Contract Review: How to Efficiently Review Business Contracts
Whether you’re the owner of a small business or an in-house counsel at a large organization, contract review is an integral part of the contract management process. You avoid inadvertently exposing your company to substantial risk when you conduct a proper contract review.
Contract reviews help you analyze and identify key provisions within an agreement. It enables all parties involved to check and rework the agreement as needed, making sure it’s legal, enforceable, and will achieve what it is originally designed to do for all parties.
Conducting a proper contract review is often easier said than done. Many traditional ways of conducting a contract review are incredibly time-consuming and inefficient. It’s important to use digital contracting software to conduct a productive, successful contract review. Read on to learn more about how to do a proper contract review and how Ironclad can simplify this process for you.
Who conducts contract review?
The type of business matters when determining who should conduct a contract review.
In a smaller business without an in-house legal team, contracts may be reviewed by the executive team or managers. This can be a slow, draining process that can result in many errors, particularly when there are no legal experts on the team.
Large companies often have their in-house legal team conduct contract reviews. If the contracts in question are basic, the paralegals, legal assistants, or junior lawyers will review the contracts to make sure they are lawful and enforceable. They will summarize the key points using a checklist and then pass the contract to a senior colleague for further review.
Legal will then work with employees from another department of the business who are more familiar with the contract’s subject matter. This cross-departmental teamwork makes sure that the contract is legitimate and capable of achieving what all parties want.
Although larger businesses typically have more resources and expertise to conduct a proper contract review, it can still be a challenging, expensive, and slow process. Contract review software is a good solution for businesses of all sizes that need a user-friendly and cost-effective option.
The stages of contract review
The contract review process can be broken down into five stages:
During the first stage, the in-house legal team will thoroughly read the contract to get a proper understanding of what it is about. Then they will answer the following questions:
- Who is the opposing party or parties?
- What is the purpose of this contract? What is being provided and are there any unclear parts of the contract?
- What are the expectations of both sides? What products and services will be provided and by whom?
2. Review four important factors
Now that the team has a clear understanding of the contract, they will identify the following four factors:
- Commercial protection, if any.
- Duration, which includes notice periods, termination provisions, and the initial term of the contract.
- Trigger(s) for payments, such as when payments start and what a particular party has to do to get paid.
- Payment terms, which include making sure such terms fit your company policy and that both sides agree with them.
3. Identify the risks
The legal team should look at the following potential risks factors:
- Risk—hypothesize what could go wrong with the contract type. Add warranties and obligations to protect the relevant parties.
- Data Protection—double-check who owns the data and what each party can do with the data. Are there any data obligations and is consent required? If yes, from whom?
- Intellectual Property—does the contract have any provisions to protect intellectual property belonging to either party?
4. Look at warranties, indemnity, and limitation of liability
Now that the team knows what risks they may be dealing with, it’s time to look at the following:
- Warranties, which should be very specific and focus on the licenses, titles, and authorizations needed for the contract.
- Indemnity, which is typically included only in contracts that involve regulation compliance, loss or destruction of data, confidentiality, and intellectual property.
- Limitation of Liability, which identifies liabilities if warranties and/or obligations are breached.
These clauses will help protect all parties and make sure that intellectual property, confidential information, data loss, and other potential risks are fully covered by the contract. The legal team will review the language used in these clauses so that everything is clear and that all parties are adequately protected.
To wrap up a proper contract review process, the legal team will look at the following boilerplate clauses to ensure both sides’ interests and intents are expressed accurately:
- Governing law and jurisdiction
- Assignment, which is the ability to transfer the contract, liability, or obligations to another individual or business
- Confidentiality, which needs to be mutual and includes a detailed description of what information may be disclosed when the services are performed
Variation, to make sure there is a clause in the contract that establishes how any variation to the contract needs to be done in writing and signed by both parties.
Challenges of contract review
With so many risks and clauses to consider, conducting a proper contract review isn’t always easy. The legal team has to balance contract review processes with their daily workloads.
Redlining is one of the most challenging aspects of a contract review. Also known as “blacklining,” redlining refers to the negotiation and editing process where different parties track changes and make edits collaboratively.
Traditionally, one party receives the contract through email and makes additions and annotations, which appear in a unique color, such as red, so the other party (or parties) can easily see the changes. This can lead to a lot of your emails and documents slipping through the cracks, since it’s sometimes difficult to stay on top of all your emails. Contracts often get lost because they may be saved in a variety of locations, ranging from a cloud, email, and USBs. This can lead to information loss, delays, miscommunication, and lawsuits.
Contract review for high-negotiation contracts
Related to redlining is the challenge of conducting a contract review for high-negotiation contracts. High-negotiation contracts require a lot of contract negotiation—the process by which the parties come to an agreement on the legally binding terms of the contract.
While there are best practices on how to negotiate a contract, the discussion is usually time-consuming since each party negotiates to minimize operational, financial, and legal risks and obtain favorable terms. The process can be more drawn out if there are delays in contract creation, review, and execution, which can be impaired by a lack of coordination amongst the parties. Many high-negotiation contracts require constant follow-ups across multiple email threads and documents.
With a central hub for contract tracking, negotiation, and communication, Ironclad’s contract review software will make sure you or your legal department do not waste a lot of time piecing contract edits from different teams and searching for the most recent versions of documents. Our tools include the option of Clickwrap agreements, which are useful for high-negotiation contracts to speed up the review process for everyone involved.
Ironclad simplifies the contract review process
To save time on all entities of contract review, you or your legal team should look into Ironclad’s contract management tools. Ironclad provides digital negotiation and collaboration software designed to help manage the redlining and revision process. You can comment, edit, and track changes in files on a centralized hub. You can search for contracts and create templates for the whole team to use.
Unlike many other contract management tools that only offer desktop plugins or basic in-browser solutions, Ironclad gives you the ability to work using Microsoft Word and communicate with your colleagues on a shared platform in real time. With internal comments and @mentions, you can bring your colleagues into your contract workflow with only a few clicks of your mouse. You can be sure that colleagues are looking at the latest version of the contract, not the version you or a colleague emailed them two weeks ago.
Like Google Docs, Ironclad also allows you to accept, reject, and propose track changes. Once you’re done, just click a button to email a DOCX copy to the other party. All contracts in Ironclad are stored on a centralized hub known as the Dynamic Data Repository. Searchable, user-friendly, and accessible, Ironclad’s Dynamic Data Repository will make it incredibly easy to locate the contract you’re looking for and check its contents. This will save the time you would’ve ordinarily wasted on locating files on your cloud and desktop.
Your time is important and should not be wasted. Try out Ironclad and get our sandbox demo today. You will be able to see for yourself how Ironclad can cut your contract processing time by 80% and boost your business’s productivity.