Standardization of contracts and clauses: what is it about?

Standardization of contracts helps to simplify and speed up the process of concluding agreements, reduces the risks of misunderstandings between the parties and ensures compliance with the best international practices. It also reduces the costs of legal support and promotes the harmonization of contract law between different jurisdictions.

Standardization methodology

The contract standardization process usually includes the following stages:

1. Market analysis – research of typical risks and requirements of the parties.

2. Development of templates - creation of unified contract forms.

3. Legal review – involvement of specialists to assess compliance with legislation.

4. Update and adaptation – changes in standards in accordance with new market challenges and legislative changes.

Who finances the development of standard contracts?

The development and implementation of standard contracts is financed by:

• Professional associations (for example, FIDIC, ISDA, EFET, FOSFA).

• State bodies (as part of the harmonization of national legislation with international standards).

• By the business community (through contributions from companies interested in standardized approaches).

• International financial institutions (for example, the World Bank finances the development of contracts for development projects).

Examples of international standard contracts

• FIDIC (International Federation of Consulting Engineers) – began developing contracts in 1957, issuing the first standard contract. Today, its contracts are widely used in construction and infrastructure projects ( source ).

• ISDA (International Swaps and Derivatives Association) – The first version of the ISDA Master Agreement was published in 1987 for financial contracts ( source ).

• EFET (European Federation of Energy Traders) – developed standardized contracts for energy trading in 1999 ( source ).

• FOSFA (Federation of Oils, Seeds and Fats Associations) – has been using standardized contracts since its inception in 1971 ( source ).

Pros and cons of using standardized contracts in business

Advantages:

• Transparency and predictability – standard contracts clearly define the rights and obligations of the parties.

• Saving time and resources - companies can use ready-made templates, which reduces costs for legal support.

• International compatibility – standardized contracts are accepted in different jurisdictions, making it easier to work in international markets.

• Dispute resolution mechanisms – include arbitration procedures and conflict resolution mechanisms.

Disadvantages:

• Lost competitive advantage – In some cases, unique contracts can create competitive advantages, especially if they address specific business conditions.

• Limited flexibility – standardized contracts cannot always be adapted to all the needs of a particular agreement.

• Risks of imperfection – if the standard contract does not take into account important details, the company may suffer financial or legal losses.

• Additional costs for adaptation - if changes are necessary, lawyers must be involved, which can be expensive.

Therefore, the standardization of contracts is an important step towards international integration and business development. Implementation of international standards contributes to increasing trust in contractual relations, reducing costs and legal certainty for market participants. Ukraine needs to continue harmonizing contract law in order to ensure competitiveness at the global level.