You know, I know, we all know that contracts are essential. They make the world go round.
A common challenge is that contracts have errors, ambiguous language, and omissions. A quick way to reduce these errors – beyond using contract automation software – is to use a contract review checklist.
In this guide, you’ll learn how to create a contract review checklist that reduces human errors, speeds up the contracting processes, and ensures you continue looking professional.
Section 1: Understanding the Basics
When reviewing a contract, it is essential to understand the fundamental components to ensure everyone is on the same page and that the agreement is fair and comprehensive.
Verify the Parties Involved
The first step in any contract review is to verify the identities of those involved. This includes confirming the legal names, addresses, and roles of each party.
It’s crucial to ensure that the correct entities are named and that their capacities to enter into the contract are clear and legitimate.
Misidentification or errors in this section can lead to disputes and may even invalidate the contract.
Ensure Clear Definitions and Objectives
Contracts often contain specific terminology and phrases that must be clearly defined to avoid misunderstandings.
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Ensure all key terms are explicitly defined in the contract’s definitions section. This provides clarity and helps prevent disputes over interpretations.
Additionally, the objectives of the contract should be stated clearly. The purpose of the agreement, the services or goods to be provided, and the expected outcomes should be detailed so that all parties understand their obligations and expectations.
Check Start and End Dates, Renewal Terms
Review the contract’s start and end dates to ensure they align with your expectations and requirements. Confirm that the timeline for the agreement is clearly stated and that there are no ambiguities regarding when the contract begins and ends.
Additionally, examine renewal terms (if any) to understand how the contract can be extended or terminated.
Be aware of automatic renewal clauses, as these can extend the contract beyond the initial term without explicit consent from all parties.
Understanding these timeframes is crucial for managing obligations and planning for the future.
By verifying the parties involved, ensuring clear definitions and objectives, and checking the start and end dates along with renewal terms, you can establish a solid foundation for understanding and evaluating a contract.
Section 2: Key Clauses to Review
A thorough contract review necessitates a close examination of several key clauses to ensure that the agreement protects your interests and aligns with your expectations.
Payment Terms
Payment terms are critical aspects of any contract. Review the schedule, amounts, and conditions for payments to ensure they are clear and reasonable.
Verify when payments are due, what forms of payment are acceptable, and any penalties for late payments.
It’s also essential to understand any provisions for reimbursable expenses and the process for resolving payment disputes. Clear payment terms help prevent financial misunderstandings and ensure that all parties are fairly compensated.
Termination Clauses
Termination clauses outline the conditions under which the contract can be ended by either party. These clauses should specify the notice period required for termination and any penalties or obligations that apply if the contract is terminated early.
Take the time to understand under what circumstances you or the other party can terminate the contract and what the consequences of termination are.
This knowledge helps you manage risks and prepare for potential changes in the contractual relationship.
Confidentiality and NDAs
Confidentiality clauses and non-disclosure agreements (NDAs) protect sensitive information shared between parties.
Review these clauses to ensure that the scope of confidentiality is clear and that the obligations are reasonable.
Understand what information is considered confidential, how it should be handled, and the duration of the confidentiality obligations.
Strong confidentiality clauses safeguard your proprietary information and maintain trust between parties.
Intellectual Property Rights
Intellectual property (IP) rights clauses determine the ownership and usage rights of any IP created or used during the contract.
These clauses should specify who retains ownership of the existing IP and any new IP developed as a result of the contract.
Ensure your IP rights are protected and that there are clear guidelines on how IP can be used by both parties. This prevents potential disputes over ownership and usage of creative and innovative assets.
Non-Compete and Non-Solicitation Clauses
Non-compete and non-solicitation clauses restrict the actions of the parties after the contract ends.
Non-compete clauses prevent parties from engaging in competing businesses for a specified period and within a certain geographic area.
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Non-solicitation clauses prevent parties from poaching employees or clients. Review these clauses to ensure they are reasonable and enforceable, considering their duration, geographic scope, and the specific activities they restrict.
Understanding these clauses helps protect your business interests and ensures fair competition.
By carefully reviewing payment terms, termination clauses, confidentiality and NDAs, intellectual property rights, and non-compete and non-solicitation clauses, you can better safeguard your interests and ensure a fair and comprehensive contractual agreement.
Section 3: Legal Considerations
When conducting a contract review, understanding the legal implications and ensuring compliance with relevant laws and regulations is paramount.
This involves a meticulous examination of several critical components.
Compliance with Laws and Regulations
It is essential to ensure that the contract complies with all applicable local, state, and federal laws and regulations.
This includes industry-specific regulations that may affect the contractual obligations of the parties involved.
Failing to comply with legal requirements can result in severe penalties, voiding of the contract, or legal disputes.
Therefore, verifying that the contract aligns with the relevant legal framework helps safeguard against potential legal challenges and ensures that all contractual activities are legally sound.
Dispute Resolution Procedures
Dispute resolution procedures outline how conflicts arising from the contract will be handled.
These clauses typically specify whether disputes will be resolved through arbitration, mediation, or litigation.
Focus on understanding the nuances of the chosen method and the process for initiating a dispute resolution procedure.
This includes knowing the jurisdiction, the governing law, and any specific procedural rules that apply.
Clear and fair dispute resolution procedures help manage conflicts efficiently and minimize the risk of prolonged legal battles.
Indemnity and Liability
Indemnity and liability clauses allocate risk and responsibility between the parties. Indemnity clauses specify which party is responsible for certain losses or damages, while liability clauses outline the extent of each party’s financial responsibility.
Reviewing these clauses helps ensure that the risks are distributed fairly and that you are not unduly exposed to potential losses.
It’s also important to understand any limitations on liability, such as caps on damages or exclusions for certain types of losses.
Properly structured indemnity and liability clauses protect your interests and provide clarity on the financial implications of potential issues.
By ensuring compliance with laws and regulations, understanding dispute resolution procedures, and carefully reviewing indemnity and liability clauses, you can navigate the legal complexities of contract review and protect your interests effectively.
Section 4: Final Steps Before Signing
Before finalizing a contract, it’s crucial to undertake several important steps to ensure that the agreement is thoroughly understood and mutually acceptable.
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Final Read-Through
A meticulous final read-through of the contract is essential.
This step involves reviewing the entire document one last time to catch any errors, inconsistencies, or ambiguities that may have been overlooked.
Verify that all the terms and conditions accurately reflect the agreed-upon terms and that there are no unintended clauses or omissions.
Paying close attention to the details during this stage can prevent potential misunderstandings and disputes later on.
Negotiation and Amendments
After the final read-through, it may be necessary to negotiate certain terms or propose amendments to ensure the contract is fair and balanced.
Open communication with the other party is crucial during this process. Discuss any concerns or changes you wish to make and reach a mutual agreement on any modifications.
Documenting these changes clearly and ensuring they are incorporated into the final version of the contract is a must.
Effective negotiation and agreed-upon amendments help in creating a contract that satisfies both parties.
Signatures and Witnesses
Once all parties are satisfied with the final version of the contract, the next step is to obtain the necessary signatures.
Ensure that all parties sign the contract in the designated places, and if required, have witnesses sign as well.
The presence of witnesses can provide an additional layer of verification and legality to the contract. Of course, you want to keep copies of the signed contract for all parties involved.
Properly executed signatures and witness attestations make the contract legally binding and enforceable.
By conducting a final read-through, engaging in negotiation and amendments, and ensuring proper signatures and witnesses, you can finalize the contract confidently, knowing that it accurately reflects the agreement and is legally sound.
Conclusion
Contracts are too important to leave to chance. You and every other organization should have a robust checklist that makes sure you dot your I’s and cross your T’s. This guide has provided it.
Go through and look at all the points mentioned to make sure every contract meets the requirements before you sign on the dotted line.
IF you’re looking to speed up your document and contract processes, be sure to check out DoxFlowy. It’s an end-to-end document automation platform purpose-built to ensure your contracts look great ever time.
