What is a Contract Summary?
Contracts are a vital aspect of businesses today, and an infinite number of them are created and shared between organisations, law firms, and consumers every year. But contracts are notoriously long and full of legal jargon, so how do you keep on top of their terms and conditions? Contract summaries are a great way to start.
A contract summary is typically a one-page outline of a contract, used to highlight the most important or relevant information in a simple, easy-to-read format. Contract summaries can be up to three pages long if there is a large amount of information to cover or if they are part of a bundle. When these summaries are created for other types of documents, they are sometimes called Executive Summaries.
How are Contract Summaries Created?
Many legal teams create their contract summaries manually, which requires them to read and make notes on the contract, before summing up the key points in a document, email, or spreadsheet. There are also several contract summary templates available online for certain events and contract types, which help teams to focus on the most important aspects and format their findings in an effective way.
However, as with all manual processes, these methods do expose the business and the individual to legal risk from human error. They are also incredibly time-consuming, which can lead to increased costs internally. Therefore, it’s important to look at other solutions.
There are now several ways to create a contract summary without having to manually read and analyse a whole contract. Summize, for example, creates a summary instantly for each contract used within the solution. With powerful capabilities, Summize picks out the most important clauses from each contract based on the parameters set by the user and can even identify errors or terms that need to be red flagged. All of this can be carried out within the Summize cloud-based software or in Microsoft Word with the Summize Add-In.
By creating contract summaries automatically and removing manual processes, legal teams save themselves time and also reduce legal risk for their businesses.
What are Contract Summaries Used For?
Contract summaries play an important role in all businesses and law firms, and help to break down long and complex contracts into understandable, bite-sized chunks. But what is the purpose of a contract summary and what are they used for?
At their core, contract summaries are used to highlight and summarise the key aspects of a contract. A contract summary will generally cover the most important information and clauses, such as payment terms, termination dates, party names, and charges. This removes the need for a recipient to read and digest an entire contract and helps to make complicated clauses simple.
Contract summaries are commonly used during contract reviews (they are very commonly used within red flag reviews) and negotiations, or when working on lower value contracts. A contract summary is used to highlight the most crucial information involved in the agreement and identifies any significant risks. In this way, they often help the legal team or involved parties to identify outdated or incorrect clauses. They can also be sent to business users or clients to clarify and answer their contractual queries, providing key data around post-signature agreements and ensuring that terms and conditions are always met.
Contract summaries can be created for most types of contract, including ones related to employment, purchasing, and service agreements. They can also be utilised by anyone connected to the contract, such as signing parties, customers, and other business departments.
Which Clauses Should You Include in Your Contract Summary?
It can be daunting, when dealing with a significant and lengthy contract, to know where to start when creating a contract summary. While legal technology can make this process automated (or at the minimum, much quicker), it can be incredibly challenging to know if you’re including the right and most relevant content.
First, you should consider the purpose of the contract summary. Is it to answer a specific contractual query or is it a routine check up on your most important terms and conditions? This will affect what clauses you include and what information you need to see. For example, if you are examining your force majeure clauses after a change in government regulations, this clause should be highlighted first. The provisions should be very clear and straightforward.
It is also important to consider the type of contract you want to create a summary for. If it is a generic contract, you can take guidance from previously drafted contract summaries or you can use a template. However, if the contract is bespoke, it may be more difficult to do this and so the summary could take more time and resources to create.
Secondly, consider who the audience is. Will external shareholders or clients read this summary, or will it be purely internal? This may affect how much detail you need to include and will also influence the formatting. For example, if it’s for internal use, then there is no need to include all of your own company’s information and data. But if it’s being shared externally, then you should consider including more detailed information and will potentially need to create the contract summary in a specific format. It’s always a bonus if you can actually talk to these parties and find out exactly what they’re expecting.
For a generic contract summary, the following clauses are the most important inclusions:
- The trigger for payments - for example, do the affiliates or suppliers trigger payments and how does this happen? This is something that should also be explored for software agreements.
- Your commercial protection - this may not be relevant to all contracts.
- The duration of the contract
- Payment terms
After these, you should look at the main risks and any data protection or IP information. Thirdly, you should consider including indemnity clauses, warranties and limitation of liability. Finally, the contract summary should try to include confidentiality, variation, assignment, and governing law and jurisdiction.
How Should You Share Your Contract Summaries?
When sharing a contract summary, it’s incredibly important to consider the audience that will receive it. You should consider how the recipient works - do they prefer to have discussions in person, or do they require important communications in writing?
Once you have taken this into consideration, there are a number of different methods to share your contract summaries. These include:
- Creating a hard copy, which is either sent to the relevant recipient in the post or discussed person.
- Incorporating the contract summary into a presentation, which could be given in person or over a video conferencing platform.
- Formatting the summary into a document or spreadsheet and then sending it via email. It could also simply be included within the email itself.
- Using a contract solution like Summize to create a shareable link. These links allow users read-only access to a contract summary (which also displays all of your notes, flags and comments).
What Are the Benefits of Contract Summaries?
By breaking down long, complex contracts, contract summaries provide numerous benefits to both legal teams and their recipients. But what are these benefits and how do they have an impact on the business?
Firstly, by highlighting the key information in an easy-to-read format, it reduces confusion around what the requirements and provisions are. This is invaluable to users who may have no legal background or don’t have enough time to read through a whole contract. It can also reduce the likelihood of legal and commercial risk caused by misunderstanding the terms and conditions.
By providing a summary to the parties involved in an agreement or even to other business users, it ensures that they can regularly see their most important clauses and terms. This makes it easier to identify any changes that are needed in the future and also prevents errors with the provisions from slipping through the cracks.
Finally, there is a serious time and resource saving benefit, which, in turn, reduces the business’ costs. Creating a contract summary saves the recipients’ time, as it can be used to check on their most important clauses quickly and means they don’t need to read the contract in full every time. It also helps to speed up contract reviews that are carried out by the legal team, as the key provisions are already listed in full. Additionally, it saves the legal team time, as contract summaries can be used by clients or business users to answer their own contractual queries.
By creating these contract summaries using a contract software solution like Summize, the time the legal team has to spend on them is reduced even further. All of these contract summaries are stored in one place and can be filtered so that each time a clause needs to be changed, all of the contracts containing that clause are found at once.
And that’s Summize’s ultimate guide to contract summaries!
Did you find it useful? Or perhaps there’s something we missed? Get in touch with us at [email protected] to let us know.