Does your legal team often spend most of their time on repetitive, low-value work, such as manually duplicating contracts on Word and painstakingly personalizing them every time you need a particular agreement?
It’s not just you. Many modern legal teams get buried under manual paperwork due to rapid scaling and lack of proper processes, leaving them stuck in a loop of creating and executing contracts instead of driving legal strategy and decisions.
However, this kind of work is easily streamlined. One of the ways to do so is by standardizing your contracts in the form of pre-approved contract templates. This article will outline all you need to know about contract standardization, help you identify contracts that need to be streamlined, and describe how to standardize a contract so that you can entirely remove Legal’s involvement in day-to-day contract work.
Benefits of standardizing contracts
Standardizing contracts helps your legal team focus their efforts on more important matters and enables your business teams to work independently from Legal. Advantages of standard form contracts include:
Improved efficiency and turnaround time
Standard form contracts are faster and easier to execute than customized contracts, as they can be used as a template and only require the addition of specific information related to the transaction. This saves time and effort for all parties involved.
Consistency and protection from risk
Standard form contracts provide a level of consistency and predictability, as they outline the terms and conditions that must be met by all parties across different contracts. These contracts are also often consistently reviewed and updated by Legal to ensure they offer adequate protection. This helps reduce risk and chances of misunderstandings or disputes.
Enable contract automation
Standard form contracts are the first step towards automating contracting processes. Since there are very few changes, standardized contracts can be easily templatized and used for smoother contract workflows.
Standardized contracts lead to massive savings in terms of time and resources spent on repetitive tasks. Standard form contracts require less legal review and negotiation, enabling faster closing of contracts through pre-approved templates.
Which contracts should you standardize?
There are certain characteristics to look for when identifying which contracts should be standardized. Typically, standardized contracts are:
- High-volume agreements, which the organization deals heavily with during routine business operations.
- Low-risk contracts, specifically for the counterparties, so they can comfortably agree to the terms without negotiating.
Which contracts should not be standardized?
Not all contracts can be or should be standardized. Some agreements must be customized or even drafted from scratch to fit the specific needs of the parties involved, and may involve heavy negotiation to finalize. Typically, contracts that a business only deals with occasionally or complex contracts that require significant discussions and negotiations are not standardized.
For example, large, complex business transactions, such as the purchase of a company or a highly specialized service like designing a custom software system, may require a customized contract.
In such cases, businesses can benefit from standardized processes instead of contract templates. Enabling easy flow of communication between parties and ensuring proper activity tracking for visibility will help streamline the process and close such contracts faster.
How to standardize a contract in 7 steps
Standardizing contracts is not a complex process; all it needs is planning and the right tools. Let’s take you through the 7 steps to building standard form contracts.
1. Identify which contracts need to be standardized
The first step is to answer the “why” and the “what”. Which contracts does your team spend the most time working on? Which contracts involve the most repetitive manual work? Based on questions like this, you can identify contracts that need to be standardized.
2. Analyze current versions of standard form contracts
You may already have some type of templates in Word format or basic contracts that you duplicate to author high-volume contracts. Analyze such agreements and find out the common links between all of them. Even if you don’t have any form of templates, you can look at various versions of a particular contract, say MSAs, and do this exercise.
Recognize the clauses that are seldom negotiated, and the ones that are most negotiated, and collate the most reasonable and up-to-date version. This exercise of assessing and reviewing your executed agreements gives you a fair understanding of clauses that work and clauses that take work.
SpotDraft offers an easy way to answer such questions and garner contract insights. Learn more about our Insights feature here!
3. Simplify the contract
The key to an excellent standard form contract is keeping it simple and jargon-free to ensure you don’t scare off the other party. Boil the contract down to its basics in easy-to-understand terms, and keep it as concise as possible while still covering all bases. 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 is to execute since counterparties will have less reason to be wary of it. At the same time, you must identify your non-negotiables within the contract – specific provisions that would demand no change at any cost.
5. Build a master contract template
Once you’ve identified which contracts must be standardized and collated the clauses and terms you want to include, it’s time to create your master templates. Use your best language in this template, but make sure to have fallback clauses ready in case there’s pushback.
CLMs like SpotDraft allow you to set up complex templates that standardize your agreements while keeping them flexible at the same time through various personalization options. Don’t worry about making these templates perfect – you can always edit them later – but try to arrive at the best version you can. Take feedback and collaborate with internal stakeholders to finalize it.
6. Educate stakeholders on the standardized contract
It’s crucial to ensure that business teams understand what each standard form contract contains, what the clauses mean, and what flexibility they have to personalize and change each contract while keeping it within the constraints of what Legal has decided. This is especially important as it will help these teams work independently of Legal without posing a risk to compliance.
A good way to ensure no one except Legal can change around the pre-approved template is by using contract management software. CLMs like SpotDraft offer access control and have guardrails in place to only allow business teams to fill up the template using a question-and-answer form. Any further changes must pass through Legal first.
7. Set up automated workflows
Once your templates are set up, you need to ensure that all stakeholders have visibility over the entire contract lifecycle and that proper processes are put in place for review and approval. This is where your contract management software becomes especially helpful, as you can set up automated workflows to take care of the contract process for you.
SpotDraft, for example, allows you to set up conditional approvals that necessitate review from specific stakeholders only if a threshold is crossed or a condition is met. Suppose you’ve set up the threshold for vendor contract value at a certain limit; whenever this limit is crossed, the software automatically triggers an approval chain so that finance can review it before it goes any further.
7 examples of commonly standardized contracts
Common examples of standard form contracts include:
1. SaaS agreements
Standardizing software-as-a-service (SaaS) agreements lessens risk, eliminates negotiations, and helps create a better experience for all parties involved. Since SaaS agreements already cover liability caps, data use clauses, indemnities, and much more, adding too many customization possibilities can become confusing and risky.
Since non-disclosure agreements (NDAs) are relatively simple contracts created to protect one party, they usually allow little scope for modification. Organizations can easily standardize these agreements, saving time and effort for both parties.
3. Terms of service
Service providers create terms of service (ToS) agreements to educate users on how to use their website, product, or service. In this case, users cannot negotiate terms, so organizations can easily standardize this document and automate the agreement process, if required.
4. Vendor agreements
Vendor agreements specify the terms and conditions of purchases and are usually standardized by businesses that deal with a large number of vendors. High-growth businesses need to rapidly produce, distribute, and agree upon vendor agreements, which necessitates standardization.
A master service agreement (MSA) is an initial, all-inclusive contract that parties sign to govern ongoing commercial engagements. Standardizing MSAs helps organizations create consistency in the broader terms for all their agreements while leaving scope for negotiation in individual contracts governed by those MSAs.
6. Option agreements
Option agreements are two-party agreements that give one party (the option holder) the right to buy or sell a specific asset at a predetermined price within a specified time frame. These agreements often get standardized to maintain consistency.
7. Non-compete agreements
Non-compete agreements are standard practice for businesses to prevent employees from conducting business with their competitors or clients. These agreements are usually standardized and have set, non-negotiable terms.
Start standardizing your contract processes
And that’s all there really is to know about how to standardize your contracts! Once you’re done with the steps outlined above, your team can start executing and saving time.
If you’re looking for the right CLM software to enable contract standardization and help automate your contract processes, SpotDraft can help. Speak to our experts today.