The advantages of standard form contracts include reduced cost, speedy bidding, easy familiarity with contract terms, higher confidence in contract terms, less room for deviation, and an established body of case laws for future reference.

Essential Elements of a Contract

  • All contracts must have four essential elements, namely, offer, acceptance, consideration, and intention.
  • When a party accepts an offer made by the other party, it forms a contract.
  • The value of reciprocal promises between the parties is called consideration.
  • The parties must intend to form a legal relationship through the offer, acceptance, and consideration.

Benefits of Standard Form Contracting

Standard form contracting has a host of benefits.

  • It reduces the cost of contracting by eliminating the need for custom contracts for individual tenders.
  • There is a substantial cost reduction in case of “New Engineering Contracts", wherein standardized clauses are combined to create suitable contracts for different employers.
  • It eliminates the scope for negotiation, and thus, speeds up the bidding process.
  • It uses the same terms every time a contract is formed. This makes it easy for people to become familiar with the terms of standard contracts of their industry. As time passes, people's confidence also grows in the terms of the contract.
  • Consistency in contracts means less room for deviation from the terms set out in the contract. It prevents employers from making any changes to the contract without informing their clients.
  • Over time, standard form contracts establish a body of case laws that can be referred by parties in case of disagreement over any issues. This benefits the whole industry.

Disadvantages of Using Standard Contracts: Boilerplate

You should never sign a standard contract in the course of your business without going through it. You may be a small business owner, but your legal rights are as important as those of large corporations, who scrutinize every part of the contract before signing.

Know the disadvantages of standard contracts so that you can look out for them when entering into one. You will usually find the boilerplate towards the end of the contract. It refers to the standardized language used in most of the contracts.

Most of the people do not go through this section, considering it just to be a legal formality. Often, the issue is not with what the boilerplate contains; it's rather with what it leaves out.

For instance, if the person offering you the contract has removed the part that requires the losing party to pay the attorney fees of the winning party, you may be at a disadvantage despite winning a case.

Another example is the condition to resolve a dispute between the parties through arbitration. If you'd like to reserve the suing right, you should either remove or modify this section of boilerplate.

Always make it a point to read the whole of the boilerplate thoroughly to look out for the sections you don't agree with.

Disadvantages of Using Standard Contracts: Price Fixing

One of the major problems in the case of standard contracts is price fixing. If a contract has specific product prices stated in it, you could be at risk of price fixing.

A standard contract should leave the price up to parties for negotiation. Although you may not ask for a more favorable price immediately, you should ask for a provision to renegotiate the price at a later date.

Sometimes, trade associations are found to be guilty of price fixing when they issue a standardized contract for all member-vendors to follow. Whenever prices are standardized, it amounts to price fixing.

Disadvantages of Using Standard Contracts: Language Problems

The law often depends upon the language used in a contract. Every word in your contract has a specific meaning attached to it. Even though some words may sound right, be aware that an innocuous-looking change in terminology can alter your legal position.

For instance, the word "shall" gives off a certain connotation. When a contract says, “you shall do something,” it establishes an obligation to perform that action. It's legally binding terminology. If a contract uses the word “shall” regarding something you'd rather not be obligated to perform, you should get it changed to "may."

Disadvantages of Using Standard Contracts: Favoring One Party

When someone tells you that it's a standard contract, ask him whose standard contract it is. Although the word "standard" sounds as if a group of attorneys formulated the contract after discussing and agreeing upon the terms and language to be used, it's never that way.

Most of the times, the company issuing the contract does the standardization.

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