Every contract your company signs holds potential risks and rewards. And that’s why reviewing contracts is one of the most important things in-house legal teams do. It's how you protect your company.
You must check contracts carefully but also keep things moving fast. This balance is key.
What should you watch for in a contract?
- Clear terms: Make sure everything is easy to understand
- Risks: Look out for legal or financial dangers
- Goals: The contract should fit your company's aims
- Laws: Check that the contract follows all regulations
This guide provides a roadmap for reviewing contracts efficiently. We'll also explore how technology is revolutionizing the review process, empowering you to work smarter, not harder.
Why contract review is important
Contract review is your first line of defense. By examining each contract closely, you ensure that your company is protected from unnecessary risks.
- Prevents Legal Issues: By catching potential problems early, you save your company from future legal battles. This is crucial in avoiding costly disputes that can drain resources
- Safeguards Interests: You make sure the contract reflects your company's interests. This includes ensuring fair terms and protecting intellectual property
- Ensures Compliance: You verify that each contract complies with current laws and regulations. This is essential in avoiding fines and legal penalties
- Supports Business Goals: You align contracts with your company’s strategic objectives. This means ensuring contracts support rather than hinder business progress
Key challenges in contract review
1. Too many contracts, not enough time
“If you try to read a complex contract carefully, from front to back, and expect to understand it on just the first read-through, that’s wishful thinking (and potentially very messy).”
~Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: How to Read a Contract
- Your team often deals with a large number of contracts simultaneously
- Each contract demands attention to detail, stretching your team’s capacity
- This high volume can lead to longer hours and increased pressure to meet deadlines
The 2023 Legal Department Operations Index highlighted that corporate law departments are experiencing an increase in legal work volume. At the same time, they are trying to handle a more significant share of this workload in-house, despite budgets being flat or decreasing.
Strategies to manage:
- Batch similar contracts to speed up the review process
- Set clear priorities. Which contracts are urgent? Sort them by deadline or importance
2. Each contract is a new puzzle
“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
Ten Things: How to Read a Contract
90% of contracting professionals say they face challenges trying to locate contracts.
Contracts come in all shapes and sizes. Some are straightforward, while others are filled with complex clauses that require a deep understanding of various laws and regulations. This diversity demands that you wear many hats, from legal expert to industry specialist.
Strategies to manage:
- Stay educated. Regularly update your knowledge on legal and industry-specific trends
- Create a knowledge base. Compile templates, clause libraries, and guidelines for quick reference
3. Mistakes can happen
“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
Humans aren't perfect. Reviewing contract after contract, especially under time pressure, increases the chance of missing crucial details. These oversights can expose your company to risks, from financial penalties to legal disputes.
Strategies to manage:
- Take breaks. It sounds simple, but short pauses can refresh your focus
- Double-check key areas. Identify critical clauses that require extra attention in every contract
4. Adapting to new technologies can be difficult
81% of organizations want to utilize contract automation.
Legal tech evolves rapidly, offering new tools for contract management, review, and automation. Keeping pace with these technologies can be daunting, especially when trying to determine which tools best fit your team's needs.
Strategies to manage:
- Continuous learning: Dedicate time for you and your team to learn about new technologies. Webinars, online courses, and industry conferences can be great resources
- Pilot programs: Test new tools on a small scale before full implementation. This can help assess their impact and usability without committing significant resources
5. Protecting data security and privacy is another challenge
Contracts contain sensitive information. Ensuring data security and privacy during the review process is paramount, especially with the increasing use of digital platforms.
Strategies to manage:
- Use secure platforms: Opt for contract management solutions that prioritize security and are compliant with relevant data protection regulations
- Regular audits: Conduct regular security audits of your contract management processes and tools to identify and mitigate potential vulnerabilities
Also read: The Perfect Contract Review Checklist for Commercial Contracts
Technology to the rescue:
In the age of technology, tools like SpotDraft offer a lifeline. By automating routine tasks, these platforms free up your time for the contracts that require your expert eye. They can also highlight potential issues, ensuring nothing slips through the cracks.
Benefits of using tech solutions:
- Efficiency: Automate the review of standard contracts
- Accuracy: Use AI to spot common errors or omissions
- Peace of Mind: With automation, you reduce the risk of human error
Also read: AI for Legal Documents: How AI is Transforming Legal Workflows
The impact of AI on contract review
AI and machine learning introduce an efficient method to tackle the detailed and time-intensive job of contract review.
- Speed and efficiency: AI significantly reduces the time it takes to review contracts. Traditional methods, reliant on manual reading and analysis, can take hours or even days. AI, however, can scan through documents in minutes, identifying key clauses, obligations, and potential risks without human intervention. This speedup in the review process allows legal teams to handle a higher volume of contracts more efficiently.
- Enhanced accuracy: One of AI's most significant advantages is its ability to minimize human error. By training on thousands of documents, AI systems develop an understanding of legal language and can spot inconsistencies, errors, or missing elements that might be overlooked by even the most diligent human reviewers. This precision enhances the reliability of contract reviews, ensuring that legal agreements are compliant and aligned with organizational policies.
- Reduced turnaround time: With AI's capability to process contracts quickly and accurately, the overall turnaround time for contract approvals is significantly reduced. This efficiency is crucial in fast-paced business environments where delays can mean missed opportunities or strained relationships.
Also read: Machine Learning + Contract Review: Unlocking the 10X Legal Counsel
Combining Artificial Intelligence with human expertise
AI is smart, but it doesn't get everything. Here’s why humans are crucial:
- Understanding nuances: AI might miss the subtleties in language or context that you, with your expertise, will catch
- Making big decisions: You're better at seeing the big picture and making calls based on strategy and experience
- Ensuring compliance: You know the law inside and out. AI helps, but you ensure everything ticks the right legal boxes
Also read: Revolutionizing Contract Review with AI and Manual Validation
The perfect contract review checklist
Here is a contract review checklist template that businesses can use to ensure that all relevant considerations are taken into account before entering into an agreement:
- Identifying the parties: Verify that the correct parties are identified in the contract and that their names, addresses, and other relevant information are accurate
- Purpose of the agreement: Ensure that the purpose of the agreement is clearly defined and that it aligns with the business's goals and objectives
- Term of the agreement: Review the start and end dates of the agreement, as well as any renewal or termination provisions
- Consideration: Ensure that the consideration being exchanged is clearly defined and that it is reasonable and fair
- Representations and warranties: Review the representations and warranties made by each party, and ensure that they are accurate and sufficient
- Covenants: Review the covenants and obligations of each party, and ensure that they are reasonable and feasible
- Indemnification: Review the indemnification provisions and ensure that they provide adequate protection for the business
- Limitation of liability: Review the limitations of liability provisions and ensure that they are reasonable and appropriate
- Confidentiality: Review the confidentiality provisions and ensure that they are adequate and comply with relevant laws and regulations
- Dispute resolution: Review the dispute resolution provisions, including any arbitration or mediation provisions, and ensure that they are fair and effective
- Governing law: Review the governing law provisions and ensure that they are appropriate and comply with relevant laws and regulations.
- Assignment: Review the assignment provisions and ensure that they are appropriate and consistent with the business's goals and objectives
- Entire agreement: Review the entire agreement clause and ensure that it accurately reflects the parties' understanding of the agreement
- Counterparts: Review the counterparts provisions and ensure that they are appropriate and consistent with the business's goals and objectives
- Amendments: Review the amendment provisions and ensure that they are reasonable and appropriate
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.
Also read: The Perfect Contract Review Checklist
Here’s a straightforward look at what VerifAI offers:
- Speeds up reviews: With VerifAI, you go from spending hours on contract reviews to just minutes. This AI tool works right within Microsoft Word, making it super easy to use
- Reduces workload: It’s like having an assistant that suggests changes, highlights issues, and even explains modifications to others. This means you can focus on what really needs your expert eye
- Improves accuracy: VerifAI is smart. It catches risks and helps ensure contracts align with your guidelines and industry standards. Fewer errors mean less worry
- Boosts efficiency: Sharing guidelines and streamlining reviews across teams gets easier. This tool helps everyone stay on the same page, enhancing teamwork
- Free trial: You can start with a two-week free trial. It’s a great way to see how much time and effort you can save
“SpotDraft has helped cut our contract review and extraction time in half. SpotDraft provides a legal summary of each deal for our clients in any easily digestible format and helps keep us and our client deals organized.”
~Aurora P., Founder and President
Review hosted on G2
Also read: The Perfect Contract Review Checklist
So, if you’re looking to leverage AI for enhancing their contract review processes, you might want to try the tool for a few weeks to see if it works for you.
