Every contract that your company signs does not have to be drafted anew. In fact, the standard nature of some contracts enables parties to conclude agreements with minimal or no negotiation.
Standardizing contracts could reduce the time and cost spent on contracting and negotiation. You could use standardized contracts for high-volume contracts if you draft those fairly for both parties. This will allow the counterparty to sign the contracts without modifying your draft.
Continue reading to discover more about contract standardization, its benefits, and much more.
What are standardized contracts?
In a standardized contract, one party sets terms and conditions, and the counterparty does not need to or has no power to alter these proposed terms. Standardized contracts are also called standard form contracts, take-it-or-leave-it contracts, boilerplate contracts, contracts of adhesion, or leonine contracts.
Well-executed standard form contracts do not abuse the non-negotiable position of counterparties. The draft is fair to both parties which eliminates the need to negotiate and makes the contracting process scalable and efficient for legal teams.
Standardized contracts are the norm at high-growth companies, as the overall cycle time to close contracts become negligible. An example is a mutual non-disclosure agreement (NDA) addressing all critical aspects of unauthorized disclosure or a sales contract between a global organization and a consumer.
A mutual NDA is drafted fairly where no party could be at a disadvantage and eliminates the need to negotiate. Likewise, a sales contract of a behemoth firm provides no bargaining power to the consumer. This unequal bargaining power forms the essence of standardized contracts for the mass distribution of products or services.
Advantages of standardizing contracts
- Improved efficiency and reduced costs: By removing the need to create and negotiate unique contract terms, contract standardization can increase efficiency and reduce the risk for your company. These agreements are commonly used in B2C transactions, with the innate nature of lowering transaction costs.
- Appropriate for contract automation: Standard form contracts are well-suited for automated contracting processes. Since there are very few changes, standardized contracts can be easily templatized. They can result in smoother negotiations, reduced cost/provision, and favorable terms.
- Appreciable time-saving: You are not drafting every new contract. That means the time savings you reap is substantial. Since terms are locked in, you can empower business teams with self-serve contract creation while ripping away uncertainties, risks, and chances.
“A responsive team that has helped us to customize and enhance our process, as well as create a contract management system that regulates our team and commercials. The Dev Team and Account Managers are thoughtful, helpful, and great resources as we integrate and move into using Spotdraft full-time. Spotdraft has reduced drag on contract creation; we're automating our pain points in contract generation and gaining new insight, oversight, and awareness of our legacy agreements.”
Typical characteristics of standardized contracts
See how a standard form contract differs from other agreements. Also, take a deeper look at their innate nature.
- High-volume & Low risk: Standard form contracts are low value, deniable risk, and massive in volume. They don't allow for a lot of term negotiation.
- Smooth & fruitful affinities: Standard form contracts cut short back-and-forth and strengthen relationships with third parties, customers, and internal stakeholders.
Below are some instances where you can and should standardize contracts:
Instance 1: Say the apartment building manager is finalizing a client's rental lease. They may use a template contract that their lawyer prepared. The consumer will be required to sign the contract precisely as written in this scenario without the ability to modify any of the terms. Neither admins nor changes can typically be made without permission.
Instance 2: Another example you could consider is the software licensing agreement. Here, the product owner has likely standardized their clauses. They serve a behemoth of customers, and all intend to sign the same boilerplate contract.
7 Common examples of standardized contracts
There are considerably more vital things for lawyers working in high-pressure, high-growth organizations to accomplish than repeatedly reviewing the same type of contract. When you achieve that standardization, you provide a consistent contractual framework.
And when you adopt these boilerplate contracts, you spend less time on contract review and more on bolstering commercial relationships. So, here let’s together go over some examples of standard form contracts.
1. SaaS agreements
Since Software as a Service (SaaS) agreements already cover liability caps, data use clauses, indemnities, and much more, adding too many customization possibilities might become confusing and risky.
💡Pro Tip: Standardizing SaaS agreements lessens the risk, eliminates negotiations, and produces a better experience for all parties involved.
NDAs usually allow little scope for modification. Organizations have the option to use these open-source confidentiality agreements as templates.
💡Pro Tip: Standardized NDAs save parties time and help create a balanced agreement.
3. Terms of service
Service providers create Terms of Service (ToS) agreements to educate users on how to use their website, product, or service. Here, the users are unlikely to negotiate terms.
💡Pro Tip: Small businesses can standardize these ToS documents to dictate the proper use of their property. Say, a user creates a free account with a service provider online. At this stage, the user is unlikely to negotiate any terms.
4. Vendor agreements
Vendor agreements specify the terms and conditions of purchases and are frequently disseminated widely.
💡Pro Tip: A standardized contract can be advantageous if a business rapidly needs to produce, distribute, and agree upon vendor agreements.
A master service agreement is an initial, all-inclusive contract that parties sign to govern ongoing commercial engagements. Click here to learn more about MSAs and access a downloadable template.
💡Pro Tip: It is in all parties’ interests to standardize MSAs to ripple off the much-seemingly unapproved terms.
6. Option agreements
A two-party agreement known as an options contract allows for a potential transaction on an underlying security to occur at a predetermined price, or striking price, before or on the expiration date.
💡Pro Tip: These agreements often get standardized to maintain consistency.
7. Non-compete agreements
By signing a non-compete agreement, you accept that you don't service any competitor of your current partner/client. Employees are seen signing these standard form contracts at the start of their tenure.
💡Pro Tip: The companies requiring these agreements usually have set terms in stone and do not want their employees to get away from them. As a result, these agreements can be standardized.
Steps to create standardized contracts
Below is a 7-step process for setting up standard form contracts within CLM platforms. Let’s begin.
1. Identify which contracts need to be standardized
Begin by exploring the need to create standard form contracts. Find the ones that are worthy of standardizing based on their qualities as described above. One similar situation includes businesses selling to a large number of consumers. They are likely to standardize their contracts.
2. Analyze current versions of standard-form contracts
Recognize clauses that seldom get negotiated and collate the most reasonable and most up-to-date version of clauses.
This exercise of assessing and reviewing your executed agreements gives you a fair understanding of sound, ugly, and best clauses. You could then double down on provisions where you reaped a pushback and versions that worked and did wonder.
3. Simplify the contract
Eliminate jargon, and boil the contract down to its basics in easily-understandable terms. Express complex contract terms with the help of tables and figures. Also, add a bit of your brand and make it more human-centric.
4. Arrive at terms and clauses that are fair for both parties
The more balanced your contract is, the faster it will get signed without any back and forth. Also, identify the non-negotiables within the contract - specific provisions would demand no change at any cost.
5. Build a master contract template
Create a master template from existing contracts and share it with key stakeholders. SpotDraft’s Draftmate plug-in allows you to edit templates on the go. Click here to learn more about templates.
6. Educate stakeholders on the content of the template contract
It's important to ensure that business teams understand what each standard form contract contains and what the clauses mean, and what the implications of changing anything may be.
7. Set up automated workflows
The final step is to use workflows to automate the contracting process. Make sure that those contracts that go beyond a specific threshold, are shared with stakeholders for review and approval.
Note that an automated workflow is significantly safer, more effective, and more likely to produce a standardized contract consistently. To learn how SpotDraft workflows work, click here.
Getting standardized contracts with SpotDraft
Using SpotDraft, you could upload a template, tag any fields the requestor must fill out, and add approvers and signers to create a contract workflow. Other prominent features that help in standardizing contracts include
- Conditional clauses: By including conditional contract terms and conditional approvers where necessary, workflows can be strengthened even more.
- SpotDraft editor: With SpotDraft's purpose-built contract editor, you can add tables, images, graphs, and much more.
- Smart fields: You could create smart fields and make them searchable. The values in these fields could be mapped to CRM. This means you could select variables in an existing contract and turn them into placeholders.
- Template Questionnaire: SpotDraft transforms contract creation into intuitive and self-serve - you answer a handful of questions to generate a contract in real-time.
- Custom Approvals: You could reduce substantial risk by automatically requiring key stakeholders' approval based on predetermined contract values.
- Commenting: Without ever having to leave the contract, interact externally with the counterparty and internally with your teams.
Over to you
There you have it: Everything about standardizing contracts. SpotDraft is a powerful contract automation platform that helps you create and edit standardized contracts. If you are a high-growth customer who deals with a massive volume of contracts, it's time to standardize. So what's for the wait? Take advantage of our free demo today.