Standardizing contracts can help teams scale their legal agreements and reduce time-to-sign - find out how in this deep dive.
Fast-growth businesses are producing legal agreements at scale, leaving many legal teams buried in low-value work, according to our latest Tech GC Report. With extensive negotiations, poorly integrated tools, and repetitive admin to contend with, it’s no surprise that legal teams are seeking a more efficient way to create contracts.
Could standardized contracts be the answer? If so, how do you standardize a contract? Let’s find out in this Juro explainer.
What's a standardized contract?
A standardized contract is a legal agreement between two or more parties whereby one party has set out contractual terms that are mostly non-negotiable. Also known as standard form contracts, these legal documents offer the counterparty little to no scope for requesting changes, and they are typically used for low-risk and low-value contracts that are distributed at scale.
Why? Well, contract standardization can reduce costs, improve productivity and mitigate risk for your business by reducing the need for the drafting and negotiation of individual contract terms.
Common examples of standardized contracts
1. SaaS agreements
Since Software as a Service (SaaS) agreements are already quite complex, covering everything from liability caps, to data use provisions, to indemnities and much more, too much scope for customization can prove chaotic and create a lot of risk. If terms deviate from the standard form, legal will quickly lose sight of what’s being agreed and the risk to which the company is exposed. Therefore, creating a robust standardized SaaS agreement can mitigate risk, reduce back and forth in negotiations and result in a better experience for both sides. This is also the case for other contracts, like software license agreements.
2. Vendor agreements
Vendor agreements set out the terms and conditions of purchase, and they are often distributed at scale, particularly for fast-growth companies. The content and process behind vendor agreements need to be consistent, otherwise, the challenges that come from managing these contracts can compound. If a company wants to quickly and repeatedly generate, distribute and agree vendor agreements, it will benefit from a standardized contract that can be rolled out at scale.
Master Service Agreements (MSAs) outline any terms that govern the commercial relationship between a business and its client, and they are commonplace in high velocity sales organizations. Without standardized MSAs, contract creators (for example, salespeople) may send out contracts that include unapproved terms. These might be discounts that finance wouldn’t allow, data use provisions that compliance would reject, or indemnity caps that would terrify legal. For this reason, standardization for MSAs is a popular choice.
4. Option agreements
Option agreements outline the Ts and Cs that give a counterparty a right (but not an obligation) to buy an asset. Since option agreements are effectively HR contracts and relate closely to brand and values, it is important that these agreements are consistent. If not, employees might assume that the business is unprofessional and disorganized – or worse, that it cares as little for its existing staff as it does for new employees. By standardizing your agreements, you can rest assured that each and every contract is designed to impress.
Why standardize a contract?
You now know what standardization means, and when it is most commonly used in contracts. But what are the broad benefits of contract standardization, and how can it benefit your organization? Let’s discuss:
The benefits of contract standardization
- Cost-efficiency: Contractual standardization tends to be very cost-efficient since it results in a lower transaction cost per contractual clause by reducing the time spent drafting and renegotiating individual clauses for new contracts.
- Speed up the negotiation process: By limiting the scope for customization and deviation, the negotiation process often runs more smoothly and with far less friction, making it quicker and less of a strain on your legal team’s resources.
- Certainty: Standardization of contracts often results in more certainty surrounding a contract’s terms, since the more frequently they are used, the better they will be understood and applied by business and legal teams alike.
- Mitigate risk: Although legal teams want to empower other departments to self-serve, they still want to minimize risk at all costs. By standardizing contracts and locking certain key terms, legal teams can do just that.
- Increase productivity: By reducing the time spent drafting and negotiating individual contracts, more time could be spent on higher-value legal work.
If you're keen to leverage the many benefits of contract standardization for your business, and you want a contract tool to help you do so, hit the button below.