Key Takeaways:

  • A standard form of contract is a pre-drafted agreement typically used in high-volume transactions to streamline the contracting process.
  • These contracts are efficient and cost-effective but may create imbalances in bargaining power.
  • Regulatory frameworks (like Australia's unfair contract terms regime) are evolving to address potential imbalances.
  • Standard contracts are widely used in employment, insurance, online services, and consumer goods industries.
  • Businesses should review and tailor standard contracts to ensure compliance and fairness.

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.

Common Uses of Standard Form Contracts

Standard form of contract templates are commonly used in industries that require repeated, high-volume transactions. Their efficiency and clarity make them ideal for:

  • Employment agreements: Used by companies to streamline onboarding for similar roles.
  • Online services: Most digital platforms use standardized terms and conditions users must accept to access services.
  • Insurance policies: Providers use standard forms for policy coverage, exclusions, and claims procedures.
  • Retail and consumer sales: Warranties, return policies, and purchase terms are often standardized for consistency.
  • Real estate transactions: Leases and purchase agreements typically rely on pre-approved templates with fillable variables.

Using a standard form contract in these contexts ensures operational consistency, reduces negotiation time, and enhances legal clarity.

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.

How to Mitigate Risks When Using Standard Form Contracts

To minimize legal and operational risks associated with standard contracts:

  • Tailor the contract to context: Avoid using generic terms across all deals. Adjust clauses based on jurisdiction, client type, and transaction size.
  • Ensure plain language: Use clear, concise language to make terms understandable and reduce ambiguity.
  • Highlight key clauses: Draw attention to clauses related to termination, dispute resolution, liability, and renewal.
  • Offer negotiation where appropriate: Particularly in B2B relationships or higher-value contracts, consider allowing modifications.
  • Consult legal counsel: Periodically review templates with a lawyer to ensure they comply with current laws and industry best practices.

This approach balances efficiency with fairness, improving enforceability and reducing the chance of disputes.

Legal Enforceability of Standard Form Contracts

Although standard form contracts are legally binding, their enforceability may be challenged if the terms are found to be unfair or unconscionable.

Courts may refuse to enforce specific clauses or entire contracts in the following cases:

  • Lack of meaningful choice: If one party had no opportunity to negotiate the terms.
  • Unfair surprise: Terms buried in fine print or presented after an agreement is made.
  • Substantially one-sided clauses: Especially those limiting liability or consumer rights.
  • Violations of consumer protection laws: Jurisdictions like Australia and the U.S. have enacted laws restricting unfair contract terms in business-to-consumer relationships.

To ensure enforceability, businesses should periodically review their standard form contracts to remain compliant with evolving regulations and consumer fairness standards​​.

Frequently Asked Questions

1. What is a standard form of contract? A standard form of contract is a pre-drafted agreement used for efficiency in recurring transactions, often without room for negotiation.

2. Are standard form contracts legally enforceable? Yes, but courts may strike down unfair or one-sided terms, especially in consumer contracts or where there is unequal bargaining power.

3. What industries commonly use standard form contracts? They are widely used in insurance, employment, real estate, consumer retail, and online services.

4. Can I negotiate a standard form contract? While often presented as non-negotiable, it’s possible to negotiate terms in B2B deals or when there’s significant leverage or legal support.

5. What should I watch out for in standard form contracts? Watch for hidden clauses, limitations on liability, mandatory arbitration, and any term that heavily favors the issuing party.

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