A contract review entails more than just skimming through a document. It requires understanding the legal language on which the stipulations and clauses are built.
To properly review a contract, you must understand what’s being signed – a lease contract or a non-disclosure agreement – and any specific terms or conditions.
Typically, lawyers, paralegals, and business managers review contracts according to the existing industry standards or practices associated with such agreements. In this article, let’s dive deep into contract management, tips on reviewing contracts, and other best practices.
What Is Contract Review?
Contract review is a process that involves the evaluation and examination of contract documents to ensure:
- accuracy
- completeness
- compliance
with relevant legal obligations.
During the review process, different parties involved in a contract can dispute inconsistencies or discrepancies and suggest changes.
The goal of contract review is to ensure that both parties understand the terms and conditions of their agreement. The necessary information should be included in the draft. It should guarantee legality and enforceability.
This process typically starts when a party proposes terms and conditions. After this, it’s followed by mutual discussion and negotiation between both parties. Both sides may suggest edits or additions to include all aspects they deem necessary before signing off on the final document.
Properly conducted contract reviews save time and money while avoiding potential legal repercussions.
Why It Is Important to Review Contracts Before Signing Them
It’s critical to review contracts before signing them to safeguard your interests. It also protects you against potential risks. As you know, a contract, once signed by both parties, is legally binding.
Ensure that the proposed terms and conditions align with each party’s expectations.
Here are other reasons why contract review is an integral part of the process:
- Parties can be certain that the terms are fair and reasonable for both sides. It ensures that the document contains the proper legal language needed to be enforceable.
- Contracts should undergo reviews from a technical and operational perspective. You can identify any ambiguities or inconsistencies. It ensures clarity for both parties and avoids misunderstandings in the future.
- Identify discrepancies or omissions that may affect your rights or obligations with a careful review. This can also provide opportunities for negotiation on specific terms and clauses that can benefit you.
- An in-depth review will also determine whether you have enough resources and capabilities to meet the contractual obligations. This may include:
- Evaluation of financial commitments
- Staffing requirements
- Intellectual property considerations
- Indemnification provisions
- Limitation of liabilities clauses
- Reviewing contracts can also check if both parties will face potential ethical dilemmas. For example, conflicts of interest and bribery could arise from entering into an agreement with another party.
- Finally, taking time to assess contracts properly will help create mutual trust among all involved parties. This is key for a successful long-term relationship between both sides.
Types of Contracts That May Need Review
Remember that checking a contract at a glance isn’t enough. A thorough review should be part of the contract management process. Here are some of the types of contracts that need to be reviewed.
1. Employment contract
This is a legally binding document between an employer and its employee. It outlines the terms and conditions of employment, including job duties, pay rate, work hours, and other benefits.
It’s critical to review an employment contract before making a formal offer of employment. This protects the interests of the employer. It can also ensure that employees know their rights, responsibilities, and expectations.
A thorough review will help you identify areas where they may need further protection or clarification. It also provides insights into the scope and length of any potential liability or risk associated with the employee’s role within the company.
2. Sales of goods and services
A sale of goods contract is a legally binding agreement between a buyer and seller. It sets out the terms and conditions for selling goods, such as products or property. This type of contract may include provisions on delivery, payment method, warranty information, quality standards, and dispute resolution methods.
A review of a sales of goods contract allows you to ensure all necessary clauses are in place and up-to-date with current legislation. Failing to do so could result in significant financial risk if either party disputes any part of the agreement.
This also allows one to evaluate how third-party vendors sell your product or services. They must be aware of how your brand is represented in potential deals.
3. Service agreements
This is a contract between two or more parties that outlines the terms and conditions of services provided by one party to another. Reviewing a service agreement contract can be an excellent opportunity for providers to enhance customer experience.
For example, suppose you’re a cloud storage service provider and have been hired by a client to manage their cloud data. Before providing such services, take the time to review the terms of the service agreement carefully. How do you collect their personal information and manage their cloud data?
Both sides must know their rights and obligations as providers and customers. This can help avoid any surprise costs or delays when managing complicated operations like data centers or cloud storage facilities.
Through regular reviews and updates, you can tailor your services accordingly. It’s better to understand the customer’s needs to meet their requirements without sacrificing value.
Checklist When Reviewing a Contract
Creating a checklist that outlines what to consider when reviewing a contract is integral to the process. Here are the key points to look out for on a contract:
1. Ambiguity
Words and phrases that have multiple meanings in the contract should be defined. It’s recommended to use concise and easy-to-understand terms.
2. Deadline
The product or service must be specified if it has an expiration date.
3. Grammar
Check grammar, typos, punctuation, and incomplete sentences. The structure and flow should be easy to read and follow.
4. General
Are there spaces for the parties’ names and signatures? Are there blocks that need to be defined?
5. Numbers
Check all the dates, the total amount of money or hours, calculations, and formulas.
6. Parties involved
Check the names of the individuals or entities entering into the contract. Ensure they are complete and accurate.
7. Renewal
Renewal of the contract should be specified, including its mode and term. Is it automatic or manual? How long does each renewal last?
8. Termination
Check the stipulations for each party on termination. Can one of them terminate the contract early? If yes, what are the ramifications? The contract should specify these things. It should also include the rights and obligations of each party.
The list is far beyond exhaustive, but these are the top eight considerations to get you started on the review process.
Finalizing the Contract Using Fill
So, you have set the terms and conditions in the contract. Now it’s time to finalize the draft. Thanks to Fill, its intuitive and comprehensive platform makes it simple to do just that. Fill’s powerful suite of features allows users to review the entire contract process from inception to execution quickly. This includes:- Drafting the initial version and storing it securely
- Repurposing contract templates and editing certain elements
- Signing off on the agreement online in an encrypted platform
- Requiring signatories to submit Signer Identity Verification
- Tracking the progress of the contract in real time
