Letter of understanding

This article is about pre-contractual matters. For an intended common line of action, see memorandum of understanding. For financial obligations, see Letter of credit.

A Letter of Understanding (LOU) is a formal text that sums up the terms of an undertakings of a contract which may have been negotiated up to this point only in spoken form or otherwise informally. It reviews the terms of an agreement for a service, a project or a deal and is often written as a step before a more detailed contract is issued.

The LOU may provide for example:

• Detailed summary of the work to be performed
• Tasks of the service provider and the receiver
• Milestones for the work to be done
• Work steps that have been accomplished already