anything," the president replied. After some discussion, it was decided that any document that emerged from the talks would be called a trade agreement, never an MOU.