Alternative to Contracts

Not everything is a contract. In order for something to be a ‘contract’ it must have very specific ingredients.

Memorandum of Understanding (MOU or MoU)
An MOU is a document that describes a bilateral or multilateral agreement between parties.  It outlines a common understanding between parties indicating an intended course of action.
MOUs are most often is used in cases where a legal commitment is not desired or where the parties cannot create a legally enforceable agreement.

MOUs are formal versions of “gentlemen’s agreements.”  However, MOUs can be legally binding if they contain the correct wording and ingredients of a contract.  In other words, an MOU can be a “contract” if it contains all the elements of a contract, but otherwise, it is not.

Service Level Agreement (SLA)
An SLA is an agreement negotiated between a customer and service provider.  Like MOUs they can be formal (legally binding) or informal.

It is worth pointing out that contracts between service providers (vendors) and their subcontractors are often (incorrectly) called SLAs, because the “level of service” is set by the buyer and communicated to the subcontractors.

SLAs are used to document common understanding regarding services, priorities, responsibilities, guarantees, and warranties.   In theory, each area of service being delivered should have its own defined “level of service.” SLAs may specify:

  • levels of availability
  • serviceability
  • performance
  • operation
  • other attributes of the service, such as billing.

The “level of service” specified in an SLA is typically defined in terms of “target” or “minimum.”  Setting specific performance standards allows the buyer to know when corrective action is justified.

SLA contracts typically include penalties and defined corrective actions in the case of non-compliance with performance standards.

image from melodi2 at


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