Standards exist to make it easier for systems to be accepted and adopted. Whilst standards are common in sectors like automotive and pharma, they haven’t been widely adopted in the legal sector. Even though the legal system has been codified in a way that defines what should and shouldn’t be in a contract, there is for example no widely accepted standard for a non-disclosure agreement. As a result, there are many versions of a non-disclosure agreement which are all valid yet different. This is not an issue in principle but creates unnecessary friction in the processing of what should be standard documents.This article reviews the current objections to standardised contracts and proposes a solution to the problem of flexibility in contract standardisation.
What is a non-standard contract?
In order to understand what a standardised contract is, it can be helpful to look at what it is not. A contract can be non-standard by its terms or choice of wording. Standard terms are set by the market and are often known by those who deal with contracts regularly. For businesses that are just getting started or who don’t contract enough, it can be difficult to recognise unusual terms. Unusual terms for a contract in one industry might be standard in another which makes transferring terms from a contract template to another risky if these considerations are not factored. A non-standard contract might also have unusual wording to describe the terms. Non-standard contracts might also be structured in an unusual way which can make it difficult for contract parties to quickly identify the key sections which concern them.
What happens when a contract is non-standard?
If the terms of a contract are unusual they are unlikely to be accepted straight away. Whilst unusual terms can be appropriate for specific situations, they might in other cases favour one side more than the other which can lead to push back. This means the terms might need to be re-negotiated which can take time and resources. A lack of standardisation in contracts also makes it more difficult for the unlawyered to know what a good contract looks like or what should and shouldn’t be in it.
What about standard template libraries?
Widely used template providers such as Practical Law or Lexis Nexis are often treated as the gold standard, because they host the most popular legal template libraries, but in practice are not recognised or treated in a standardised way because they will often be edited by lawyers to satisfy their personal contract style or meet the specific requirements of their clients.
What is preventing standard contracts?
The biggest challenge with standard contracts is that a one-size-fits-all approach to contracting doesn’t benefit parties or address specific situations sufficiently. Standards can only be accepted and adopted if an authority can impose it or if a large enough group of sponsors can support them. Initiatives like oneNDA are designed to cut the time and resources involved in the negotiation of a non-disclosure agreement thanks to standardisation but it only works for the companies that sign up to use it. The British government has also introduced a model assured shorthold tenancy agreement but it is not suitable for all situations and is not proposed as a standard or compulsory contract to use. Standard contracts have been successful when the contracts are short and simple or when no flexibility is required.
How can standard contracts become a thing?
The biggest objection to contract standards is flexibility. Adapting a standard contract to a specific situation is error prone as complicated as starting a contract from scratch. A more efficient approach is to generate a standard contract which is tailored to the specific situation. For this to be possible, the specific requirements need to be known in advance and the system needs to be able to generate standard language which is appropriate. This is an approach which Legislate is taking by making it possible for small businesses, landlords and letting agents to create legal documents which are standard, yet tailored to their specific requirements. To find out how, watch a tutorial, book a demo or sign up today.
Legislate is an early-stage legal technology start-up which allows large landlords and small businesses to easily create, sign and manage contracts on their own terms. Legislate’s patented knowledge graph approach is unlocking the full potential of contract data and bringing robust contracting to the unlawyered. Legislate’s team marries technical and legal expertise to create a painless, and unique, contracting experience for its users. Legislate is backed by Parkwalk Advisors and Perivoli Innovations and angel investors.