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Heads of agreement simplified

With this post I'm taking the risk of being accused of using child labour. I plead guilty.

I am a great believer in simplification. A way to simplify is to give the job to a junior. I did that this month with a high school work experience student in my law firm. She watched me draft a heads of agreement.

My job was to draft a contract. Two financial services industry companies wished to collaborate more closely. They were cross-referring clients and projects and sharing commissions.

Her job was to simplify. Here is the student's list of key points she learned, with only light editing by me. She simplified complexity, something we aspire to in our law firm.

  1. There are many different options available in law to structure collaborations between businesses eg partnership, joint venture, strategic alliance, licence, supplier-buyer arrangements etc.
  2. The more involved or integrated two businesses are with each other the more contribution and sharing there is between them, including of knowledge, people, and assets. The basis for this sharing should be planned, regulated and documented.
  3. Before two businesses form any type of longer-term or more integrated collaboration a document known as the Heads of Agreement may be completed. A memorandum of understanding, deal memo or terms sheet is a similar type of document but there are differences.
  4. A Heads of Agreement outlines obvious and non-obvious considerations for a proposed contractual collaboration between parties so misunderstandings can be minimised.
  5. A Heads of Agreement is negotiated and written before a full contract. It basically overviews the key provisions of the intended full contract and sets out the preliminary arrangements between the parties.
  6. Many parties that want to collaborate do not document their preliminary arrangements such as in a Heads of Agreement. Often this makes the parties ill-prepared for dealing with issues that arise before a full contract is negotiated, written and signed.
  7. In a Heads of Agreement the parties may include details on such things as:
  • Recitals, which details who the parties are, why they want to work together and what they intend to do together in the future.
  • Scope, which sets out the objective, focus and outcome of the alliance between the parties.
  • Guidance on management of the projects in the alliance, the workflow to apply in alliance projects, dispute resolution between the parties, and termination of their preliminary arrangement.

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