What is a boilerplate contract?

A boilerplate contract is a standardized agreement that a seller, vendor, or service provider offers to customers. These contracts often use pre-written terms and conditions that are generic and meant to apply to a broad range of transactions. While they save time and effort for vendors, they are typically designed to favor the seller’s interests.

Vendors often refer to these contracts as “standard agreements” and may downplay the importance of reviewing them. They might say, “All our customers sign this,” or “This is the same contract we’ve used for years without issues.” However, signing a boilerplate contract without proper review can lead to unfavorable terms or risks for the buyer.

Key Features of Boilerplate Contracts

1. Pre-Written Terms:
   • The terms and conditions are generic, often not customized for individual buyers.
   • Examples include clauses on payment terms, delivery timelines, warranties, and liability.
2. Vendor-Focused:
   • Boilerplate contracts are usually drafted to minimize risks and maximize benefits for the seller.
   • Buyers may find clauses that limit the vendor’s liability, offer minimal warranties, or impose strict penalties for contract termination.
3. Non-Negotiable Appearance:
   • Vendors may present these contracts as non-negotiable, but buyers should push for revisions that align with their interests.
4. Standardized Clauses:
   • These often include jurisdiction, dispute resolution methods, confidentiality, indemnification, and limitation of liability.

Why You Should Always Review Boilerplate Contracts

1. One-Size-Fits-All Approach:
   • These contracts are not tailored to your specific needs or circumstances.
   • Example: A vendor may include terms suited for a high-volume client, which may not apply to a smaller buyer.
2. Hidden Risks:
   • Boilerplate contracts often include clauses that favor the seller, such as:
     • Limiting the vendor’s liability in case of defective goods or services.
     • Placing the burden of dispute resolution costs on the buyer.
     • Restricting the buyer’s ability to terminate the agreement.
3. Misaligned Expectations:
   • Without customization, the contract may fail to address specific requirements like delivery schedules, quality standards, or service levels.

Common Clauses in Boilerplate Contracts

1. Limitation of Liability:
   • Caps the vendor’s financial responsibility for damages caused by their product or service.
   • Example: A vendor’s contract limits liability to the value of the contract, even if their product causes significant losses.
2. Indemnification:
   • Requires the buyer to protect the vendor from legal claims, even if the vendor is at fault.
   • Example: A software provider’s contract states the buyer must indemnify them if the software is used improperly.
3. Termination Clauses:
   • Details conditions for ending the agreement, often making it difficult or costly for the buyer to terminate.
   • Example: Early termination requires the buyer to pay the remaining contract value.
4. Jurisdiction and Governing Law:
   • Specifies which country’s laws will govern disputes.
   • Example: A Thailand-based buyer may face challenges if the governing law is set in another country like the United States.
5. Confidentiality:
   • Protects the vendor’s proprietary information, often without reciprocating the same protection to the buyer.

Practical Examples of Boilerplate Contracts

1. Software Licensing Agreement

• Scenario: A company purchases enterprise software.
• Boilerplate Clause: The vendor limits their liability to the cost of the software, even if a bug causes the buyer significant financial losses.
• Buyer Action: Negotiate for an increased liability cap and ensure ongoing support for critical issues.

2. Equipment Purchase Agreement

• Scenario: A factory purchases machinery from an overseas supplier.
• Boilerplate Clause: The agreement specifies that disputes must be resolved in the supplier’s home country.
• Buyer Action: Request a neutral location or the buyer’s home country for dispute resolution.

3. Maintenance Service Contract

• Scenario: A hospital signs a boilerplate agreement for maintaining medical equipment.
• Boilerplate Clause: The vendor includes automatic renewal terms that increase the service fee annually.
• Buyer Action: Negotiate for clear renewal terms and limits on fee increases.

How to Manage Boilerplate Contracts

1. Review the Contract Thoroughly:
   • Examine every clause carefully, looking for potential risks or unfavorable terms.
2. Engage Experts:
   • Involve procurement managers, legal advisors, and project managers to review the contract.
   • Example: A legal advisor can identify clauses that may lead to disputes, such as unclear liability terms.
3. Request Customization:
   • Insist on modifications to suit your specific requirements.
   • Example: Add delivery timelines, performance guarantees, or penalties for delays.
4. Compare with Industry Standards:
   • Benchmark the contract against similar agreements in your industry to identify unreasonable terms.
5. Negotiate:
   • Vendors often present boilerplate contracts as non-negotiable, but most are open to revisions, especially for significant clients.
6. Document All Changes:
   • Ensure any agreed changes are reflected in the final signed contract.

Red Flags in Boilerplate Contracts

1. Excessive Vendor Protections:
   • Clauses that heavily limit the vendor’s liability or warranty obligations.
2. Vague Terms:
   • Ambiguity around deliverables, timelines, or service levels.
3. Unilateral Terms:
   • Conditions that benefit only the vendor, such as auto-renewal without buyer consent.
4. Jurisdiction Bias:
   • Governing law and dispute resolution terms that favor the vendor’s location.

Best Practices for Buyers

1. Create a Checklist:
   • Have a checklist of your organization’s standard terms and ensure they are addressed in the contract.
2. Standardize Your Contracts:
   • Propose your own contract template or terms to the vendor as a starting point.
3. Involve Stakeholders Early:
   • Ensure internal stakeholders like legal and procurement teams are involved before signing.
4. Leverage Buying Power:
   • Vendors are more likely to negotiate favorable terms with significant or repeat clients.

Conclusion

Boilerplate contracts may seem convenient, but they often prioritize the vendor’s interests over the buyer’s needs. By carefully reviewing and negotiating these agreements, buyers can ensure fair terms that protect their interests and support project success. Whether you’re purchasing software, equipment, or services, never accept a boilerplate contract at face value. Take the time to review, consult experts, and negotiate terms that align with your organization’s goals and requirements.