Pro Tips for Reviewing Contracts
Updated 4/5/24
We use contracts every day in our personal lives and business transactions. At home, contract reviews may include reviewing contracts for cable television service, cell phone providers, gym memberships, and daycare facilities. At work, your contract review process may deal with leases, employment contracts, vendor agreements, non-disclosure agreements, and partnership agreements. If you need to review a contract, these pro tips from our experienced Maryland business attorney can help you cut through some of the legalese to identify the key terms contained in the contract.
What Are Contract Reviews?
Contract review is the process of reading and analyzing a contract to catch mistakes, errors, and potential risks. During a contract review, legal teams review key clauses in the contract to ensure the terms and conditions are accurate.
A Contract Review Checklist Should Also Include Reviewing the Following:
Performance obligations in the contract
Key points
Opt-out windows
Key dates
Remedies provisions
Payment terms
Inclusion of previous verbal agreements
Other key points that impact a party's rights and obligations
During contract review, legal teams and in-house lawyers perform an in-depth analysis to confirm the contract contains all terms and conditions of the parties' agreement. The contract review also searches for mistakes and errors that could pose substantial risks for the company.
Comprehensive Contract Reviews Can:
Identify outdated and unclear terms and conditions
Reduce the chance of misunderstandings
Reveal areas for improvement
Identify errors and mistakes in contract templates
Lead to essential changes before the contract is finalized
Highlight specific contracting events in the contract lifecycle
Contract review can be time-consuming. However, it can preserve business relationships by reducing the risk of breach of contract lawsuits because one party misunderstood the contract terms. When an agreement is correctly documented in contracts, it benefits all parties involved.
Who Should Perform a Contract Review?
A contract review may begin with a salesperson or other employee responsible for obtaining an agreement with a client, customer, or another party. A company's executive team, in-house counsel, and other members of the legal team may participate in the contract review process.
Each person may have a contract review checklist that contains different points to review. The goal is to ensure that the entire contract is reviewed and analyzed to:
Ensure legal validity according to the governing laws for the contract
Understand and evaluate contract terms
Identify potential risks to determine how to minimize the potential for harm from those risks
The people in the contract review process depend on the type of contract and business involved. At least one of the people reviewing the contract should be an experienced Maryland business attorney.
Pro Tips That Can Help You Review Contracts Efficiently and Effectively
Ensure You Have All Pages of the Contract
Checking to ensure all pages of the contract may seem elemental, but it is a critical step in the contract review process and should be number one on your contract review checklist. It is easy to overlook pages during contract reviews when the pages are unnumbered, or the contract is lengthy. Inserting page numbers that include the total pages of a contract (i.e., Page 1 of 12) can help ensure you review all of the contract's subject matter.
Clearly Identify the Parties Involved in the Agreement
The parties to a legal agreement must be clearly defined within the contract, typically in the beginning section of the contract. Ensure that all parties involved who might have any potential liability for legal issues or problems are named as a party in the contract in case you need to pursue a breach of contract or other legal action against the party.
Skim the Entire Agreement for Blanks
Nothing should be left blank on a contract. All sections must be completed in the final contract. Begin by skimming the entire contract and noting any clauses or terms that contain blank spaces or lines. As you read through the document, continue looking for additional missing information that must be addressed.
Getting Out, Terminating, and Renewing the Contract
You may need to withdraw or terminate the contract before the term ends. However, you may also want to renew a contract if the relationship has been successful. Therefore, carefully locate and review the sections related to early termination and renewal terms to ensure the terms meet your needs and expectations. Pay close attention to automatic renewal language and the provisions for termination.
Terms and Conditions Must Be Clear and Concise
When reviewing the terms and conditions sections of the contract, it can help to make a shorthand list of the terms and conditions to mull over after a thorough contract review. For instance, when reading the sections about payment terms, note:
Payment amount
Due date/payment dates
Late payment penalty
Default terms
Remedies for default
Because a contract contains many sections that explain terms and conditions, having a comprehensive contract review checklist to review and think about can make it easier to determine if the contract is in your best interest.
Read the Fine Print Carefully
Never skip the fine print or “boilerplate” sections of the contract during your contract review process. The section might bury language that binds you to alternative dispute resolution to resolve disputes, such as mediation or arbitration. The boilerplate language may designate a state or governing law that will have jurisdiction over disputes or an indemnity agreement to hold the other party harmless for certain actions. The fine print and the boilerplate section are an extremely important section that requires careful review.
Look for What May Be Missing in the Contract
For example, if you are disclosing trade secrets or proprietary information to the other party, you need to ensure that the contract has a non-disclosure and confidentiality clause. Depending on your situation, you may want separate agreements to cover these issues, but the contract should refer to the agreements and make it very clear that the agreements bind all parties. As much as you are reviewing the contract for its contents, you must also review the contract for what it may be missing.
Review the List of Definitions Carefully
Unclear or insufficient definitions of terms may lead to costly disputes and delays. As with the boilerplate section of the contract, you need to carefully review each definition to ensure that each time the word is used within the contract all parties have the same understanding as to the meaning of the term.
Have Multiple People Review Contracts
Someone other than the person who drafted the contract should read it for an accurate review. Having a second member of the legal team perform a contract review increases your chances of catching mistakes and errors. Sometimes, a staff member who is not on the legal team might catch something because they are not focused on the legal terms, but on the overall meaning of the contract.
Utilize Technology in the Contract Review Process
Contract review software, contract management software, and contract automation software can improve and enhance your contract review process. These systems can review a contract accurately and quickly and are not subject to human errors.
Some software allows users to review contracts in a browser for legal teams to collaborate during the contracting process in real time. It provides a more efficient contract workflow that could help identify potential risks or problems early in the process to avoid wasting valuable time.
However, contract reviews using software should not replace human contract reviews. Instead, contract review software should supplement the human review process to make the task of reviewing contracts more efficient and accurate.
Allow Sufficient Time for Contract Review Processes
Reading and analyzing every section of a contract can be a long process, especially when reviewing complex legal agreements. It may be tempting to shorten or bypass contract reviews to save time.
However, the contract review process is a critical step to protect your business from unnecessary risk and liability. One contract line that has blank spaces or ambiguous language could lead to costly legal expenses and financial losses.
Do You Think You Need a Maryland Business Attorney to Help You With Your Business Contract Review?
Even though you incorporate the above pro tips into your contract review process, having a Maryland business attorney review your business contracts can still provide great benefits for your company. Professional review of contracts by experienced lawyers helps identify errors and omissions that could lead to costly legal problems and litigation. It can reduce the legal and financial risk of entering a contract.
A contract review lawyer can also summarize the dense legal language and terms into easily understandable sections and identify areas of concern to address before you enter into the contract. Contract review software cannot do this for you. Professional contract review ensures your legal documents do not contain unclear terms, default clauses, or other key provisions that could be adverse to your best interests.
Contact Thienel Law today. Maryland business attorney Steve Thienel and our legal team are committed to helping clients in Maryland, the DC Metro area, and Virginia with successful contract review services.
