Section 9. Understanding and Writing Contracts and Memoranda of Agreement

• What are contracts and memoranda of agreement?

• When might you use each document?

• How do you read and understand a contract or memorandum of agreement?

• How do you draft a contract or memorandum of agreement?

As you collaborate with other groups, employ consultants, share resources, or hire organizations to provide services, it is often useful -- and sometimes essential -- to "get it in writing." A written agreement can clarify what each party has promised, who is responsible for what, how resources will be handled, how long the arrangement will last, and what happens if circumstances change.

This section will help you read, understand, and develop contracts and memoranda of agreement or understanding, two common forms of written agreement used by community organizations. Because the legal effect of any agreement depends on its language, circumstances, and applicable law, significant agreements may require review by qualified legal or other professional advisers.

What are contracts and memoranda of agreement?

A contract and a memorandum of agreement may look different and may be used for different purposes, but the title of a document does not by itself determine whether it is legally enforceable. What matters is the substance of the arrangement, the parties' intent, applicable law, and whether the requirements for an enforceable agreement are satisfied.

Contract

A contract is an agreement that creates obligations enforceable by law. Contract law varies by jurisdiction, but enforceable contracts generally involve mutual assent -- an offer and acceptance -- along with consideration or another legally recognized basis for enforcement, parties with legal capacity, a lawful purpose, and terms clear enough to determine what the parties agreed to.

Consideration generally means that the parties exchange promises, obligations, money, services, goods, rights, or something else of legal value. A community organization might agree to pay a consultant to provide training, for example, or two organizations might agree to exchange specified services.

Contracts can be written, oral, electronic, or in some circumstances implied through conduct. Some types of agreements must be in writing under applicable law, however, and a written contract usually provides much clearer evidence of the parties' responsibilities than an oral understanding.

A document does not have to be titled "Contract" in order to create contractual obligations. If the parties intend to enter into a binding agreement and the legal requirements for a contract are satisfied, another title may not change the legal effect.

In health, human-service, and community work, subcontracts are common. A subcontract is an agreement under which an organization or individual performing work under a larger contract arranges for another organization or individual to perform an approved portion of that work.

Before subcontracting, review the primary contract. It may require advance approval, restrict which responsibilities may be subcontracted, impose particular qualifications on subcontractors, or require certain obligations from the primary agreement to be included in the subcontract. The organization holding the primary contract may also remain responsible to the funder or contracting party for work performed by its subcontractors.

Memorandum of agreement or memorandum of understanding

A memorandum of agreement (MOA) or memorandum of understanding (MOU) is a written description of an understanding or arrangement between two or more parties. These documents are frequently used to describe collaborative relationships, responsibilities, referrals, shared activities, information exchange, use of facilities or equipment, or other forms of cooperation.

Some MOAs and MOUs are intended to document a good-faith, nonbinding understanding. Others contain commitments that may be legally enforceable. Calling a document an MOA or MOU does not automatically make it nonbinding.

If the parties intend an agreement to be nonbinding, say so clearly and identify whether any provisions -- such as confidentiality, data protection, intellectual property, use of names or logos, or dispute procedures -- are nevertheless intended to create binding obligations. When the distinction matters, obtain legal advice about whether the document accomplishes what the parties intend.

In community work, an MOA or MOU may be useful for arrangements such as:

• Coordinating referrals among organizations
• Working jointly on a community assessment or initiative
• Sharing meeting space or equipment
• Coordinating outreach or public education
• Participating in an advisory council or collaborative
• Conducting joint training
• Describing how organizations will communicate or coordinate services

Funders sometimes require applicants to document partnerships through an MOA, MOU, letter of commitment, or other written agreement. Read the funding requirements carefully. A funder may specify what the agreement must contain or may provide required language or a template.

Gray areas

The distinction between a binding contract and a nonbinding collaborative agreement is not always obvious. Courts generally look beyond the document's title and consider its language, the parties' intent and conduct, the definiteness of its terms, the obligations exchanged, and applicable law.

Legal consequences can also arise even when no conventional written contract exists. For example:

• A party may rely reasonably on another's promise and incur substantial expense or another detriment because of that reliance. In some circumstances, legal doctrines such as promissory estoppel may provide a remedy even when a traditional contract was not formed.
• A contract may sometimes be implied from the parties' conduct when their actions demonstrate mutual agreement and the other requirements for a contract are present.

These situations are highly fact-specific. Don't assume that an arrangement is legally unenforceable simply because it was informal or labeled an MOA, or that a past practice automatically creates a contractual obligation.

When might you use each document?

The right document depends on the nature of the relationship, the risks involved, the commitments being made, and whether the parties intend those commitments to be legally enforceable.

Use a contract or other clearly binding written agreement:

When significant payment or financial obligations are involved

When one party is paying another for goods, services, facilities, consulting, technology, or other work, a written contract can establish exactly what is being purchased, how payment works, what documentation is required, and what happens if either party does not perform.

A contract may specify:

• The work, goods, or services being provided
• Each party's responsibilities and deadlines
• The parties' legally enforceable obligations
• How funds may be used, what flexibility is allowed, what changes require approval, and what records must be maintained

Examples include:

• A funding agency contracts with an organization to provide specified services or deliverables for an agreed amount.
• A lead organization subcontracts part of funded work to another qualified organization.
• An approved subcontractor arranges for another organization to perform a further portion of the work when the primary agreements permit it.
• One organization hires another organization to provide professional services, technology, training, evaluation, transportation, catering, or another defined service.
• An organization enters into a lease, license, equipment agreement, or agreement concerning intellectual property.
• An organization engages an appropriately classified independent contractor to perform defined services.
• Organizations establish a formal agreement governing the sharing of staff, facilities, technology, data, or other resources.

A note about independent contractors:

Calling someone an "independent contractor" in an agreement does not by itself determine that person's legal status. Worker classification depends on the actual relationship and applicable federal and state law. Before using an independent-contractor agreement, determine whether that classification is appropriate.

When important non-money obligations are being exchanged

Money is not the only reason to use a binding contract. A formal agreement may be appropriate when organizations are exchanging significant services, granting licenses, sharing confidential data, relying on one another for essential program functions, using one another's facilities, or assuming liabilities that need to be clearly allocated.

The more the success of an initiative depends on each party performing specific obligations, the more important it becomes to determine whether those obligations should be set out in a binding agreement.

Use an MOA or MOU:

To document a collaborative relationship

An MOA or MOU can clarify what organizations intend to do together, even when their relationship does not involve purchasing goods or services.

Examples might include agreements:

• To participate in a joint advisory group or coalition
• To refer people to one another's programs when appropriate
• To collaborate on a community assessment, outreach effort, training program, or public event
• To coordinate access to complementary services
• To provide agreed forms of outreach, information, materials, or other support for a shared initiative

To describe an affiliation or partnership

Organizations may use an MOA or MOU to describe how they will coordinate a joint project, share responsibilities, communicate, make decisions, or present the partnership publicly.

Financial pass-through, fiscal-sponsorship, grant-administration, and similar arrangements deserve particular care. These relationships may involve custody of funds, tax obligations, financial oversight, reporting requirements, donor restrictions, ownership of assets, and other legally significant responsibilities. Use an appropriately reviewed agreement rather than assuming that a simple nonbinding memorandum is sufficient.

To agree to share resources

An MOA or other agreement may cover shared space, equipment, technology, communications resources, or other assets. If the arrangement involves substantial value, liability, insurance, security, or maintenance obligations, a binding contract may be more appropriate.

To coordinate future collaboration

Organizations may agree to conduct joint training, share information when permitted, participate in community planning, or explore future funding opportunities. The document should distinguish current commitments from activities that remain optional or depend on future approval or funding.

How do you read and understand a contract or memorandum of agreement?

Your organization may receive a proposed agreement from a funder, government agency, partner, landlord, consultant, vendor, software provider, or other organization. Never assume that a standard form is automatically appropriate for your organization.

Reading a contract

Read the entire agreement carefully.

Read the contract itself and anything incorporated into it, such as exhibits, scopes of work, budgets, grant requirements, policies, insurance requirements, data-security standards, or referenced terms and conditions. Those materials may be just as binding as the main document.

Pay particular attention to:

• The legal names of the parties
• Effective and expiration dates
• Scope of work and deliverables
• Payment and reimbursement
• Reporting and documentation requirements
• Record-retention and audit requirements
• Confidentiality, privacy, and data security
• Intellectual-property ownership and licensing
• Insurance and indemnification
• Subcontracting
• Compliance with applicable laws or funding requirements
• Termination and remedies
• Dispute-resolution procedures
• Amendment procedures
• Governing law or venue, when included

Record-retention requirements vary. Do not assume that one period, such as five years, applies to every contract. Follow the agreement, funding requirements, applicable law, and your organization's records-retention policies.

Translate complicated provisions into plain language for yourself.

Legal terminology can be unfamiliar, but don't skip a provision because it appears technical. Write a short explanation in your own words of what each important provision requires, when it applies, and who in your organization would be responsible for complying with it.

Ask for clarification or professional review when needed.

The other party may be able to explain what a provision is intended to accomplish, but remember that the other party does not represent your organization's legal interests. For significant questions involving liability, employment, taxes, insurance, privacy, intellectual property, real estate, government contracting, or other legal risks, seek appropriate professional advice.

A lawyer who serves on your Board should not automatically be treated as organizational counsel. Board service and legal representation are different roles.

Make sure your organization can actually comply.

Ask:

• Can we perform every material obligation within the required time?
• Does anything create unacceptable financial, operational, legal, ethical, privacy, or reputational risk?
• Are the funding, staff time, technology, facilities, and other resources adequate to do the work?
• Does the agreement provide a reasonable process for handling disputes, alleged breaches, delays, and circumstances beyond either party's control?
• Are restrictions on services, participants, expenditures, communications, data, or other activities compatible with the rest of our work?
• Does the written agreement match what we were told or previously discussed?
• Do we have authority to make every promise in the agreement?
• Does the person signing for our organization have authority to bind it?

Raise problems before signing.

Some contracts are negotiable; others contain provisions that a government agency, funder, insurer, landlord, or other party will not change. Ask what can be revised rather than assuming either that every provision is negotiable or that nothing is.

Reading a memorandum of agreement or understanding

An MOA or MOU is often shorter and written in plainer language than a formal services contract, but it deserves the same careful review.

Ask:

• Are the responsibilities clear and reasonable?
• Does the document reflect what the parties actually discussed?
• Does it describe the relationship and purpose accurately?
• Is anyone promising something they do not have authority, funding, staffing, or capacity to provide?
• Are responsibilities feasible within the proposed time and resources?
• Does anything conflict with the organization's mission, policies, other contracts, legal obligations, or funding restrictions?
• Does the document clearly state whether the parties intend it to be binding, nonbinding, or partly binding?
• Are confidentiality, data-sharing, use of names and logos, intellectual property, and other sensitive matters addressed where necessary?

Resolve disagreements and ambiguities before signing. Even when the parties intend an arrangement to be nonbinding, unclear expectations can damage a partnership.

How do you draft a contract or memorandum of agreement?

Good agreements begin with clarity about the relationship, responsibilities, risks, and desired results. Plain language is usually preferable to unnecessary legal jargon, but simplicity should not come at the expense of important protections or requirements.

Significant agreements may deserve legal, financial, tax, insurance, information-security, privacy, or other specialized review. This is particularly important when an agreement involves substantial money, employees or contractors, confidential information, health or education records, intellectual property, real estate, significant liability, government funding, or complex regulatory requirements.

Contracts

A contract should be detailed enough for the parties to understand what they are promising and for performance to be evaluated, without unnecessarily controlling every operational decision.

Identify the parties, effective date, and contract term.

Use the complete legal names of the organizations or individuals entering the agreement. Identify when the agreement begins, when it ends, and whether renewal is automatic or requires affirmative agreement.

Example:

"This Agreement is entered into between Community Youth Development Initiative, Inc. and Community Youth Center, Inc. and is effective January 1, 2027 through December 31, 2027, unless amended or terminated in accordance with this Agreement."

Describe the scope of work and responsibilities.

Depending on the agreement, address what will be provided, who is responsible, applicable standards, major deliverables, deadlines, locations or service methods, and how the parties will coordinate.

For a service contract, this might include:

• The services or deliverables
• The people or communities the services are intended to reach
• Expected service volume, when appropriate
• Timing, frequency, duration, and major milestones
• Required qualifications, licenses, training, accessibility, language capacity, or other standards
• Required documentation and reporting

For example:

"The contractor will provide a youth leadership-development program for approximately 30 young people ages 14–20 during the contract year. The program will include facilitated learning and applied activities addressing problem solving, conflict resolution, communication, civic participation, and leadership. Program scheduling will be developed with attention to participants' school, work, transportation, and accessibility needs. The contractor will document service delivery and report agreed program measures as described in Exhibit A."

Explain payment and financial requirements.

Relevant terms may include:

• The maximum contract amount
• Whether payment is based on a fixed fee, hourly work, units of service, milestones, reimbursable costs, or another method
• When and how invoices or reimbursement requests are submitted
• Documentation required with payment requests
• Financial and program reporting requirements
• The payer's obligations and expected payment schedule
• Allowable and unallowable costs and procedures for budget changes
• Audit, inspection, or record-retention requirements

Address other important obligations.

Depending on the relationship, provisions may address:

• Required funding acknowledgments
• Use of names, trademarks, logos, and other branding
• Publication and dissemination rights
• Ownership and licensing of intellectual property, materials, data, software, curricula, or other work products
• Confidentiality, privacy, and data-security requirements
• Insurance
• Indemnification or allocation of liability where appropriate
• Required licenses, background checks, safeguarding measures, or other qualifications when relevant
• Compliance with particular laws, regulations, grant conditions, or organizational policies
• Accessibility and language-access requirements
• Subcontracting and required approval of subcontractors
• Responsibility for communications, outreach, and public statements

Avoid vague requirements such as "political neutrality" when what you actually mean is compliance with a specific law, grant restriction, or organizational policy. State the applicable requirement as clearly as possible.

Explain how performance will be monitored or evaluated.

Use measures reasonably connected with the work the contractor is being paid to perform. Measures might address service delivery, quality, timeliness, accessibility, participation, completion of deliverables, participant experience, or appropriate outcomes.

Avoid holding contractors responsible for results substantially outside their control. If the agreement includes outcome measures, clarify whether they are contractual performance requirements, evaluation indicators, or broader goals the parties hope to influence.

Explain what happens when obligations are not met.

Depending on the agreement and applicable law, remedies might include:

• Notice of the problem
• A reasonable opportunity to correct or cure a breach
• Withholding payment associated with undelivered work
• Repayment of improperly spent funds
• Corrective-action plans
• Suspension or termination
• Mediation, arbitration, litigation, or another dispute-resolution process where appropriate

The appropriate remedy depends on the seriousness of the breach and the nature of the contract.

Explain termination.

Identify when either party may end the agreement, how much notice is required, whether an opportunity to correct a breach applies, and what happens to unfinished work, confidential information, equipment, data, records, intellectual property, outstanding invoices, and unused funds after termination.

Avoid assuming that 30 days is always the appropriate notice period. Some arrangements require longer notice, while serious breaches may justify immediate or accelerated termination.

Explain how the agreement may be amended.

State who has authority to approve changes and how amendments must be documented. Significant changes should generally be made through a written amendment approved by authorized representatives rather than relying on informal conversations that leave the written agreement inconsistent with actual practice.

Address notices and signatures.

Identify where official notices should be sent and whether notice may be provided electronically. Include signature blocks for authorized representatives.

Electronic signatures and electronic records are widely used for contracts. Determine whether the proposed signature method satisfies applicable law, organizational policy, funder requirements, and any special requirements that apply to the particular transaction.

Review the agreement before signing.

Ask the people responsible for implementing, administering, paying for, monitoring, and reporting on the agreement to review provisions relevant to them. Obtain professional review when the significance or risk of the agreement warrants it.

Give the other party an opportunity to review the draft and raise questions. Negotiation is a normal part of contracting when terms are open to negotiation. The goal is an agreement that accurately describes obligations the parties understand and can fulfill.

Memoranda of agreement or understanding

Drafting an MOA or MOU uses many of the same principles as drafting a contract: identify the parties, clarify expectations, and reduce ambiguity.

A useful MOA or MOU may identify:

• The parties
• The purpose of the collaboration
• Each party's responsibilities
• Resources or staff each party expects to contribute
• How referrals or coordinated services will work
• Points of contact
• How decisions will be made
• How information may be shared
• Confidentiality, privacy, and data-security responsibilities when relevant
• Use of names, logos, materials, or intellectual property
• The effective date and expected duration
• Procedures for revising or ending the arrangement
• Whether the parties intend the document to create legally binding obligations
• Any provisions specifically intended to remain binding even if the overall collaboration is described as nonbinding

Specificity does not require turning every collaborative relationship into a complicated legal document. The purpose is to make sure the parties share the same understanding about what they have agreed to do.

Where possible, develop the agreement collaboratively. Each party should review the final version, make sure that the person signing has appropriate authority, and keep a copy that can be referred to during the relationship.

Review the agreement periodically if the collaboration continues for a significant period. Staffing, funding, laws, technology, community conditions, and organizational responsibilities can change, and an agreement that accurately described a partnership several years ago may no longer reflect how the organizations actually work together.

In Summary

When an organizational relationship matters, putting expectations in writing can reduce confusion and strengthen accountability. Contracts, subcontracts, memoranda of agreement, and memoranda of understanding can all serve that purpose, but their legal effect depends on more than the title at the top of the document.

A contract creates legally enforceable obligations when the requirements of applicable law are satisfied. An MOA or MOU may document either a binding or a nonbinding arrangement, depending on its terms, the parties' intent, the surrounding circumstances, and applicable law. If the parties intend a memorandum to be nonbinding, they should say so clearly rather than relying on the document's name.

Before signing any agreement:

• Read the entire document and all incorporated attachments
• Translate unfamiliar provisions into language you understand
• Identify the obligations, deadlines, risks, reporting requirements, and consequences
• Ask questions and obtain qualified professional advice when necessary
• Make sure your organization has the authority, staffing, resources, systems, and funding to fulfill its promises
• Resolve or negotiate unacceptable provisions before signing when negotiation is possible

When drafting an agreement, aim for clarity about who is responsible for what, how payment and resources will work, how performance will be evaluated, how information and risk will be handled, how changes will be approved, and how the relationship can end.

A good agreement does more than provide evidence for a dispute. It gives the people responsible for carrying out the relationship a shared understanding of their responsibilities and a practical framework for working together.