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Important Things to Look During a Contract Review

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contract review

Reviewing contracts reduces organization risks and increases the likelihood that a contract will benefit all parties. You can commit to obligations you cannot meet without conducting a comprehensive contract review, damaging your company’s brand and reputation, and wasting time and money resolving disputes that could have been avoided.

When reviewing contracts, you should pay attention to some of these things,

Representations/Warranties/Indemnities

This section covers representations, warranties, and indemnities made by a party to another party. In other words, it governs promises made by one party to another regarding their behavior or obligations under the contract – in effect creating a duty of care for one party towards the other. These provisions could have adverse consequences if they are breached prompting a lawsuit between the parties, so you want to look out for safeguards such as set-offs or liquidated damages provisions that will limit liability in these cases.

An example provision might be: “Client represents and warrants that Client shall use its best efforts to ensure that no Confidential Information developed or made known to Client by Company under this Agreement shall be in violation of any obligation of confidentiality owed to a third party.”

Term/Termination

This section covers how the contract review will end at a particular time or when certain events occur. You want to make sure that the costs associated with ending the relationship under the contract review are reasonable. You want to look out for provisions that indicate the length and method of termination. You also want to be sure you have mechanisms for early termination which are cost-free. For example, most companies charge an early termination fee after one year unless otherwise stated in the contract.

Ownership/Warranties

The company’s position on who owns what developed from working with the client’s data is particularly important because Code Contract Proposals frequently have disclaimers about ownership so make sure you read these carefully.

You want to look out for provisions that indicate who owns what information developed during your business relationship. This section also covers warranties about products your business gave you. If your company said it would write or design something specific for you then you want to make sure those promises are kept by your company so that they do not use up precious resources of yours with little to no benefit.

Confidentiality Clauses

Be sure that all parties involved are abiding by these clauses before finalizing your agreement. Generally, a confidentiality clause prevents either party from disclosing confidential information (information that could be harmful) to any third party without the written consent from the other party(s) involved. If one of the parties does not agree to abide by this specific term, then it should not be included in your contract review process so there are no disputes later on when receiving payment or filing for injunctions.

Written Agreements

A written agreement is more legally binding than an oral contract (one spoken by mouth). This is to protect both parties involved in the contract review because if there are disagreements, they can be settled with the documentation that was provided and initialed by all parties. Any verbal agreements could cause legal problems later on during arbitration or court proceedings especially if one party tries to fight it.

If you cannot find someone who is willing or able to write down their terms and conditions (which would make your job easier), then it might not be worth doing the business deal at all until some serious negotiations take place. This will save you time and money down the road if problems arise due to a lack of documented agreement.

Tips for Successful Contract Review

  1. Be thorough during contract review – The first step to being a good lawyer is doing your homework and becoming familiar with the terms of the contract before you even start reading it. Read the client’s side letter, if there is one. Familiarize yourself with anything that has been negotiated in advance – changes to keywords or phrases, important omissions, or expert opinions about particular clauses.
  2. Work in consultation with the client – During the contract review process, remember to keep your clients involved and informed of what is going on. If you don’t understand a clause or are unsure of how it will impact them, talk to your client and find out! For example, if the contract specifies something that is not understood or a particular phrase that the client’s business uses but which is not on everyone’s radar at your firm, explain it to them. They’ll be much more willing to pay for review and revisions if they are a part of the process!
  3. Be thorough when checking how contracts will affect other aspects of your client’s business – Contract review isn’t done in a bubble. It is very important to remember that once you sign the dotted line on any given agreement, it will become the baseline from which future negotiations occur. If there is language in the contract that already has a negative impact on your client, now is when you can negotiate changes to this language and prevent future problems. If you are reviewing a website hosting contract, for example, and come across a language that would give the service provider personal jurisdiction over your client if they ever have a dispute with them, negotiate for this to be limited to a specific geographic region or state.
  4. Remain objective while evaluating the contract – As an attorney, it is easy to get caught up in the details of a particular contract and lose sight of how these fit into your client’s overall business plan. This will prevent you from being able to make objective recommendations regarding a contract, which could be detrimental to your relationship with your client. It is important that you remain emotionally detached from the contract so that you can remain as objective as possible and perform the contract review from a wide-angle lens, rather than just the details of each clause.
  5. Get it in writing – This cannot be stressed enough – never take verbal promises or guarantees! When you are reviewing contracts, always make sure to confirm in writing what your client is agreeing to before signing on the dotted line. This will protect you from any claims that a promise was made and forgotten about or misunderstood, and can be the difference between winning or losing your next case.

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