Chances are, you’ve been presented with “standard” contract terms. Depending on context, the fact that they are “standard” may feel reassuring. If everyone signs them, why not me? But whose standard is it? Likely not yours.
The word standard entered English in the 12th century from the Old French estandart, meaning a military rallying flag or banner. This word in turn came from the Frankish standhard (literally stand + hard). But a contract takes two to tango, so why stand hard on a counterparty’s terms?
Standard terms are not neutral. They usually reflect the following:
- Efficiency. Negotiating contracts takes time and has opportunity cost. Tracking down and acting upon every negotiated deal is also highly time-consuming. Defaulting to standard terms saves time and often money—for the drafter.
- Embedded Industry Assumptions. Standard terms are often battle-tested, reflecting what the drafter can get away with. They embed case law and industry practices. If arbitration is enforceable in consumer disputes, standard terms will include an arbitration clause. If damages can be capped at a low amount ($100), that cap will appear. If industry norms disfavor compensation for service outages, compensation will be excluded.
- Risk Tolerance. Contracts are tools for allocating risk between the parties. Standard terms lock in favorable allocations. They shift the risk of non-performance to the counterparty. With contract risk contained, scaling becomes easier.
- Precedent. Standard terms function much like the Chinese idiom 杀鸡儆猴 (kill the chickens to scare the monkeys). If others have agreed to the terms, why can’t you? By contrast, if exceptions are granted, standard terms cease being standard and become more like a template for negotiations. Defaulting to the standard sets a precedent.
If you didn’t draft the standard terms, none of these are in your interest. If you’re not at the table negotiating, you’re likely on the table for lunch. Here is what you can do if presented with standard terms:
- Indicate Your Standards. While your counterpart may have standard terms, you are welcome to your own standard process. This means reviewing and negotiating terms.
- Redline. Ask for a contract that you can redline. If they won’t provide a Word version, you can mark up a PDF or provide a list of suggested revisions. While this may be viewed as aggressive, it does force the drafting party to defend its standard terms.
- Supplement Terms. Amending standard terms can be difficult, particularly in click-through contracts. However, many vendors will agree to amendments either via email or through a stand-alone addendum. Offer such an amendment as a proposed compromise. If you do this, make sure to clearly document the addendum and keep it with the original contract.
Standard terms are not going away. The rise of electronic signatures and AI-generated contracts means that you will be presented with drafter-favoring standard terms more frequently. The key is to recognize them for what they are.
Standard terms are not neutral. Rather, they embed the assumptions, risk preferences, and priorities of the party that drafts them. When presented with such standard terms, you should stand hard and protect your own interests.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading or interacting with this content does not create an attorney–client relationship. You should consult a qualified attorney for advice regarding your specific situation. Mehaffy, PLLC disclaims all liability for actions taken or not taken based on this blog.