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Heads of Agreement

Definition

Heads of Agreement (HOA) refers to the first document signed between parties in the perspective to go for a fully bidding contract.

Heads of Agreement may also be called Shake hands Agreement and is different from Memorandum of Understanding (MOU).

Comments

Parties willing to close a bidding agreement or contract are aware that such a process is complex and may take months.

In some cases, it may also require the approval from relevant Authorities and legal publications.

In the mean time the parties willing to start a cooperation need a foundation document.

By Heads of Agreement, the document must be understood as to contains the Heads of all the articles to be detailed in the final contract.

These Heads are also providing the parties with the guidelines to cooperate together.

Therefore the Heads of Agreement materialize the link between the intentions of the parties to work on a common goal and the detailed content of all the articles proposed by the lawyers of both parties for the final bidding document.

During the preparation of the final bidding document which may take a long period of time, there is always the risk that the representatives of the parties get more passionate by the points of disagreement than the common interest.

Therefore the Heads of Agreement helps both parties to find the right balance between their mutual commitment in a common goals and the protection of their respective interests in the partnership.

In that respect a Heads of Agreement will define the:

 – Object of the agreement

 – Parties’s representatives

 – Roles and responsibilities of the parties

 – Legal entities supporting the process from the parties

 – Key milestones to reach the final bidding contracts

 – Key performances indicators of contract when signed

 – Regulation of reference to establish the final bidding contract

Intentionally the Heads of Agreement is written without too much details as not bidding and to leave time to the representatives of the parties to come into the details and validate the feasibility of the contract in respect with their respective interests.

The Heads of Agreement is different from a Memorandum of Understanding (MOU) in at least two aspects:

 – The Heads of Agreement is not bidding parties until the final contract is signed, while a Memorandum of Understanding may be bidding as a classical contract depending on the applicable regulations and its content

 – The Heads of Agreement reflects the intention of both parties to sign a formal bidding contract while the Memorandum of Understanding may be self sufficient without any contract to be signed behind.

Precisely in some cases, the parties may prefer the Memorandum of Understanding because they do not intend to go through the whole formal process of a formal bidding contract even though the Memorandum of Understanding might have a legal value.

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