5 Eagle Eye Tips for Reviewing Contracts
In our previous article we spoke about our Top 8 Tips for Drafting Clear and Concise Contracts – remembering the three C’s – Clear, Concise and Consistent.
Keeping those simple drafting techniques firmly in mind, we can now move on to the next stage in the whole contract drafting process.
Oh shame. You thought that the drafting bit was all there was to it? Sorry to burst your bubble, but that is only one step in the whole drafting process. There’s still more to come….
And let’s be honest – there’s a reason why we call something a “draft” – it’s only the preliminary version of something. And knowing that it’s preliminary – a first take - opens the doors up to reviews and amendments (usually by both parties) before a final version that is ready for signature is reached.
Now we want to reiterate what we said in our previous article - a contract needs to be all about a mutual goal where both parties to the contract align their interests. A contract – at its very core – is all (or should be) about creating a synergistic relationship between two parties, where each party benefits from the relationship. And as we said – that starts with clear and concise drafting skills.
But it doesn’t end there.
Reviewing a contract and knowing what to look out for, before any party puts their pens to paper is as crucial.
Instead of the three C’s, you now need the two EE’s – Eagle Eyes. Picking up all small (or big) mistakes, unnecessary wordings and verbosity. Clear, Concise, Consistent and most of all – easy to understand – even to a third party who isn’t a party to the contract.
Sure, most people who have studied law or easier still, most people who speak the English language are able to pick up common drafting errors – an incorrect , here or misspelling there. Notoriously putting ‘s in the wrong place. But what are the other reviewing techniques that will ensure our Clear, Concise and Consistent contracts pass the Eagle Eye Test.
Putting your best foot – or eye in this case – forward…
5 Eagle Eye Review Tips -
1. Look out for key terms – sure it seems like just about every single word in a contract is important. But let’s be honest, some clauses just hold more significance than others. As a result they need to be reviewed with your Eagle Eyes. But remember that every company (and their respective businesses) and every contract will be slightly nuanced, and m ay therefore require a different editing hand – although it’s safe to say that the most crucial clauses are unlikely to be significantly different. So, one needs to pay close attention to clauses (and terms) dealing with confidentiality, indemnification, termination, as well as dispute resolution (as examples). These clauses – because of the significance they hold, deserve a little bit of your extra TLC to ensure that they meet the necessary standards. Check the language – does it properly convey the intention without inferring unintentional legal consequence?
2. Look out for all termination events and renewal terms – besides the deliverables and payment terms, the other terms in the contract which most people will/should take heed of are the contracts termination events, as well as renewal options. This is especially important if looking to avoid being bound by terms that you didn’t initially foresee – or agree to (obviously – that’s why you are reviewing in the first place). It’s advisable to look at language dealing with automatic renewals (which if you were hoping for a definitive end date is a no-no). Also take special care to note whether there are any ways to terminate the agreement prior to it naturally running its course. This allows for teams to plan ahead and not get caught off guard. And if a situation arises which leads to the early termination or cancellation of the contract you will know what to do and when by. Lastly, by taking note of termination and renewal clauses you can set calendar reminders so that you can be ready to negotiate whatever needs negotiating in plenty of time.
3. Remember the three C’s (yes, again) – when reviewing the contract, it’s advisable for you to highlight any words or phrases that could be left to interpretation i.e. words or phrases that are ambiguous, resulting in confusion and ultimately, different interpretations of what the intention actually is. If there are any words or phrases, that both contracting parties understand in the same way but which may lead to alternative interpretations, it’s best to remove them entirely and choose more clear, simple language to ensure correct interpretation – by the contracting parties, an unbiased third party and even the Courts. Remember to be explicit (even if it seems like an oversimplification) – rather safe than sorry.
4. Look out for all default terms –as we stated above and in our previous article, the intention of contracting parties should be for a synergistic relationship where both parties mutually benefit. At least that’s the ideal scenario. But that’s not always the case. Or maybe it starts out that way but somewhere along the road, one party fails to meet their obligations and suddenly, there’s chaos. While we hate jumping to conclusions this does lead (eventually) to one party committing a breach of contract – dun dun dun! It’s therefore important to keep an Eagle Eye on clauses relating to default’s that could ultimately lead to a breach of contract. What are the consequences of defaulting on obligations? How can you prevent that from happening? Or how can you enforce it (if you aren’t the defaulting party). What options are available to both parties? Take a note of these because you never know when they may become handy.
5. Look out for important dates and deadlines – this is naturally important, no matter which contracting party you are. Should a verbal agreement already be in place, ensure that the dates and deadlines discussed verbally are correctly reflected in the body of the contract. This comes down to ensuring there is consistency throughout the process – from negotiation stage to signature stage. But as you review, start to track or at least diarise (even if you put this formally into a type of Excel spreadsheet) dates, and deadlines which you or your team (or members of the broader organisation) need to complete something by or deliver something by. Being prepared reduces your chances of a breach of contract – it could also lead to extra “brownie points”. Either way, it’s a good idea! As planning usually is.
(Sources used and to whom we owe thanks: Lexology).
That’s it – Eagle Eye done and dusted. At least for the time being….
But with that said, we must remember that the whole contract process from negotiating stage to (this) reviewing the contract stage to the final signature stage are also all just steps in the longer process that is contract management.
And that’s worth mentioning.
Drafting, reviewing, and signing a new contract may be cause for celebration. But that isn’t where this whole contract party ends. Now comes the actual task of ensuring that each party meets their obligations and responsibilities as set out in the contract.
What would qualify as contract management?
First, lets keep in mind that contracts contain mutual obligations, financial dedications, due dates and deadlines and there’s a risk that if left “unsupervised”, they could lead to possible disputes as well as inevitable losses as a result of the non-performance. As disputes often do, they can lead to litigation with resulting liability falling on the defaulting party.
So, to manage risks, one needs to ensure that the contract is properly (and closely) supervised.
The process of contract management – throughout the contracts’ life cycle – means expecting the (kind of) unexpected. From variations and the sometimes inevitable amendment to the contract terms, to making allowances for extensions, renewals and even when a dispute arises. Most importantly, contract management and the intricacies involved come to good use when termination of the contract is concerned – have the parties performed, delivered what they undertook to, provided the return of documents or data? And if not, what steps should be taken to ensure a smooth end to the contractual relationship?
All these little things (which actually turn out to be big things) form part of managing the contract from the initial drafting stage all the way to when the contract eventually ends (by a natural passing of time) or if it’s terminated. Each step is part of a larger process and something that must not only be provided for, but adequately prepared for as well.
Because signing the contract, while a milestone to be celebrated, is not the end of this particular song and dance.
Just like a beat, the contract process goes on and on – La-da da-da-dee, La-da da-da-da!
And we are here to help you through every bit of this process. Should you require assistance with the proper and thorough review of your contract or need advice on how best to manage your contract going forward, please get in touch with one of our suitably qualified attorneys – we are more than happy to assist and support you as you navigate what can be a complicated, costly and time consuming process.
Furthermore, if you have any questions on the information we have set out above or have a personal issue which you want to discuss, please don’t hesitate to contact us at NVDB Attorneys.
We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.