What is a Contract Review?
You wouldn’t sign a contract without reading it first. And when it has significant implications for the future of your business, it should be checked carefully so that you aren't exposed to substantial risk. This is where teams should turn to contract reviews.
A contract review is a contractual process used to identify and analyse the key provisions within an agreement. To complete a contract review effectively, each contract should be read thoroughly to understand the terms and conditions, during which, any risks or relevant information should be highlighted.
When presented with a new contract or agreement, parties are allowed - and most of the time expected - to check and potentially rework the terms and conditions, ensuring the contract achieves what it is designed to for both parties. Reviewing a contract thoroughly before it is signed clarifies each party's obligations, protects their interests and ensures that all parties are being treated fairly.
Both sides may want to suggest contractual changes, which may lead to further negotiations and compromise before a final contract is agreed. But the aim is to agree a framework for a long-lasting and mutually beneficial working relationship.
Unfortunately, many manual contract reviews involve working through a contract line by line to analyse the implications of every provision. This can be as time-consuming as it sounds. Alternatively, the process can be automated using specialist contract review software.
Why Are Contract Reviews Important?
Any contract is a legally binding agreement. Without a thorough review, there's a risk that the parties could be committed to something they can't deliver. They could also be lumbered with unfavourable terms that lead to costly, and entirely avoidable, legal disputes.
Therefore the contract review process is important as it reduces the legal and financial risk involved in any agreement. It provides both parties with a chance to fully understand the terms and conditions they are agreeing to before anything is signed,
Additionally, post-signature, a contract review allows the business to check clauses and provisions to ensure they still cover the needs of the business and the regulations of the relevant country.
A contract review ensures that all terms are fair, enforceable, and properly documented; making it clear what happens if either party were to break the conditions laid out in the contract.
For the average business owner, the language and level of detail in a contract can be impenetrable, which leaves them at a disadvantage in many contract negotiations. Investing in software like Summize can help, allowing users to break down, understand and review their contracts in a matter of minutes rather than days.
Who Can Review a Contract?
Traditionally, many non-legal firms use a diligent and experienced legal team to review all but the most basic contracts. Often a junior lawyer, paralegal or legal assistant will work through the contract first with a contract review checklist, summarising the key points. This is then reviewed by a more senior colleague.
The legal team would then collaborate with the business, working with the employees who are the most familiar with the contract's subject matter. This is typically the person who has agreed the contract and the departments involved in its delivery.
In a smaller organisation, contract may be reviewed in-house by business managers or the executive team. However, this can be a slow, expensive process with a possibility of human error. This can be a serious drain on an SME where time is of the essence.
For many businesses, an accessible and more cost-effective solution is to employ contract review software like Summize to create a process that is fast, accurate and insightful.
What Are the Key Steps in a Contract Review?
Contract reviews can be broken down into a pre-review.
It all starts with preparation in the pre-review stage. Firms should be clear on what the contract is designed to achieve for the business and what risks they are likely to face.
The next stage is a careful review of the payment terms and triggers, commercial terms and duration periods. Here, the team need to be sure that the deal is fully and properly recorded. Part of this should involve a deep-dive interrogation into the contract's finer points to ensure that no important terms are missing.
For an in-depth look into the stages of a contract review, check out our article on how to run an effective contract review
If the contract review is being completed pre-signature, then there will also be a negotiation period. Any required changes will need to be marked-up, and the amended version should be shared with the other party. This will likely lead to some back-and-forth to finalise an agreement that works for everyone.
What Should Be In My Contract Review Checklist?
Contracts can vary significantly depending on the type of agreement. But there are some common elements that every contract should include.
Here's a quick rundown of some of the key points to include in your contract review checklist:
- Does the contract accurately describe the negotiated agreement?
- Are the parties involved properly identified?
- Is the duration of the contract clear, including any expiration dates and break clauses?
- What are the payment terms and triggers? What are the payment dates and are they accurate?
- Are there any terms that could be open to interpretation?
- Are both parties' obligations accurately described?
- Are there terms in place for the termination and renewal of the contract?
- Is there an agreed mechanism in place for the resolution of any disputes?
This list is far from exhaustive, but it does provide a few good places to start with a contract review, even if you're a legal expert.
What is Contract Review Software?
Contract review software, like Summize, often uses artificial intelligence (AI) and machine learning to identify the key provisions of a contract. By analysing each contract, this kind of software will highlight the most important pieces of information in an easy-to-read summary and can even red flag any areas of concern.
Contract review software has enabled hundred of businesses to improve and streamline complex processes, helping legal teams review contracts in a matter of minutes instead of hours. For teams outside of legal, it can make contracts more accessible; instantly defining any term or phrase while avoiding the legal jargon.
These tools are not limited to simple contracts, and can often be customised to suit your business and industry. All contracts are stored digitally and encrypted to save storage space and ensure complete security.
Some of the main benefits include cost-effectiveness, accuracy, and speed. With Summize, users can reduce the time spent on reviewing a contract by up to 85%, freeing up time and resource for other fee-earning activities. Using our software can simplify your business' processes and empower your legal team to focus on the future of your company.And that’s Summize’s ultimate guide to contract reviews!
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