Standards exist to make it easier for systems to be accepted and adopted. Whilst standards are common in sectors like automotive and pharma or across a jurisdiction (e.g. the European Union), 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 and transaction costs 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 contract terms or its choice of wording in contract clauses. Standard terms are set and accepted 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 contract 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. As a result, the unlawyered are more likely to accept unusual contract terms if they do not know what standard form contracts should contain.
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What about standard template libraries?
Widely used template providers such as Practical Law or Lexis Nexis are often treated as the gold standard by contract drafters, 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. Boilerplate clauses such as data protection and UK GDPR are less likely to be amended but clauses which touch on intellectual property, indemnity, warranties and arbitration are likely to be tailored to custom requirements.
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 tend to be short and simple or with no flexibility or bargaining power so that they present a low risk for the creators of those standard contracts.
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 and as complicated as starting a contract from scratch. A more efficient approach would be to generate a standard contract which is tailored to the specific situation. For this contract process to be possible, the specific requirements of such contracts 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 for high volume, low value types of contracts by making it possible for small businesses, landlords and letting agents to create legal documents which are standard, yet tailored to their specific requirements. Legislate is the end-to-end contract management platform for small businesses which allows you to create lawyer-approved contracts and invite the signatories of the counterparty for electronic signature. To find out how, watch a tutorial, book a demo or sign up today.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.