Introduction
In a world built around business transactions, it’s the role of the In-House Lawyers and the Contracts Professionals to ensure that their various Contracts protect their organisation’s interests.
Our goal is to provide you with valuable insights and tips that can be applied when you’re reviewing a Contract, regardless of whether you use manual review methods or Contract Review Software. So this post discusses how to review a Contract (and legal document review), and the general process of using software during the Contract Review process, but it doesn’t discuss specific Contract Review programs nor legal document review services.
Table of Contents:
Why is Contract Review important?
The Contract Review Process
Manual vs. Automated Contract Review
Limitations of Microsoft Word in Contract Review
Alternative Digital Contracting Platforms
Common Contract Review Mistakes to Avoid
Contract Review Checklist
FAQs
What is Contract Review?
Contract Review is the process of examining a draft contract to ensure it contains all required elements, is free of errors, discrepancies, and potential conflicts, and has acceptable terms and risk allocation for your organisation. This helps to uncover unclear provisions, highlight areas for improvement, and prevent pitfalls that could negatively affect your organisation.
Contract Review is one of The 7 Pillars of Contracting. For a high-level summary of Contract Review, check out our comprehensive Contract Review Guide.
While we refer to reviewing contracts in this article, keep in mind that legal document review is a broader category. You can, however, use the same techniques and steps when you review documents that are legal documents as you do for Contract Review.
The Contract Review Process
Stages to the Contract Review process
There are generally three stages to the Contract Review process, depending on which organisation you belong to and which role you play:
the drafting Lawyer reviewing the document once drafting is completed, to make sure the Draft Contract is ready for sending to the Instructing Officer;
the Contracts Professional reviewing the Draft Contract prepared by their Lawyer, to make sure the draft reflects their instructions and is appropriate for the relevant Project and commercial and operational requirements of the organisation; and
the Lawyer (from a Legal and risk perspective) and the Contracts Professional (from a commercial and operational perspective) reviewing any amendments or redlines to the Draft Contract once it has been sent to (and reviewed by) the other party. There may be multiple rounds of this part of this document review process.
The importance of having an efficient and thorough Contract Review process
It is vital for an organisation to have an efficient and thorough Contract Review process.
Reviewing Contracts before signing allows In-House Lawyers and Contracts Professionals to identify the terms of the transaction, safeguard their organisation’s interests and minimise risk to their organisation.
Contract Review vs Document Review
Document Review refers to the broader process of reviewing any document, whether to understand the contents of that document, to analyse issues that are discussed within the document, or to determine what parts of the document need to be amended. Legal document review is a subset of Document Review – here we are talking about reviewing legal documents (such as a bank guarantee) versus reviewing non-legal documents (such as a business plan).
Contract Review is narrower than Document Review, as contracts are one type of documents (but there are many more types of documents other than contracts). The process for reviewing a Contract (as opposed to a general document review), is more prescribed, as there are certain steps that a Lawyer or a Contracts Professional needs to take when reviewing any contract.
We discuss these steps below.
Types of blog posts written about Contract Review
Unfortunately, many blog posts on the internet about Contract Review are written by automated Contract Review Software providers. Those posts often don’t cover the full scope of the Contract Review process as required from the perspectives of both a Lawyer and a Contracts Professional.
This comprehensive guide, however, is written by an expert in Contracting (both from a Legal and Commercial/Operational/Procurement viewpoint) with over 20 years of experience in working with and drafting contracts in multiple industries, including Construction, Mining, Government, Corporate, Infrastructure, Solar, and many more.
So let’s find out all about how Contract Review works and some best practices for Contract Review by Lawyers and Contracts Professionals.
Why is Contract Review important?
There are a number of reasons why it is important that Contracts Professionals gain the skills to review contracts and other legal documents.
1.1. Risk Mitigation
Thorough contract review serves to identify and mitigate potential risks. It’s crucial to ensure that all provisions are clear and unambiguous, thus reducing the chances of future disputes or litigation.
1.2. Protecting Business Interests
By carefully reviewing contracts, professionals can ensure that the terms and conditions align with their business objectives and adequately protect their interests. This includes addressing potential liabilities and ensuring that obligations and responsibilities are equitably distributed.
1.3. Preventing Misunderstandings
Contracts are often complex and can contain legalese that may be challenging to interpret. Reviewing contracts thoroughly helps to clarify ambiguities, thus preventing misunderstandings and fostering a healthy business relationship between parties.
The Contract Review Process
The Contract Review Process
An effective contract review process involves examining the contract in detail, paying particular attention to specific clauses and provisions that could have a significant impact on the parties involved. Professionals should involve various stakeholders, ensure clarity and compliance, and scrutinize critical clauses.
Involving Stakeholders
The contract review process often involves various stakeholders, including sales representatives, legal teams, and contract specialists. It is essential for all parties to understand the terms and conditions before signing a contract.
Ensuring Clarity and Compliance
Contracts should be reviewed for compliance with applicable laws and regulations, as well as internal policies and procedures. Professionals should also ensure that the language used in the contract is clear and easily understood by all parties involved.
Reviewing Critical Clauses
Certain clauses in a contract can have a significant impact on the parties involved. Professionals should pay close attention to these critical clauses, ensuring that they are fair, balanced, and adequately protect the interests of all parties.
Manual vs. Automated Contract Review
Choosing the Right Method for Your Organization
When it comes to contract review, professionals can choose between manual methods and automated software solutions. Both approaches have their pros and cons, and the choice often depends on the specific needs and resources of an organization.
The Manual Approach
Manual contract review involves carefully reading through each contract, typically using tools like Microsoft Word, to identify errors, discrepancies, and potential conflicts. This method can be time-consuming and prone to human error but allows for a nuanced understanding of the contract’s intricacies.
The Automated Approach
Automated contract review leverages software solutions that use artificial intelligence (AI) and machine learning (ML) technologies to analyze contracts quickly and identify potential issues. This approach can be more efficient and reduce the risk of human error. However, it may not be as comprehensive as a manual review, and professionals should still be involved in the process to ensure accuracy.
Choosing the Right Method for Your Organization
To choose the most suitable contract review method, organizations should consider factors such as the volume and complexity of contracts, available resources, and the desired level of human involvement. While automated solutions can be a valuable asset, they should not replace the expertise of experienced contract professionals.
How to Choose the Right Document Review Software
Selecting the right document review software is crucial for optimizing your contract review process. To make an informed decision, consider factors such as ease of use, integration with existing systems, and the software’s ability to handle various document formats.
Additionally, evaluate the software’s accuracy in identifying key clauses and extracting relevant data. It is essential to read reviews, request demonstrations, and, if possible, test the software in real-world scenarios before committing to a purchase.
Finally, ensure that the software provider offers ongoing support and updates to maintain efficiency and security.
Limitations of Microsoft Word in Contract Review
Although Microsoft Word is widely used for drafting and reviewing contracts, it has several limitations that can impact the efficiency and effectiveness of the process.
Lack of Version Control
Microsoft Word does not provide robust version control, making it difficult to track changes and maintain an accurate record of contract iterations. This can lead to confusion and potential disputes.
Inefficient Collaboration
Collaborating on contract documents within Microsoft Word can be cumbersome, with multiple parties sending documents back and forth via email. This method can be time-consuming and prone to miscommunication.
Limited Formatting Options
Microsoft Word’s formatting options may not always be suitable for complex contracts, which can result in lengthy, hard-to-read documents that obscure critical information.
Alternative Digital Contracting Platforms
To overcome the limitations of Microsoft Word, professionals can consider using alternative digital contracting platforms, such as Contract Lifecycle Management (CLM) systems or smart contracts.
Contract Lifecycle Management (CLM) Systems
CLM systems streamline the contract process by providing tools for drafting, collaboration, review, negotiation, approval, and execution. These platforms offer features such as version control, automated reminders, and advanced search capabilities, improving efficiency and reducing the risk of errors.
Smart Contracts
Smart contracts are self-executing contracts with the terms and conditions directly written into code. They can automate the contract process, reducing human intervention and increasing efficiency. However, smart contracts are still a developing technology and may not yet be suitable for all industries or use cases.
What is a Legal Document Review Request?
A legal document review request is a formal request made to a legal professional or team to review a contract or other legal documents to ensure accuracy, compliance, and protection of business interests.
The request typically includes details such as the type of document, relevant parties, key clauses, and any specific concerns or areas of focus.
It serves as a guideline for legal experts to thoroughly examine the document, identify potential risks or issues, and provide recommendations for amendments, if necessary.
Quality Control
Quality control in the context of contract review refers to the measures taken to ensure the accuracy, consistency, and compliance of the reviewed contracts. Implementing a robust quality control process is essential to minimize the risk of contractual disputes and safeguard business interests.
To achieve this, consider adopting a structured review process that involves multiple reviewers, regular training for contract professionals, and the use of standardized templates and checklists. Additionally, leveraging technology, such as contract management software and AI-based tools, can help enhance the accuracy and efficiency of the review process.
Continuous monitoring and improvement of the review process based on feedback and lessons learned are also vital for maintaining high-quality standards.
Common Contract Review Mistakes to Avoid
To ensure a thorough contract review, professionals should be mindful of common mistakes that can lead to disputes or other issues.
Overlooking Minor Details
While it’s essential to focus on critical clauses, it’s also crucial not to overlook minor details, such as dates, names, and addresses, which can have significant consequences if incorrect or inconsistent. Double-checking these details can help prevent potential issues down the line.
Not Verifying Representations and Warranties
Representations and warranties are statements made by one party to another, asserting specific facts or conditions. Professionals should verify the accuracy of these statements and ensure that they are backed by appropriate evidence or documentation.
Failing to Account for Jurisdictional Differences
Different jurisdictions may have unique laws and regulations that impact contract terms and enforceability. Professionals should familiarize themselves with the relevant laws in the jurisdictions applicable to the contract and ensure that the agreement is compliant with these regulations.
Contract Review Checklist
Here is a helpful checklist to guide you through the contract review process:
1. Identify and Involve Stakeholders
Ensure that all relevant parties, including legal teams, contract specialists, and sales representatives, are involved in the review process and are familiar with the contract terms.
2. Review and Verify Key Information
Carefully review all critical information, such as names, addresses, and financial terms. Verify the accuracy of representations and warranties, and ensure that any conditions precedent are satisfied.
3. Assess Critical Clauses
Pay close attention to clauses that could have a significant impact on the parties involved, such as indemnification, limitation of liability, and termination provisions.
Ensure Clarity and Compliance
Confirm that the contract language is clear and understandable, and that the agreement complies with applicable laws, regulations, and internal policies.
4. Double-check Dates and Deadlines
Review all dates and deadlines in the contract, ensuring that they are accurate and reasonable.
5. Confirm Dispute Resolution Mechanisms
Ensure that the contract includes provisions for resolving disputes, such as arbitration or mediation, and that these mechanisms are clearly defined and understood by all parties.
FAQs
Q: What is the primary goal of contract review?
A: The primary goal of contract review is to ensure that the agreement contains all required elements, is free of errors or discrepancies, and has acceptable terms for both parties, thereby safeguarding business interests and minimizing risk.
Q: How can I improve the efficiency of my contract review process?
A: To improve efficiency, consider adopting a structured review process, involving all relevant stakeholders, using digital contracting platforms like CLM systems, and leveraging AI-based contract review software.
Q: Should I rely solely on automated contract review software?
A: While automated contract review software can be a valuable tool, it should not replace the expertise of experienced Contracts Professionals. A combination of manual and automated review methods can help ensure a comprehensive and accurate assessment of contract terms. And before you start to use automated Contract Review Software, make sure you know how to review Contracts yourself manually.
Q: Are smart contracts suitable for all types of agreements?
A: Smart contracts are a developing technology and are not yet be suitable for all industries or use cases. They can be an effective solution for certain types of contracts, particularly those involving digital assets or automated processes. But we’re still very early on in the technology, and smart contracts have not yet become mainstream.
