What Is a Standardized Contract?
A standardized contract, also known as a standard form contract, is an agreement between two parties where one party sets the terms and the counterparty has little or no ability to change them. These “boilerplate” or “take it or leave it” documents are most common in business-to-consumer transactions and allow for the mass distribution of goods and services.
Although leaving the counterparty with no room for negotiation may seem unfair, standard form contracts are used all the time. It’s possible you’ve signed many before when buying products or services in your everyday life. Standardized contracts help reduce transaction costs and eliminate the need to negotiate terms for every sale a business makes. When used improperly, however, they can potentially be abused and trick consumers.
If your business relies on standardized contracts, it’s vital that you create them correctly so you don’t abuse the bargaining power you have over your customers. This quick guide to standard form contracts will cover:
- Their characteristics
- The benefits of using them
- How to easily edit one for your needs
Characteristics of standardized contracts
How does a standard form contract differ from other types of contracts? Its main attributes are:
- Minimal negotiation
- High volumes
- Low risk
Little or no negotiation
Standardized contracts don’t allow much negotiation of the terms. For example, if a salesperson for a national corporation is concluding a sale with a single customer, they may use a standard form contract that was created by the corporation. In this case, the customer won’t be able to change any terms and will have to sign the contract as is to complete the sale. The salesperson usually doesn’t have the authority to make changes without approval, either.
Executed in high volumes
Companies that sell goods or services in high volumes may use standard form contracts. They’re particularly useful for large software companies that sell thousands of copies of their products each day worldwide.
When a consumer buys a software license, they must accept the license agreement, which they cannot modify or negotiate if they want to complete the purchase and use the software. If large software companies allowed negotiations for each sale of their product, it would bring sales to a standstill.
Standardized contracts tend to have a low comparative value or risk for the counterparty. The consumer or counterparty signing the agreement usually assumes less risk by signing than the entity that created the contract. If a company breaches its non-disclosure agreement (NDA) with a freelancer, for example, it poses less potential harm to the freelancer than if the freelancer breaches the NDA and puts the company at risk.
Examples of standardized contracts
When should you use a standardized contract? Not every transaction requires one, but in many situations, it’s an optimal choice. Whenever you need to set the same terms for a large number of people, such as customers buying your products, a standardized contract works best. They’re also ideal for creating consistency with your contracts and eventually helping to establish familiarity with standard terms in your industry.
Standard form contracts are used in several types of settings. Some of the most common examples you’ll come across include:
- NDAs. A company that works often with contractors requires a standard NDA, which usually leaves little room for modification.
- Terms of service. Terms of service agreements are common with any online service that requires users to make an account. When people create new accounts with services, they typically don’t care to negotiate the terms, especially if the service provided is free.
- Non-compete agreement. Non-compete agreements keep contractors or other businesses that a company works with from offering their services to the company’s competitors. The company requiring the non-compete agreement usually has set terms it prefers not to budge on.
- Rental property agreements. Tenants typically don’t have the opportunity to negotiate when they sign rental agreements. Landlords set the price for monthly rent, determine when rent payments are due, and identify which aspects of the property they’re responsible for.
- Employment agreements. Some employment agreements can be negotiated, especially concerning salary or benefits. However, for some types of employment, such as part-time positions with high turnover, employers may benefit from standardized employment contracts.
The benefits of standardized contracts
Standard form contracts have several benefits, with transaction cost reduction being a major advantage. They’re also perfect for dynamic templates, and your company doesn’t always have to initiate them. Standardized contracts are also well-suited to digital contract acceptance methods.
Perfect for dynamic templates
If you use digital contract software, standardized contracts are ideal for your automated process. Since standard form contracts don’t vary much, you can easily create a template for your NDA, for example, and make minor changes from one agreement to the next.
Don’t have to be initiated by your company
When you enter into an agreement with a customer to sell your product to them, you don’t have to initiate a standardized contract—your terms of service agreement will do that for you.
Ideal for digital contract acceptance methods
Editing a standardized contract
If a standardized contract doesn’t vary much, does that mean you can edit it? You can—if you use digital contract software to track all your contracts and agreements. With a tool like Ironclad’s Workflow Designer, you can create your own contract process by uploading a template, creating fill-in fields for the contract requester, and adding conditional contract clauses.
With a contract workflow in place, all you have to do is trigger the process whenever you need a new NDA, Statement of Work, or other standardized contract approved and signed.