If you have ever drafted or reviewed a contract, you’ve likely seen so-called “boilerplate” provisions, terms like “no waiver” and “choice of law” that often appear at the end of the contract. Many people don’t realize that these provisions are important – they can make a huge difference in how a contract is interpreted, how much risk an agency is exposed to, and whether the contract complies with federal regulations. To help you understand some of these provisions, we’ve compiled a glossary of four common boilerplate terms. Read on!
- No Third Party Beneficiaries Provision. This provision clarifies that only the signatories to the agreement have a right to sue for breach of the agreement or to sue to enforce the agreement. For example, let’s say your contract with a mental health specialist requires the specialist to take steps to protect personally identifiable information (PII) in child records. The agreement also has a “no third party beneficiaries” provision. If there is an unauthorized disclosure of PII, only the Head Start agency may sue the mental health specialist for breach of contract. Parents and children affected by the breach may not sue the mental health specialist for failure to comply with the contract (but they may be able to file lawsuits based on other legal theories).
- A “no waiver” provision. This provision states that even if a party breaches a contract and the other party does not exercise its remedies related to the breach (by suing or terminating the contract, for example), the non-breaching party has not relinquished its rights to take action in the event of future breaches of the same sort. For example, let’s say you contract for janitorial services five days a week, but on several occasions the company has not worked on Friday. You don’t say anything for the first four weeks, but then you get fed up and want to terminate the agreement based on the company’s failure to report to work on Friday. If the agreement has a “no waiver” provision, the company can’t argue that, by not terminating the contract before, you implicitly agreed that the company could skip cleaning on Fridays.
- An arbitration provision. In an arbitration provision, the parties usually agree to submit any disputes over the contract to someone other than a court. We occasionally field questions about the difference between mediation and arbitration. Mediation is a settlement discussion led by a neutral third party and it is generally non-binding. Arbitration, on the other hand, is a trial-like proceeding held in front of a neutral third party. Arbitration is generally binding and can be almost as expensive as going to court.
- A “choice of law” provision. Contract law is a creature of state law. A choice of law provision tells the parties which state law will apply if there is a dispute about the agreement. For the most part, you’ll want to specify your home state in the choice of law provision. This is because you’re more likely familiar with your own state contract law than with any other state’s laws. Local attorneys will also be able to better advise you on the contract if it is governed by the home state’s laws.
There are many more boilerplate provisions. We’ll be discussing them as part of our upcoming five-part webinar series all about contracting! As part of the webinar series, you will work on drafting boilerplate provisions yourself! You’ll receive individual feedback from the trainers, helping you gain competence and confidence in contracting. Register here!