If your company is looking at ways to speed up the production of contracts, using a standardized form can vastly simplify contract negotiation.
But what exactly is a standardized contract? Let’s find out, shall we?
In this article we’ll explain the definition of a standardized contract, what exactly goes into one, and their benefits. We’ll even provide some examples.
- Standardized contracts are typically used in low-risk/low-value scenarios such as terms of service agreements or employment contracts.
- They are quicker to use and offer a greater level of certainty.
- Remember that they can only be used in a specific set of circumstances.
- Software which offers templates and contract automation can greatly speed up the process.
What is a standardized contract?
Although you might not have heard the term “standardized contract”, you’ll probably have encountered “boilerplate”, “take it or leave it”, or “standard form” contracts before.
All these terms refer to the same thing: a contract that’s been entirely prepared by one party and signed without negotiation from the other.
While most other contracts are the result of discussion and negotiation between parties, standardized contracts are rarely able to be negotiated.
This is why they’re sometimes known as “take it or leave it” contracts — signatories usually have no option but to accept the contractual obligations offered by the other party or leave the agreement behind.
You might think this is unfair, and this would certainly be the case if we were talking about contracts with high stakes.
However, standardized contracts are usually used to outline agreements in low-risk and low-value scenarios. They’re especially helpful if you need to send out contracts on a large scale.
Can you imagine how difficult it would be for a business to negotiate bespoke agreements every time they wanted to make a sale, for example?
For this reason, standardized contracts are used every day across a range of different industries and are typically crucial to how your business operates.
What goes into a standardized contract?
A key part of figuring out how to write a business contract is selecting the different components you need to include for the agreement to be both effective and legally binding.
When you’re producing standardized contracts, you have to remember that they can only be used in a specific set of circumstances, which will affect what goes into them.
As many standard form contracts are related to transactions, you’ll typically need to include terms of sale, such as pricing, payment schedules, and refund policies.
In contracts such as rental agreements, you’ll also have to put in terms and conditions relating to the property.
If you’re a letting agent, for instance, you’ll usually include the same rules for every property, so there’s no need to draw up specific agreements for each tenant.
It’s also important to include any legal must-haves, and although the agreement isn’t a classic contract, it should still be designed by your legal team.
If a standard form agreement is found to include unfair terms, for instance, you could be liable for damages.
You should also remember that you’ll have a large audience for your contract, so consider using contract software to automate the signing process and speed things along.
Characteristics of standardized contracts
When deciding whether to use standardized contracts in your organization, you’ll need to consider whether the main aspects of a standard form agreement are applicable to your circumstances.
Here are the three most important characteristics of standardized contracts.
1. Distributed at scale
Imagine if every time a new user downloaded popular software such as Microsoft Office, they had to negotiate a bespoke contract that allowed them to use the software.
For companies that need to create agreements on a large scale, standardized contracts are the way forward.
2. Minimal negotiation
Another important feature of standardized contracts is the lack of negotiation.
This allows sales to be completed quickly, with customers signing a boilerplate agreement created solely by the selling party.
3. Low risk and low value
If you’re completing a particularly expensive deal or one that carries high levels of risk for either party, you’ll want to create a bespoke contract designed to protect your interests.
Nonetheless, standardized contracts are a great way to complete relatively low-risk or low-value deals.
The benefits of standardized contracts
There are lots of advantages to using standardized contracts.
They provide businesses with a more streamlined approach, saving time and resources, while also reducing the potential for error.
Let’s take a closer look at some of their benefits.
1. Increased speed and efficiency
With a pre-drafted template that you can easily use for multiple transactions, you’ll find the process of creating and signing contracts is faster.
As you no longer have to create a specific contract for each new sale, for instance, you can move on to new transactions more quickly.
When measured in terms of spending, using standardized contracts is also more cost-effective than having your legal team draft and negotiate agreements for every transaction.
This ensures your business avoids wasteful practices and helps your profit margins expand.
2. Greater levels of certainty
Standardized contracts are usually concise and unambiguous, with each clause carefully drafted and designed by a team of legal specialists.
This means you can be certain that both you and the counterparty have a clear understanding of the terms of the agreement.
As well as this, standardized contracts that perform certain roles, such as the terms and conditions that accompany the use of software, will often have a shared format.
This means signatories will be familiar with many of the terms used, ensuring all parties are clear about the aims of the agreement.
3. Improved productivity
If you use standardized contracts, your legal team will be able to spend less time drafting and negotiating relatively unimportant contracts.
You can integrate your standard form agreements into a streamlined workflow that only involves the legal team when their input is absolutely necessary.
This will help your legal specialists to be more productive, as they can focus on higher value work.
It will also boost productivity across your wider workforce as, with agreements following a familiar format, employees can quickly navigate through contracts and move on to more productive tasks.
4. Ideal for automated production
Digital contract software has made contracts far easier to draft and produce, regardless of whether they’re standardized agreements or not.
However, standard form contracts are especially ideal for automated production processes.
PandaDoc’s templates and contract management system can help your business automate tasks and design templates for all sorts of different types of standardized contracts, such as sales agreements or non-disclosure agreements (NDAs).
Once you’ve created these templates, you can use our software to copy in the template you want to use and make small edits to suit the specific circumstances.
5. Designed for digital acceptance
Similarly, the homogenous nature of standardized contracts means it’s incredibly easy to integrate standard form agreements into digital contract acceptance processes.
This means you can make use of technology such as eSignatures to speed up the process of signing a contract.
To make the standardized contract process as streamlined and straightforward as possible, you should use digital technology from start to finish.
This might mean incorporating automated production as well as digital acceptance methods.
With standardized contracts, this is easier than ever, as you can simply plug existing templates into the digital process.
Examples of standardized contracts
1. Terms of service agreements
Some of the most common examples of standardized contracts are terms of service agreements.
These are used for a range of services — in particular, on websites that require users to create accounts or when users download software as a service (SaaS).
These agreements are necessary to prevent the misuse of a service by users and to outline the responsibilities of the organization when it comes to their personal data.
It would be impossible to negotiate individual contracts with each user across the world, meaning standardized contracts are a must-have for companies looking to create terms of service agreements.
2. Employment contracts
It would obviously be wrong to say that all employment contracts should be standard form agreements.
After all, there’s often scope for negotiation around salary or benefits when an employee joins a company.
However, a standardized contract can still be useful as an overall template for employment agreements.
Standard-form contracts are especially handy for companies that hire a lot of short-term workers or experience high levels of employee turnover.
In these cases, it’s unlikely your new hires will wish to negotiate the specifics of their employment contract, meaning it will save a lot of time to use one standardized contract for all employees.
3. Rental property agreements
Another example of standardized contracts that you’ll probably have experienced are rental agreements.
Tenants are usually aware of these terms before they sign the contract, meaning there’s no need to use agreements that can be negotiated.
As well as this, landlords will often manage a large portfolio of properties, so using standardized contracts allows them to use one template for all their tenants.
4. Vendor agreements
If a company is working with a lot of other businesses, it can be easier to use a template agreement to set out the terms of the work.
This is often the case with vendor agreements, which will include prices, responsibilities, and obligations in a business relationship.
Standardized contracts allow vendor agreements to be quickly and easily distributed at scale; they also ensure that each vendor receives similar terms.
As well as general vendor agreements, you might want to consider using standard form agreements for more specific contracts, such as a non-compete contract, which are often necessary but carry little risk or value.
Similarly, non-disclosure agreements (NDAs) are often standardized.
These are used to protect companies that need to share private or confidential information with other parties.
This can include employees, who might have to sign an NDA before they start to work for you, or other companies in the form of contractors.
Regardless of whether you utilize NDAs for your employees or other companies, you’ll probably have to distribute a large number of them, so it’s much easier to use standardized contracts than to draw up a specific contract for each NDA.
Speed up your negotiations with a standardized contract
If you’ve ever felt frustrated by the slow, complicated process of drawing up a contract, we feel your pain.
The whole reason we created PandaDoc in the first place was because of how annoyed we were with how ponderous it all was.
Now we pride ourselves on saving businesses like yours time and money.
We can help you create standardized contracts through templates and automation.
Our contract management software allows you to build, manage and distribute contracts at scale without having to worry about hours and hours of legwork.
Creating standardized contracts with PandaDoc can bring significant benefits to your organization.
As well as speeding up the negotiation process, they bring added certainty (as you can use the same contract in multiple situations) and increased productivity.