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Accept Cookies Manage Preferences Announcing the Formation of SpotDraft’s Advisory Board Find out more Contract ManagementUse this contract review checklist to quickly review contracts that come your way, without missing out on anything.
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A commercial contract review checklist is an indispensable tool for businesses to ensure that all relevant legal and business considerations are taken into account when entering into agreements. It helps to ensure that contracts are comprehensive, accurate, and compliant with relevant laws and regulations.
Businesses that don't have a contract review checklist face a number of issues, including:
We spoke with experts and legal leaders who undergo contract review processes every now and then to create this contract review checklist. But first, let's understand what contract review is.
Contract review is a process where you read, understand, and revise your contracts to ensure that they meet the requirements of the negotiation and business relationship at hand. It involves analyzing the terms and provisions of the contract to ensure that they are fair, reasonable, and legally binding.
The main objective of contract review process is to identify potential risks and issues that could arise during the business relationship and mitigate them through negotiation and revision of the contract terms. It is important to note that most contracts are negotiable, and it's essential to balance the need to protect your business's interests with the objective of closing the deal and getting the customer signed up.
Ultimately, the aim of business contract review is to agree on a framework for a long-lasting and mutually beneficial working relationship. By completing a thorough contract review, you can ensure that the terms and provisions of the contract are fair, reasonable, and legally binding. If you choose to forego the recommendation to review a contract, you could find yourself locked into an agreement that you're not happy with, which could have significant financial and legal consequences.
Here is a commercial contract review checklist template that businesses can use to ensure that all relevant considerations are taken into account before entering into an agreement:
This is a comprehensive contract review checklist template, but it is important to note that each contract is unique and that the specific provisions that need to be reviewed may vary depending on the specific circumstances and goals of the business. This checklist should be used as a starting point and adapted as necessary to meet the specific needs of each contract.
If you’re preparing for a contract review session, it’s best to follow the below guidelines to come up with a consolidated contract review checklist for your specific business functions.
“As an in-house lawyer, it is vital that you understand how to read contracts – they are the lifeblood of any company and working on them is, in my opinion, the highest and best use of the legal department. Even if you don’t work on contracts every day, it’s an important skill to develop and it will help you with your day-to-day work because at some point someone will slide a contract over to you to look over for some purpose – yes, even the litigators kept chained to the wall down in the basement waiting to be unleashed.”
~ Sterling Miller, CEO and Senior Counsel for Hilgers Graben PLLC
Getting familiar with the contract can help ensure that you're aware of the obligations and can plan accordingly, reducing the risk of disputes. Read the entire agreement, including all provisions and any exhibits or schedules, to get a complete understanding of the terms and conditions. Highlight or mark any key provisions, such as payment terms, delivery dates, and termination provisions, to make them easier to locate and review later.
Review the agreement for any important timelines, such as deadlines for performance, payment, or termination, and make note of them. While doing this, ensure that the timelines in the agreement are consistent and that they align with each party’s expectations.
At the end, don’t forget to consider the impact of the important timelines on the parties and the agreement, and ensure that they are realistic and achievable.
You must have already highlighted the key terms while skimming through the contract but now it’s time to examine those terms and clauses. Ensure that important clauses like Pricing, Scope, Indemnification, Limitation of Liability, Confidentiality, Term, Termination, etc. are defined accurately and clearly.
Compare the key terms in the agreement to your expectations and ensure that they are consistent and in line with both parties’ understanding.
If any key terms are missing from the agreement, identify them and discuss them with the other party to determine if they need to be included. You could also simply add the provision/clause from your agreement to the counterparty’s agreement and highlight it for them to know.
Finally, after inserting any missing terms, review the agreement for consistency and ensure that all provisions are clear, concise, and in line with each party’s understanding.
Contracts are meant to be agreed upon for a predetermined period, meaning that the contract will have certain rules for termination or renewal. Whether you’re undergoing a contract renewal process or simply terminating a contract, you must ensure that the rules are in line with your company’s understanding.
Review the grounds for termination of the agreement, whether by either party or automatically after a certain time period. Confirm if there are any notice periods required for termination, and whether the termination is immediate or subject to a cure period. Also, don’t forget to check if any terms or provisions of the agreement survive termination, such as confidentiality obligations or warranties.
Verify what happens upon termination of the agreement, including obligations to return or destroy confidential information, return of property, or payment of damages.
If the agreement includes a renewal option, check the conditions and process for renewing the agreement, including the notice period required and any changes to the terms and conditions.
Also read: 6 essential types of contract clauses you need to know
When reviewing a contract, it is important to be mindful of any complex language that may cause confusion. Take the time to thoroughly read the entire agreement, focusing on any language that appears unclear or misleading. Create a list of these items to address with the other parties involved in the contract, and don't hesitate to request modifications - this is the purpose of the contract review process.
While auditing contract language, ensure:
Also read: 5 Most Negotiated Terms and Clauses in a Contract
Confidentiality provisions must, at all times, be clear and enforceable and should help protect sensitive information and maintain the parties' business interests.
While reviewing a contract, clarify the purpose of the confidentiality provisions and the extent to which information can be shared. Also, verify the definition of confidential information and ensure that it is specific, clear, and relevant to the parties and the agreement.
Make sure to confirm if any exceptions or exclusions apply to the confidentiality provisions, such as information that is already publicly known or information that is required to be disclosed by law.
Finally, confirm the identity of the parties who are authorized to receive confidential information and the extent to which it can be shared with third parties. Don’t forget to verify the obligations of the parties upon termination or expiration of the agreement, including the return or destruction of confidential information.
At last, check for any remedies available for breach of confidentiality, including injunctive relief or damages.
You’re done with reviewing the contract but the closure is still pending. After all is said and done, taking a final look at the contract can help ensure that it accurately reflects the parties' intentions, protects their interests, and reduces the risk of disputes.
You must take a look at these six things before passing on the contract for any additions/omissions:
The time it takes to review a contract can vary significantly depending on the nature of the contract and its complexity. A straightforward contract with boilerplate language that your business uses routinely can be reviewed much more quickly than a complex, bespoke business contract.
The contract review process can take anywhere from a few hours to several days, depending on the length of the contract and the complexity of the terms. However, it's important to note that the entire process from initial review to final execution can take anywhere from four to eight weeks.
Finally, the relationship between the contracting parties can also affect the timeline for contract review process. If the parties have a pre-existing relationship, the process may be quicker as they may have already negotiated and agreed on some of the key terms.
It's essential to allow enough time for a thorough contract review. Rushing through the process can lead to missed opportunities for negotiation and revisions that could benefit your business in the long run.
“A manual approval process makes approval tracking difficult and doesn’t provide a clear trail of who gave a sign off on the contract, which means you could miss getting crucial approvals and this may lead to costly mistakes."
– Diwyata Burbure
Senior Vice President - Legal Tech @SpotDraft
SpotDraft is a CLM software designed by lawyers for lawyers. While MS Word and Google Docs certainly has its place in the world, neither one of these are built to really support the complex work that lawyers end up doing.
When a new contract is imported into the system, SpotDraft pulls out key terms and clauses using powerful machine learning models. This enables contract reviews and due diligence processes to happen a lot faster.
The SpotDraft editor is jam-packed with features to help you review contracts faster. Key features include being able to see contract definitions in-line, identifying common drafting mistakes in a contract and the ability to add scoped comments on a contract. Find out how Open reduced turnaround time for contract approvals by 90% with SpotDraft.
