Why should I accept an atypical contract condition, something totally different from what my colleagues and peers have signed?
What parts of the contract should I not accept and negotiate?
What’s Standard and Non-Standard in a contract?
In this article you will find
- how SpeedLegal can help you understand what’s standard and non-standard,
- which Standards is SpeedLegal comparing your contracts to and
- how we create Market Standard at SpeedLegal.
On average, each contract gets reviewed 10+ times and it takes 3.4 weeks to get approved.
Based on the average salaries of the parties involved, World Commerce and Contracting estimates that the average cost of a simple contract is $6,900, rising to more than $49,000 for more complex agreements. This, as a result, increases the costs of a lawsuit and decreases the speed of making business.
Why are standards relevant?
It is important to aim for contract standards because without them, there would be no trust between people and we would not be able to work together efficiently.
Another issue is that non-standard contracts may be used as a template to draft new contracts. These non-standard contracts will be used to create new types of contracts, and then those new types of contracts will be used to create other new types of contracts. These variations may cause the final version to have drastically deviated from the original industry gold standard.
- A lot of contract variations,
- Non-lawyers may not read and understand all those contract variations,
- If we eventually accept these non-standard conditions, they are going to be used over and over again, and they may well become newly accepted standards even though they don't make full sense in the real world.
The reason why it's important not to accept these non-standard conditions is that it sets a precedent for future contracts. If we agree to these terms, other people will see them as acceptable and will want to use them too. This means that there's a risk that we'll end up with a lot of non-optimal contracts where people aren't sure what they are signing their name to.
So, at SpeedLegal as responsible legaltech and fintech company we are committed to advocate and promote the use of market standards thoroughly created with the use of big data and cross-checked by top legal experts.
SpeedLegal Red-Flag Table™
At SpeedLegal, we really believe in a future where people will be able to understand contracts without reading them.
Everything we do, we believe in fostering human interactions, we believe in building trust. And contracts and legal documents are centered on human interactions and trust.
The way we foster human interactions is by saving more than 75% of time of our users when reading and reviewing legal documents so they can focus on building trust and deep relationships with each other.
We just happen to make great tools to understand contracts in a few seconds instead of several hours.
We decided to call one of these tools, Red-Flag Table™.
Red-Flag Table comes from legal due diligence and in particular from M&A.
When a company acquires another company, the buyer will ask the seller to share all their docs and they will review all of those docs looking for potential Red Flags i.e. risks.
We started to develop this tool for lawyers working in M&A deals and we decided to make this great piece of technology available to everyone: from startups to enterprise organizations.
The Red-Flag Table™ allows anyone to have a bird's eye view of the key risks i.e. Red-Flags of any contract (see the screenshot below) and it translates them into plain English i.e. laymen's terms. Each Red Flag Table is marked up on the original contract to make it easy for the user to deep dive if they want to read the entire paragraph.
If are curious to know how SpeedLegals’ Red Flag Table™ works in detail, have a look here!
Which Standards is SpeedLegal comparing your contracts to?
There are two main scenarios.
Startups and SMEs usually don’t have their standards/templates whereas enterprise organizations i.e.Fortune 500 companies may have their own templates that want to push to the other parties.
SpeedLegal thus is comparing your contracts either with your own internal standard contracts, if you have any or with the Market standard ones.
One more option is to start creating your own standard templates, and SpeedLegal can help with that too.
Let’s say that you have a very good vendor contract that has been drafted by a reputable lawyer and you want to use it as a standard to compare other contracts with. On SpeedLegal platform, you can easily upload that vendor contract and compare it with the other contracts that are coming in from other vendors. The same can be done for your sales contracts, NDAs, term sheets, etc.
But why focus on one standard if you can compare your contracts with several ones at the same time? :)
This can be easily done with SpeedLegal too! See below.
Still curious to see in details how SpeedLegal standards are created and compared? Have a look here!
How are SpeedLegal Market Standards created?
Let’s say you don’t have an internal standard contract and you want to check your contracts against SpeedLegal Market Standards. How is SpeedLegal creating its own standards?
At SpeedLegal, we have collected tens of thousands of high-quality contracts and 1B+ data points. With such big data, we can cluster millions of targeted data points to create our Market Standards in consultation with our Committee of industry experts.
Some of the criteria that we take into consideration for creating targeted Market Standards are:
- Jurisdictions and Governing laws
i.e. the location and the laws governing that area
- The types of contracts
e.g. if it is an NDA, a DPA, a SAFE agreement, a license, a sales, a purchase, a term sheet, etc.
- The side of the table of the parties involved
e.g. employer vs employee, startup vs investor, buyer vs seller etc.
- Key aspects of a contract
i.e. what are the most important/high-stake clauses that need to be carefully reviewed
Of course, the quality of the data input influences the quality of the output and when dealing with data we may inherently deal with biases.
Therefore, to avoid unwanted biases and one-sidedness, we double-check each Market Standard with a team of legal experts coming from top law firms and enterprise organizations.
I believe that Standardization is the future of contracts and smart contracts enforced on the blockchain and AI will take us there faster.
Ultimately, contracts are about creating relationships and agreeing with the person in front of you (more and more not physically in front of you :) and as people are very different from each other, there will always be some difference in the way we negotiate.
Thus, contract variations.
If we are able to make these common variations standardized too, we would be able to hugely decrease the time to negotiate a contract, close more transactions and improve every business relationship.
The vision of SpeedLegal is to bridge this gap, by standardizing contract review and negotiation using AI and smart contracts.
Until we reach a point where all contracts will be enforced on the blockchain, standardizing contract drafting e.g. oneNDA, oneDPA, Bonterms and standardizing contract negotiations e.g. SpeedLegal Red Flag Table™ are simply better solutions than manually reviewing several non-standard contracts.