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Conducting a contract review is an important part of the contract process and serves as an opportunity to fully understand everything you and your organization agree to before you sign.
A contract review helps you reduce organizational risk and increases the likelihood that an agreement will have a positive impact on all parties involved. Without a comprehensive contract review, you run the risk of making commitments that your company cannot fulfill. This can damage your company’s reputation, cost them valuable time, and have financial consequences, especially if the other party enforces their rights in court.
All of this can be prevented by a contract review.
What is a contract review?
A contract review is a thorough examination of a legal agreement before it is signed to ensure that everything in the document is clear and accurate and that your company agrees to the terms of the agreement. A contract review is usually the last opportunity to identify and call for any necessary changes before committing to a contract.
What should I look for during a contract review?
When conducting a contract review, it is helpful to start with a plan so you can be sure that the most important areas of the contract have been carefully analyzed. If errors or discrepancies are discovered or questions arise during the contract review, you should not proceed with the contract until all issues have been resolved to your satisfaction. The following are some of the key points to look for during a contract review.
1. Key clauses and terms
Every line in a contract is important and needs to be reviewed closely, but some clauses and terms are clearly more important than others. Since every business and industry is different, key contract clauses vary as well, but there are a few to look out for in any case. Terms such as confidentiality, indemnification, termination, and dispute resolution are all important sections in a contract, and it’s worth investing extra time in reviewing them to make sure the language is acceptable.
2. Termination and renewal terms
Before signing a legally binding agreement, make sure you fully understand the termination and renewal terms of the contract to avoid committing to a contract longer than you originally intended. You should be aware of things like automatic renewals and notice periods so you know up front how and when your company can terminate the contract.
3. Use clear, unambiguous language.
When reading through a contract, pay close attention to how each sentence is worded and look for phrases that could be left up to interpretation. Even if both parties interpret unclear terms the same way, the contract should be worded so that even in the event of a dispute, the court will interpret the contract the same way. In this way, possible conflicts due to different interpretations of the contract can be avoided from the beginning.
4. No empty spaces
Using contract templates is a good way to save time when drafting the contract, but requires special attention when reviewing the contract. All blank spaces should either be filled in or removed before the final contract is signed. Depending on the circumstances, failure to fill in blanks in your contract can have costly consequences for your company.
5. Clauses for default or poor performance
Although both parties usually have good intentions when they enter into a contract, there is always the possibility that one side will not deliver according to the terms of the contract, resulting in a breach of contract. Look for default clauses or liquidated damages clauses so you know what the consequences may be if you fail to meet your obligations – or what options are available to you if you are the non-breaching party.
6. Important dates and deadlines
When reviewing contracts, you should not only ensure that all listed dates and deliverables are consistent with previous verbal agreements, but also start by reviewing everything your company is responsible for. Planning ahead will help reduce the likelihood of a breach of contract that could lead to significant consequences for your company.