Business contracts are pivotal for small- to medium-sized businesses, often focusing on primary terms like pricing and deliverables. However, lurking beneath are the “boilerplate” provisions—sections that may seem standard but are anything but trivial.
Contrary to popular belief, these boilerplate sections—covering damages, choice of law, notices, and more—are not mere formalities. For SMBs, they are crucial. When disputes emerge, it’s these clauses that often steer the outcome. Yet, their significance frequently goes unnoticed.
In this article, we’ll shed light on the overlooked power of boilerplate clauses and underscore their importance for SMBs.
Common Misconceptions about Boilerplate Provisions
Imagine a small manufacturing supplier, “CraftMakers,” entering into a supply agreement with a major retailer, “RetailGiant.” In their eagerness to secure a big client, CraftMakers doesn’t scrutinize the boilerplate “notice” provision in RetailGiant’s form agreement, which dictates a specific and unconventional method for providing notice of any supply issues. A few months down the line, CraftMakers faces a raw material shortage and notifies RetailGiant via standard email. Unbeknownst to them, RetailGiant claims they never received the notice as per the stipulated method in the contract. This oversight leads to significant order disruptions, penalties, and strains the relationship between the two parties.
This hypothetical brings to light the very tangible risks associated with overlooking boilerplate provisions. There are a number of misconceptions SMBs commonly have about such provisions.
“One size fits all” myth
CraftMakers’ experience showcases the fallacy of assuming that boilerplate clauses are universally standard. Every agreement, every relationship has its nuances, and boilerplate terms should be adapted accordingly.
Overlooked due to perceived insignificance
Although boilerplate terms might not discuss the heart of a business transaction, their ramifications can be profound, as seen with CraftMakers’ notice oversight. Their positioning at the end of contracts should not mislead SMBs about their importance.
Assumption that boilerplate provisions are universally understood and agreed upon
Presuming that boilerplate language is universally clear is a perilous trap. Interpretations can differ, and without explicit clarity, these provisions can quickly become points of contention.
For SMBs like CraftMakers, it’s crucial to understand that while boilerplate sections might seem secondary, their impact on business operations and relationships can’t be overlooked.
Key Boilerplate Provisions and Their Significance
When it comes to contract formation, certain steps—or in this case, clauses—bear substantial weight. These “boilerplate” provisions, while often overshadowed by the primary terms of the contract, play a pivotal role in safeguarding the interests of the parties involved and steering the direction of any potential disputes. Here are some common examples.
Damages: These clauses specify the remedies available to parties in the event of a breach. They often define types of damages, such as consequential or liquidated, that a party can seek.
A clear damages provision provides predictability, limiting financial exposure or setting expectations for compensation. For instance, without a clause capping consequential damages, a party could be exposed to unforeseen and potentially significant financial liabilities.
Choice of Law and Forum: These provisions determine which jurisdiction’s laws will govern the agreement and where any legal disputes will be settled.
By selecting a familiar jurisdiction, businesses can better predict legal outcomes and avoid the complications and costs of litigating in a foreign or unfavorable legal environment.
Notice Provisions: This provision outlines the method by which formal notices, such as breach notifications or termination, must be communicated between the parties.
As seen with CraftMakers, a misstep in adhering to the specified notice methods can lead to misunderstandings, disputes, or even financial penalties. Clear notice provisions ensure timely communication and can prevent minor issues from escalating.
Integration (or Entire Agreement) Clauses: This clause asserts that the written agreement represents the complete understanding between the parties, superseding any prior discussions or understandings.
Such provisions safeguard businesses from claims based on alleged oral agreements or prior written documents, ensuring that all parties are on the same page regarding the contract’s content and intent.
Amendment Provisions: These clauses dictate the method by which the contract can be modified after it’s been signed.
Clear amendment provisions ensure that no changes are made without the mutual agreement of both parties, maintaining the contract’s integrity and preventing potential disputes over unauthorized modifications.
Understanding the depths of these boilerplate provisions is not just a matter of legal prudence—it’s a business imperative. As markets evolve and business relationships become more intricate, these foundational clauses serve as the bedrock of secure, transparent, and effective agreements for all parties involved.
Best Practices for SMBs in Navigating Boilerplate Provisions
For SMBs, the stakes are often high, and the margin for error is slim. While boilerplate provisions might not be the centerpiece of contract negotiations, it’s imperative for SMBs to navigate these provisions with care and strategy. Here are some best practices to consider.
Always Seek Legal Counsel: While it might be tempting to save on legal fees, especially for businesses operating on tighter budgets, the potential risks of not thoroughly understanding a contract can far outweigh the initial savings. Engaging an experienced business attorney familiar with your industry can provide invaluable insights into potential pitfalls and nuances within boilerplate provisions.
Customize, Don’t Generalize: Resist the urge to merely copy and paste boilerplate clauses from one contract to another. Every business transaction is unique, and your contracts should reflect that. Tailor provisions to fit the specifics of the agreement, ensuring that they align with your business’s interests and risk tolerance.
Ensure Mutual Understanding: Before finalizing any agreement, it’s crucial to discuss and clarify the boilerplate provisions with the other party. This ensures that both parties share a mutual understanding of the terms, reducing the likelihood of future disputes.
Regularly Review and Update Contracts: The business landscape is dynamic, with regulations, industry standards, and market conditions constantly evolving. Regularly review your boilerplate provisions to ensure they remain relevant, compliant, and aligned with your current business strategy and objectives.
Prioritize Clarity Over Brevity: While it’s important to be concise in contract drafting, clarity should never be sacrificed for the sake of brevity. Clear, unambiguous language reduces the risk of misinterpretation and potential disputes down the line.
Negotiate, When Necessary: Remember that contracts are negotiable. If you’re uncomfortable with a specific boilerplate provision or feel that it exposes your business to undue risk, raise your concerns. It’s better to negotiate terms upfront than contend with unfavorable conditions later.
Conclusion
Boilerplate provisions, often overshadowed in business contracts, play an indispensable role, particularly for SMBs. They are not mere formalities; they form the structural backbone of contractual relationships. They influence everything from dispute resolution mechanisms to the fundamental understanding between parties.
Pay attention to the boilerplate. It’s not just about the deal’s main terms; the underlying details are equally pivotal for fostering trust and ensuring long-term success.
