If you're a small business owner, you may not be an expert in contract law and that's probably alright. There's no need to go out and pursue a degree, but it is important to be aware of some basic best practices so you can help ensure that the contracts you use are appropriate for your business. That's where a guide for using contract templates can come in handy. Here are some things to keep in mind when you're evaluating whether to use a standard contract template or work with a lawyer to draft a custom agreement.
When to Use a Standard Contract
According to Fair Contracts, standard contract templates generally employ standardized, non-negotiated provisions. Some may be fairly generic (such as basic liability waivers), while others cater to the needs of particular industries and are often developed by representative industry bodies.
Standard contracts may be useful in lower-risk situations. They are commonly used in business-to-consumer transactions, for example. Because the terms are fairly standardized, they often enable greater efficiency by removing the need to negotiate specific terms every time a service is rendered or a product is sold. A common example can be found in the real estate rental market, where terms and conditions are fairly standard (although they may vary by state). Here, variables would include the rent amount and the length of the agreement. Standard templates usually provide blank spaces where these kinds of details can be filled in.
It takes time to negotiate and draw up a contract, and a lawyer should always review custom agreements, so templates can save you time and money — arguably two of your most valuable resources. Now that so many standard contract templates are available online, they're also easier to access than ever before.
When to Develop a Custom Contract
While using contract templates can have some advantages, it's important to know when it's best to seek legal counsel and draw up a custom agreement. In some industries — for example, construction — each new project is likely to be different, so a standard contract may not adequately cover the scope and specifications of every job. Contracts can be valuable assets but, as PwC outlines, they can open your business up to a number of risks when handled poorly. These risks include potential loss of intellectual property and cost overruns and quality failures, which can be costly and time-consuming to resolve.
A custom contract is often the better choice. A standard contract may not capture the specific needs and circumstances of your business, and therefore not protect you from the risks you face.
A standard contract may also contain clauses that are out of date. A lawyer hired to help draw up a custom contract (or customize a generic one) will be aware of the latest applicable law and can provide you with sound legal advice tailored to your situation. Many lawyers specialize in specific industry sectors and will have in-depth knowledge of the risks that you face.
The choice of whether to use a standard template or custom contract depends on a number of factors. Standard contracts are generally better suited to lower risk situations, where terms and conditions are fairly generic. Where the stakes are higher or projects have unique specifications, negotiating a custom contract is often the better option. Of course, if you're unsure, it is always wise to consult with your legal counsel before entering into a contract with another party.
This article provides general information, and should not be construed as specific legal, HR, financial, insurance, tax or accounting advice. As with all matters of a legal or human resources nature, you should consult with your own legal counsel and human resources professionals. ADP shall not be liable for any direct, indirect, special, consequential, incidental, punitive or exemplary damages in connection with the use by you or anyone of the information provided herein.
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