Every business should do the main thing by agreeing to read the contract carefully before signing it. A key part of the contracting process is to review the contract. Reviewing the contract will help the business understand the terms and conditions it is agreeing to by signing this contract. Contract review helps the enterprise reduce organizational risks and ensures a positive impact on the business in the long term.
Whether you're signing a lease agreement or a multimillion-dollar service agreement for new software, contracts are a fact of life in any business. Contract review requires care and attention to detail. Managing expectations, focusing on results, and obtaining key information from suppliers can also help achieve better results in contract management.
A contract review is a detailed assessment of the agreement before it is signed to ensure that everything stated in the agreement is clear and understandable. Without a detailed review of the contract, the company may agree to some terms of the agreement that it cannot fulfil before the expiry of the contract. This can damage the brand value and reputation of the business. It can be done manually or with the help of contract automation software.
Although contract review may involve an investment of time and resources depending on the nature and value of the contract, it is usually much less expensive than defending a breach of contract lawsuit.
Why do you need to review contracts?
The purpose of contract review is to ensure that the legal agreements and terms contained in them are reliable and that legal and financial risks are reduced as much as possible to protect the interests of your business. A contract review ensures that all terms are fair, enforceable, and properly documented; it specifies what will happen if one of the parties breaches the terms set out in the contract.
Have you ever signed a document without reading what you were signing? Most people have and not to mention the number of policies we just click and accept without reading them.
When someone asks you to sign a contract, they are really asking you to legally bind yourself or your business to the obligations set forth in the document. A contract review is a vital part of any contracting process as it usually reduces overall risk, increases the chances that all parties to the contract will profit, and gives both parties a chance to fully understand what they are agreeing to before signing anything.
The language and level of detail can be dense to the average business owner, putting them at a disadvantage in many contract negotiations. Investing in software like SpeedLegal can help by allowing users to break down, understand and review their contracts in minutes instead of days.
Key Points while Reviewing a Contract
When reviewing a contract, a business should be careful and consider every detail of the contract. Below are things you should look out for while reviewing a contract:
1. Terms and Conditions
In a contract, every sentence is crucial and should be carefully checked. However, some parts are more significant than other terms. As we all know, every company has different goals and objectives; therefore, the terms considered important in a contract vary from industry to industry. But there are some parts of the contract that every entrepreneur should consider important and should look at in more detail.
Terms such as termination, dispute, indemnification, and confidentiality are important sections of the contract that should be properly reviewed. Businesses should add the terms and conditions to the contract review checklist. The business should take the extra time to the reviewing to make sure the language used matches the accuracy of these specific terms.
2. Strive For Clear Language
Businesses should check the language of each clause in the contract before entering into any agreement. To make sure that the meaning of each sentence is clear and precise. There should be no such clause in the contract that can be excluded for interpretation. If a clause in a contract is open to interpretation, both parties can interpret it differently.
This can lead to conflicts between the parties and cause delays in completing and closing the agreement. The language used in the contract must be clear, without confusion.
3. Termination and Renewal Terms
Every business should ensure that before signing any contract or entering into any agreement, they should verify the terms and conditions related to termination and renewal issues. Before signing the agreement, the management of the enterprise must fully understand the terms of cancellation and renewal. Ignoring this portion of the contract can affect the business to get locked into an agreement that will last longer than expected. This can affect the day-to-day operations of the business and divert its operations from its goal or mission.
A business needs to know how to terminate the agreement before it expires and the repercussions it will face if the agreement is terminated early. This will help the management to analyse the situation before taking any decision. Knowing the termination dates will help businesses keep their operations up to speed to meet the deadline. Termination and renewal terms should be added to the contract review checklist.
4. Check Blank Spaces
Recently, many businesses are using contract templates to draft contracts. While this type of drafting saves a lot of time and simplifies the process, it can also be a hassle if any of these blank spaces are not filled.
Whether you use an automated template or review a contract drawn up by another party, any blank spaces should be filled in or removed before the final contract is signed to prevent ambiguity with potentially costly consequences.
5. Note Significant Dates And Deadlines
Businesses should familiarize themselves with the important dates and terms of the agreement before signing it. Businesses should ensure that these agreement dates do not conflict with existing dates of other contracts and start tracking everything the organization will be responsible for once the contract goes into effect. Thus, contract review remains one of the most effective ways to protect a business from unnecessary risk.
6. Default Terms
Sometimes one of the parties to a contract fails to comply with the terms of the agreement, resulting in a breach of contract. Therefore, before giving consent, each company should check the clauses that violate that agreement. Breach of contract clauses are an important section of the agreement and should be properly reviewed. They may be boilerplate, but they still apply.
A business should know what consequences it will face if it does not meet the terms of the contract before the deadline. In contrast, the businesses must also be aware of its options if the other party breaches the contract. This will help the business to take the right action against the party who is not complying with the terms of the contract.
7. Allocating Risks Equally
When reviewing your checklist, ensure that all risks have been fully accounted for and that the risks associated with the transaction have been fairly distributed between each party.
If a contract transfers too much risk to one party, it probably needs to be amended or negotiated to achieve a balance where risk is fairly shared by all parties.
8. Understand Remedies Provision
Understanding the remedies and recourse available to you in the event of a breach of promise is also an important part of every contract review. Learn ways to limit your liability. Also determine what types of remedies you need if the other party defaults.
9. Reference Documents
It is not uncommon for contracts to be accompanied by reference documents. If another document is incorporated by reference, always read the incorporated document as these additional documents may still contain important information that could increase the risk of the transaction if not considered. Fortunately, the use of contract automation software has changed the process, making it more efficient.
10. Signature Lines
Confirm that the signature lines refer to individuals, authorized to sign the contract on behalf of the company; otherwise, the contract may not be enforceable.
Contract Review Software
SpeedLegal uses artificial intelligence (AI) and machine learning to categorise key contract clauses. However, it can also use natural language processing or keyword analysis. As it examines each contract, it highlights the most important information in an easy-to-read summary and can even red flag any issues.
Contract review software has allowed businesses to improve and streamline complicated processes, helping legal teams review contracts in minutes instead of hours. For non-legal teams, this can make contracts more manageable; immediately defining any term or phrase while avoiding legal jargon.
It is not restricted to simple contracts and can often be tailored to suit your business and industry. All contracts are stored digitally and encoded to save storage space and ensure complete security.
Contracts are legal documents, so every business should read their terms before signing them. This can prevent a business from losing brand value due to a breach of contract. A good and efficient business will always take some time to properly review the contract in order to have a clear and precise agreement.