Table of Content
- What is Contract Review?
- Why review contracts?
- Who should review contracts?
- Contract review checklist
- Contract review with Contractbook
- What next for contract review
Contract review, an integral part of contract lifecycle management, is highly crucial for risk mitigation. Throughout the contract lifecycle, large amounts of resources are invested in creating value-added contracts. Contract reviews (aka contract audits) play a crucial role in assuring the quality of those assets.
According to Cottrill research, contracts govern 60-80% of business operations. But a common mistake most entrepreneurs make is that they are often so excited about implementing tasks for new business relationships that they fail to analyze the wordings in the contract.
Before signing a contract, you have to read it first and understand its implications for your business' performance. A simple glance over the document is not enough is not enough to pinpoint errors, and that’s why you need to do a thorough contract review.
This article explores the contract review process, its benefits, and best practices. Read on to find out how you can capture all the critical elements in your contracts and save your business from possible compromise down the line.
What is contract review?
Contract review is the process of analyzing the provisions within a contractual agreement to ensure that the terms are fair and have no potential risks. The process requires diligence and a keen eye for detail. During the contract review, the reviewer typically examines the content of the contract document on a word-by-word basis. Suppose the document contains unclear terms that put the signer at a disadvantage, the other party will be required to make amendments or there will be a new contract negotiation altogether.
Why review contracts
Businesses spend several thousands of dollars yearly to ensure that their contractual agreements are fair and risk-free. Why do they have to spend so much on reviewing contracts? Well, contract reviews mainly:
- Guarantees legality
- Prevents Misunderstanding
In the eyes of the court, illegal contracts are invalid. Thus, if any of the parties involved breaches the agreement, neither of them will be entitled to any compensation or held liable. To prevent such a scenario, a contract reviewer must ensure that the contract includes all the required elements and supports no illegal activity.
Both parties involved in a contractual agreement may interpret the clauses differently which may lead to an unintentional contract breach that then matures into lawsuits. However, a contract review ensures that both parties signing a new deal are on the same page.
Who should review contracts?
Contract review often requires professional skill and experience. Large and medium-sized organizations would typically hire junior lawyers or paralegals to analyze their contracts thoroughly and understand the terms and the possible risks involved. But smaller businesses could rely on in-house business managers or executives to handle the task.
Contract review checklist
Lawyers typically follow a contract review process checklist to foster the task. Here are the key things they look out for on the contract document.
Are signature blocks defined? Are references to exhibits and schedules included?
If a word or phrase in the document has multiple meanings, it's best to change it with clear simpler ones.
This includes typos, punctuations, incomplete sentences, and violations in the language structure.
Are the calculations or formulas in the document correct?
5. Blank spaces
A blank space in the contract document is a loophole in that someone could go back in and fill incongruent clauses.
If an asset or service expires at a certain point, the contract should specify it.
7. Parties involved
The individuals or businesses that agree should be clearly defined with their complete names.
Can any of the parties terminate early? If yes, the document should also specify the conditions for termination. Then the process and the rights of the parties following an early termination.
What's the mode of renewals allowed? Automatic or manual? How long shall each renewal last?
Will there be compensation for losses that may occur due to negligence? If yes, which conditions validate the compensation? Will indemnification be mutual?
11. Dispute resolution
How will both parties resolve disagreements that may arise in the course of the agreement.
12. Action terms
Does the contract specify performance obligations for both parties? Are the payment terms and methods included?
Does the contract include profound practical challenges? Is the action mentioned doable? Are the expectations achievable or realistic?
14. Collection expenses
Who shall be responsible for covering the legal expenses and fees in terms of collections?
15. Governing law
Under which jurisdiction shall the terms and conditions apply? In which courts shall the disputes be handled?
16. Risk allocation
How will both parties bear the associated risk? Which conditions determine who bears the risks.
Contract review process with Contractbook
Only a few decades back, contracts were static documents packed up in old, dusty rooms. They carried more requirements for reviews than modern contracts which are more flexible. As businesses strive to generate more revenue, they often have to collaborate with more staff and companies. And this translates into more contracts and more workload.
Contractbook is a contract automation software designed to make the approval process of contracts easier and more efficient by allowing contract administrators to review contracts in-browser and create approval workflows.
Its dynamic repository provides users' contracts in one web-based space where they can access contract information whenever they need it.
This means that reviewers don't have to deal with the hassle of going back and forth to make adjustments on bulky contract forms and send feedback via emails.
Also, reviewers can direct comments to internal colleagues or external counterparties logged onto the central system. Then the other user can quickly implement corrections to the contract from the other end.
This way, your legal team can easily spot the loopholes in your contracts in split seconds and streamline the effort required to deliver on all digital contracts.
'We have one place for all our contracts. It's ideal for us that we can create, sign and store all our legal documents on a single platform, so everything is streamlined' - Lise Buchhaven.
What next for contract review?
Contract review is a process that needs to be done right. You can't argue that. With the myriad of contracts that are part and parcel of doing business, it’s important that a legal team reviews the contract provisions with an automation software to avoid misplacing, missing, or poorly defining terms in the agreement as that can lead to thousands of dollars of damages.
Contractbook's powerful contract review platform allows companies to receive sign-offs from all the right parties, on any device. Our intelligent routing and approval system speeds up your workflow so you can spend more time on revenue-driving activities.
Just hit this button and we will provide you with a dynamic space to run a seamless and accurate review of your contracts within the shortest time possible!