Most of the language used in contracts is relatively innocuous, at least in the normal case.
In fact, its usage tends to be beneficial. Instead of wasting a great deal of time in developing alternative contractual language, lawyers save their clients money by using standardized language that is well understood across the legal profession.
Boilerplate is the standard form of contract language that is frequently copied by lawyers from one contract to the next without much change from the original.
Popular history dates the term “boilerplate” back to the thick steel sheets used to build steam boilers in the early years of the last century. The idea is the types of provisions concerned were required to allow contract documents to stand up to the heat and pressure of real world contracting.
Provisions of this type tend to cover such matters as acts and events of default and the range of remedies to which a party is entitled upon default.
Generally, the term act of default involves some occurrence over which the party in default has a degree of control, whereas and “event of default” is something that simply occurs to that party without its willing participation, for instance being declared into bankruptcy.
The boilerplate provisions of a contract also include choice of law clauses, choice of curial jurisdiction clauses, the giving of notice, the procedure for amending the contract, the representation (or warranties given by one party to the other regarding the existence of a certain state of facts); the promises (or covenants) that one party makes to another regarding what will be the case in the future; along with clauses stating “time is of the essence” that the contract can be executed in “counterpart form” force majeure clauses and so forth.
Industry-wide standard documents, such as CCDC 2, offer examples of entire contracts that are essentially reduced to the form of boilerplate.
When documents of this nature have been adopted following extensive consultation with all affected interests – from labour unions down to bankers – it can generally be assumed they represent the optimal allocation of responsibilities among the relevant interests affected by a contract.
Even where this is not the case, if contracts are standard across an entire industry, for instance, in the case of car rental contracts, then under the normal forces of competitive pressure within a market economy, the pricing of suppliers who use those contracts will have adjusted to reflect the allocation of rights and responsibilities that such contracts entail.
Unfortunately, one problem with this kind of standardization of language is that when a customer insists on unique language departing from standard market expectations, that decision presents risks of increased uncertainty to suppliers (and, sometimes to the banks that stand behind them).
As I have discussed previously in other articles, there are two usual consequences in such a case.
First, some suppliers will refuse to supply except on the standard terms. Thus, a departure from the standard form will result in a reduction of competition, which frequently means the price goes up.
The second possibility is a supplier may bid for the contract, but will include in its bid price some additional change to compensate for uncertainty (and therefore risk) to which it perceives it is exposed. In other words, once again, the price goes up.
There is nothing wrong with a customer insisting upon using its own contract language, provided the customer understands the consequences of doing so is to increase price.
However, there is yet another difficulty that specific tailored contract language presents. Whereas boilerplate language has often come to have a settled meaning to both supplier and customers (and their respective lawyers), the same is not true with respect to the customized language that is not to be found in the specially drafted contract.
Stephen Bauld is a government procurement expert and can be reached at [email protected]. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
