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Contract Review: 6 Things to Look For + Downloadable Checklist

    
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Conducting a contract review is a key part of the contracting process, and serves as an opportunity to fully understand everything you and your business are agreeing to before putting pen to paper. A contract review helps you reduce organizational risks and increases the likelihood that an agreement will make a positive business impact for all parties involved. Without a comprehensive contract review, you run the risk of committing to obligations that you can’t fulfill, damaging your company’s brand and reputation, and wasting valuable time and financial resources resolving disputes that could have been prevented.

This article covers some of the most important things to look for during a contract review at various stages of the contracting process, and includes a downloadable checklist for contract review and management.

Click below to watch a short video of the blog highlights, or continue scrolling to read the rest of the article.

What is a Contract Review?

A contract review is a thorough examination of a legal agreement before it is signed to ensure that everything stated in the document is clear and accurate, and that your company is comfortable moving forward according to the terms of the agreement. After the agreement is signed initially, contract reviews are also important leading up to specific contracting events, such as re-negotiation or opt-out windows. A contract review is typically your last opportunity to identify and request needed changes before getting locked into an agreement.

How to Review a Contract

When conducting a contract review, it’s helpful to start with a plan so you can be sure the most important areas in the contract have been carefully analyzed. If any errors or discrepancies are discovered, or any questions arise as a result of the contract review, you should not move forward with the contract until all issues have been resolved to your satisfaction.

Here are some of the key things to look for during a contract review.

Key Clauses & Terms

Every line in a contract is important and needs to be reviewed closely, but some clauses and terms are clearly more significant than others. Since every company and industry is different, the most important contract terms are likely to vary as well, but there are a few to pay close attention to across the board. Terms like confidentiality, indemnification, termination, and dispute resolution are all important sections in a contract and are worth spending extra time reviewing to fully ensure the language is acceptable.

Termination & Renewal Terms

Before signing any legally binding agreement, you’ll want to confirm that you completely understand the contract’s termination and renewal terms to avoid getting locked into an agreement longer than you originally anticipated. You should check on things like automatic renewal language and opt-out windows so you know up front how and when you can cancel the agreement and what the repercussions are of not notifying the other party by a certain date.

This is also a good time to start planning ahead so you don’t get caught off guard when those important dates and deadlines come around. Set calendar reminders so you and your team don’t miss opportunities to renegotiate or cancel the agreement within the stated parameters.

Clear, Unambiguous Language

As you read through a contract, pay close attention to how each sentence is worded and look for language that could be left up to interpretation. Even if both parties interpret unclear terms the same way, it’s best to revise the language to be more cut and dried if possible to prevent potential conflicts once the contract is signed and active. Significant conflicts may require a third-party to determine next steps based on how they interpret the contract, so be sure all terms are laid out explicitly. 

No Blank Spaces

Using contract templates is a great way to save time during the contract drafting process, but requires special consideration during the contract review phase. Any blank spaces should be either filled in or removed before the final contract is signed. Depending on the circumstances, failure to fill in a blank space in your agreement could lead to costly consequences for your business.

Default Terms

While both parties typically have good intentions when entering into a contract, it’s always a possibility that one side won’t deliver according to the terms of the agreement, leading to a breach of contract. Keep an eye out for default clauses so you know the potential ramifications of not fulfilling your obligations - or the options available to you if you’re the non-breaching party.

Important Dates & Deadlines

In addition to ensuring that all of the dates and deliverables listed are in alignment with any previous verbal agreements, the contract review stage is also an opportunity to start tracking anything your team or organization is responsible for executing. Planning ahead will help reduce the chances of a breach of contract, which could lead to significant consequences for your organization.

The Master Checklist for Contract Review and Management

This actionable checklist outlines important aspects and best practices for a successful contract management process. It will guide you through the four contracting phases below to help you establish an optimal contract management process in your organization.

Click here to download the complete checklist now.

Planning & Preparation

The first section of focus speaks to the planning and preparation stage. It encompasses the pre-contract drafting/negotiation phase of the contracting process, and outlines specific steps to take during this phase to ensure future success.

Some of the topics covered in this section include:

Procedures & Requirements
  • User roles

  • Implementation plan

  • Dealing with contract risks

  • Dispute resolution

During this time, your organization should set up internal policies and procedures needed to effectively manage contracts and avoid administrative bottlenecks during the next phases of the contract management process.

Pre-Contract Period

The pre-contract period section of the checklist reviews specific steps to take during the post-negotiation phase of the contract. During this time, you will want to review your contracts to check for errors that could potentially put your organization at risk, and take measures to organize your contracts for future optimization.

Here are a few of the pre-contract review elements you can find in the checklist:

Administrative Setup
  • Contract templates

  • Version control

Contract Requirements
  • Timeframes and extensions

Contract Review

  • Contract term and renewal information

  • Amendments and modifications

  • Legal review

Contract Period

This section reflects on actions to take during the contract period, which includes the timeframe when the contract is active. During this time, your organization should take measures to fully optimize your contracts and understand trends and opportunities within your agreements.

Here’s an example of some of the contract review elements you’ll find in the Contract Period section of the Master Checklist:

General Contract Management
  • Timeline for deliverables

  • Expiration and renewal notifications

Contract Monitoring/Reporting
  • Contract performance

  • Service Level Agreements

Fiscal Monitoring
  • Contract pricing

  • Payment procedures

Managing Risk
  • Operational errors

  • Enforcement of defined procedures

Contract Renewal
  • Changes since last renewal

  • Contract history

Post-Contract Period

The final section addresses the post-contract period. This section reviews critical steps to take with your agreements during the time following the active contract period, and outlines items to consider when closing out a non-renewed contract.

Some of the post-contract period tasks to consider include:

Contract Close-out
  • Post-contract evaluation

  • Contract documentation

Contract Requirements
  • Invoice reconciliation

  • Income and expense reports

Click here to download the complete contract review checklist.

Tips for Success

Allow Enough Time for a Thorough Review

Reading and analyzing every sentence in a contract can undoubtedly take a considerable amount of time, especially for lengthy, complex agreements, but it’s a critical step to protect your business from unnecessary risk. Always leave plenty of time to sit with high-value or high-risk contracts before signing. One misplaced comma or ambiguous sentence could lead to costly, and avoidable, mistakes.

Have Multiple People Review

It’s always a good idea to have someone other than the person who drafted the document conduct the contract review. Someone reading a contract for the first time is more likely to catch an error or typo than the person who drafted the contract and has been looking at the same information for a long period of time. Having a second member of your legal team, or even a contract review lawyer, review each important agreement will increase your chances of executing a contract that delivers as intended.

Review Contracts on a Regular Basis

Contract reviews should take place for existing agreements in addition to brand new contracts. Any time you’re preparing to renew an agreement, you have an opportunity to improve the contract based on lessons learned since the last time the contract was signed, fix something that was previously overlooked, or change language as a result of industry regulations or guidelines that have evolved since the contract was originally drafted. The fact that an agreement was signed and accepted initially shouldn’t prevent you from regularly reviewing and looking for opportunities to optimize or refine the terms, or taking steps to terminate the contract in certain situations.  

Take Advantage of Technology

Conducting a thorough, line-by-line analysis of a written document is a challenge tailor made for modern technology solutions, particularly tools powered by artificial intelligence and machine learning. Contract review solutions, including some contract management software, offer the ability to automatically scan and analyze large volumes of text quickly and accurately, and unlike humans, aren’t susceptible to errors caused by fatigue, which is a legitimate concern when reviewing lengthy contracts.

Technology should not replace the human review process, but when used to supplement human efforts, contract review solutions can help individuals responsible for this process accomplish the task much more efficiently and accurately.

To access our complete contract review checklist, download The Master Checklist for Contract Review and Management.

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