Why Does Your Business Need Contract Review Software

Content

• What is a contract review?
• What is the purpose of a contract review?
• How do you review contracts?
• What does contract review software do?
• Conclusion

Contracts govern relationships, define responsibilities, clarify risks and rewards, and determine the bottom line. But does every single agreement you’re signing promote your agenda? Expertly reviewing the written word is one way for businesses to ensure the legitimacy and effectiveness of their legal agreements. Individuals must also exercise extra caution to carefully read the fine print before signing on the dotted line; it is not just a matter for organizations.

Analyzing and going through contracts word for word requires serious commitment for scaling businesses when complexity and volume are high. In such cases, contract managers and lawyers need all the help they can get to thoroughly review the contract portfolio, accelerate tedious tasks, and derive maximum results.

What is a contract review?

Contract review is the process of thoroughly examining and evaluating a contractual agreement before approval and signing. This stage of contact management helps the involved parties ensure the legal document is compliant, accurate, and suited to their needs. Any contractual agreement to be legally valid and conflict-free requires essential elements, non-ambiguous language, and clearly defined terms and conditions. 

Even with a careful drafting process, errors or ineffectual clauses can slip into the agreement. Reviewing allows parties to identify and rectify these shortcomings before getting to the execution stage. Most companies used to resort to manual methods to go through contracts line-by-line, which is time-consuming and error-prone. With the advent of AI and automated tools, organizations now have a much easier time reviewing legal agreements.

What is the purpose of a contract review?

Enterprises seek to maximize the benefits of their business relationships when they enter into contracts. They must come up with succinct, understandable language that advances their objectives. The agreement must address every critical aspect of the business relationship, from risk management to dispute resolution to termination. Furthermore, it is better to understand what you are getting into if you are legally committing to a contract.

However, theory and practice rarely align as well as you would hope. Therefore, a thorough review process is necessary to ensure the contract agreement accomplishes your goals. You can use this as an opportunity to understand what you are agreeing to and create terms and conditions that support your agenda. Here are some other purposes of contract review.

Prevent Disputes

One of the primary purposes of contract review is to ensure that all parties are on the same page regarding the terms and conditions outlined in the contract. It helps prevent disputes that may arise due to ambiguous or unclear language. 

Identifying Risks and Opportunities

Contract review allows parties to identify and assess potential risks associated with the agreement. It includes evaluating the obligations and responsibilities of each party, potential liabilities, and any areas of concern. It also helps to identify areas where the contract could be improved or optimized to benefit all parties involved. 

Legal Compliance

Contracts are often subject to various legal requirements and regulations. Contract review ensures that the terms and conditions outlined in the contractual agreement comply with relevant laws and regulations. It helps protect the parties involved from legal consequences and ensures the contract is enforceable in a court of law.

Language Clarity

Contract review focuses on the clarity of the language used in the document. Ambiguous or vague language can lead to misunderstandings and disputes. Reviewing the contract helps ensure that the language used is precise, unambiguous, and effectively communicates their intentions. It is crucial for creating a legally binding and enforceable agreement. Also, parties can standardize drafting across the organization.

How do you review contracts?

Reviewing contracts requires legal expertise and skills. In most scaling organizations, analyzing and evaluating agreement content is assigned to lawyers, contract managers, or paralegals. Before the process, reviewers outline all the relevant areas that require careful analysis. While that changes from agreement to agreement, here’s a checklist of all the essential components you must examine during the review process.

Relevant Terms & Conditions

Organizations must read through contractual agreements line by line for an efficient review process, but even then, they should focus on the most important terms and conditions. A business should review critical clauses such as indemnity, force majeure, copyright, termination, warranties, and disclaimers.

• They should ensure clarity and specificity in the language used.
• And confirm that each party's rights and obligations are clearly defined.
• Lastly, check for any conditions precedent or subsequent.

Blank space

Fill-in-the-blank spaces are typical when you use automated templates or third-party papers to create contractual agreements. However, before moving on to the approval and signing stages, organizations take the necessary steps to ensure all the gaps contain the necessary content. They should accurately fill in names, dates, and amounts. It protects the business from potential errors and ambiguities in the future.

Language and grammar

The contract's wording and structure are crucial in determining its effectiveness. Uncertain language can lead you to miss opportunities or take unnecessary risks. Therefore, businesses must check for proper grammar, spelling, and punctuation throughout the document. They must confirm that the language is clear, concise, and unambiguous for terms and conditions. Also, ensure that legal terminology within contractual agreements is accurate and appropriate.

Relevant dates

Deadlines and milestones are integral to establishing contract compliance. Hence, businesses must track dates for renewal, expiration, and payments. To do so, reviewers must confirm the accuracy of all dates mentioned in the contract during the review process. They must identify and understand any deadlines or milestones for constant monitoring. It helps to ensure that the contractual agreement includes effective and termination dates.

Termination and dispute resolution

Before you enter a contractual relationship, you need a clear idea of how to get out of it safely, without legal, reputational, or financial repercussions. During the review process, organizations must pay close attention to the termination clauses to understand the conditions under which the contract can end. They must clarify and confirm the notice periods required for termination. Also, examine the dispute resolution mechanisms (e.g., mediation, arbitration) and ensure they are clearly defined.

Financial Terms

Any business must be extremely careful about the costs associated with the contracts. Hence, they should review all financial terms, including pricing, payment schedules, and penalties. They must confirm the accuracy of any calculations and ensure they align with the agreed-upon terms. Also, verify any applicable taxes or fees.

What does contract review software do?

Contract review software streamlines and automates the reviewing process. It leverages technology, including artificial intelligence (AI) and machine learning, to assist legal professionals and stakeholders in assessing contract documents. Here are some key functionalities and features typically found in contract review software:

Clause Extraction

Contract review software often includes tools for automatically extracting key clauses and information from contracts. This feature helps save time and ensures accuracy by automating the extraction of essential terms, conditions, and obligations from contracts.

Dock provides manual and automatic extraction to retrieve clauses from contractual agreements. They can create custom reports and add tracking to these clauses for easy review.

OCR (Optical Character Recognition)

OCR technology enables reviewers to convert scanned or image-based contracts into machine-readable text. Thus, through contract review software, businesses can analyze and process contracts in various formats. It makes it easier to work with non-digital or scanned documents.

Version Control

Contract review software typically provides version control features to manage different iterations. Version control ensures that users are working with the most up-to-date version of a contract, helps track changes made over time, and facilitates collaboration among multiple stakeholders.

Automated Workflows

Contract review software often incorporates automated workflows to guide users through the review process, from initial analysis to approval and execution. These custom workflows help streamline and standardize the contract review process, reducing the likelihood of errors, ensuring consistency, and improving overall efficiency. Thus, organizations can guarantee contracts reach the right person without delay. 

Data Extraction and Analytics

Some contract review software includes advanced analytics capabilities to extract and analyze data from contracts. AI analytics can provide insights into contract performance, compliance, and other relevant metrics, helping organizations make informed decisions. Dock enables organizations to utilize AI to automatically extract contract metadata from a third party or previously executed contract. 

Conclusion

Contract review is a comprehensive process that involves assessing the clarity, legality, and fairness of the terms in a contract. It helps parties understand their obligations, identify and mitigate risks, and ensure the agreement complies with relevant legal standards. This process is essential for establishing strong and reliable business relationships while minimizing potential disputes.

Contract review software automates the entire process using clause and data extraction, automated workflows, custom reports, etc. Although relying on tailored platforms to manage the contract lifecycle can save time and money and help organizations scale, it can get tiresome. A smarter choice would be to utilize the same tools available through Dock contract management software to facilitate the review process.