CONTRACTS versus MEMORANDUM OF UNDERSTANDINGS (MoUs)
Post 260 ⇒ by Gautam Shah →
A contract is an understanding that can emerge between any two parties, desiring to conduct a relationship. A contract can occur between: husband-wife, client-professional, client-contractor, buyer-supplier, teacher-student, and so on. When two such parties come together to bridge their relationship, a clear notion must emerge as to:
- Why do they seek each other?
- Are they qualified to play the part they are in?
- Have they been disabled (by law or other circumstances) in any manner, to play the part they intend to take-up?
- Do they require any external assistance to enact the part they are to play?
- Do they have the resources to carry on their duties?
- Do they have the competence to enter / alter / terminate their understandings?
An understanding about these issues ultimately results into a contract. A contract is a covenant (Latin: come together / an agreement held to be the basis of a relationship of commitment with God), where each one has a distinct role to play.
A contract is an understanding of exchanges between two persons. If, more than Two parties are involved the agreement is called Memorandum of Understanding or MoU. In contractual relationships the involved two parties play distinctly different but definite roles.
The essence of a Contract is: One party requires goods, services, favours, etc. whereas the Other party has means to pay or compensate for it. One party must express the requirements, and the Other party must show personal qualities, requisite means and willingness to provide for the requirements.
Contracts are between Two parties, and there is no space for anyone else to play any other role. Understandings that do not involve or specify an exchange and without a consideration, are not contracts. A contract still can occur between a person and group or between two groups, if a person is designated to represent the group.
MEMORANDUM OF UNDERSTANDINGS (MoUs)
MoUs are less formal then contract. MoUs however, are recognised documents that morally bind the signatories. MoUs are authenticated statements of intents, but penalizing anyone for inadequate performance is difficult.
MoUs override many of the restrictive aspects of a contract. Such as: Parties are not very clear about their roles, Two or more people are involved, Actions, compensations etc. are not perfectly lawful, Parties are of different nationality and face a dilemma which country’s laws must be followed.
Many complex jobs / ventures fail to take off, unless some exercises are undertaken by the concerned parties to define their respective roles and involvement. Such situations arise, where:
- Many clients come together to let a professional or agency to solve their problem. (Understanding between clients).
- Many professionals (contractors or suppliers) come together (form consortium) to solve a client’s problems. (Understanding between professionals, contractors or suppliers).
- Clients and professionals together need services of an agency or a group of vendors, contractors to execute a system.
- Consortium, multinational companies handle Jobs / ventures that are conceived / contracted / executed / paid / delivered or become operative in different or many countries.
- Multi lateral agencies like Governmental departments, semi government organizations, NGOs, come together to undertake works.
Often such exercises occur as part of a job definition or planning process. An umbrella MoU often creates a cohesive structure to tie-up several bilateral or one-to-one contracts or MoUs. Budding or initiating MoUs become a source document out of which a series of bilateral contracts are generated. MoUs become a point of origin or culmination for many other MoUs or contracts.