Thursday, August 11, 2011

Industry standard agreements

In many industries there are "industry standard" agreements. For example in the U.S. for purchasing construction there are “standard agreements” published by “AIA” the American Institute of Architects. There are also “standard agreements” published by “AGC” the Association of General Contractors.

Most “standard agreements are produced by associations of suppliers for that industry. I’ve never run into a “standard agreement” that was created by an association of buyers. Since “standard agreements” are produced by supplier associations, it shouldn’t surprise you that their terms favor the supplier rather than the buyer.

While its always best to try to use your agreements, there may be times when you may need to use one of those standard agreements. If you do you should approach it in the same way you would approach using a supplier agreement.

First you read what it says to identify the items you need to delete, amend or supplement to make it acceptable. Second, and this is an equally important step, is you need to read it in conjunction with your standard agreement.The problem with industry standard agreements may not be what it says as much as what it doesn't say.Reviewing it with you agreement helps identify what may be missing or different that you either need to add or change in the standard agreement.

When you use a standard agreement there are two approaches you can use to create the document. The cleanest way from a contract management approach would be to make all deletions, additions or changes within the standard agreement format and prepare that for execution. A second approach is to create a contract that incorporates the terms of the standard agreement by reference. Then you manage all the changes you need to make similar to writing an amendment. For each change you refer to the specific sections of the standard agreement that you want to change and the spell out how that is modified by additions, deletions or change. While this may be a faster approach especially if you don’t have a soft copy of the standard document to edit, from a contract management perspective it forces you to read both documents together to understand the actual commitments. If you do take this approach for speed, you can later generate a restated copy of the Agreement and have that signed replacing the existing document.

For more about the amendment approach see the April 11, 2011 Blog on amendments.