By Phil Harwood
Reviewing contracts isn’t something most of us do every day. However, there is a time to do so. In fact, there are three critical times to review contracts.
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Tags: Contracts , Reviewing Contracts , Payment Terms ,
First, a contract should be reviewed when it’s not yours; when someone else drafted it. That “someone else” may be a customer, vendor, or some other strategic partner. If you and your business attorney didn’t draft the contract, it may not have been drafted with your best interests in mind. Because of this, there is a critical need to review these contracts: to scrutinize each contract provision, seek clarification of provisions that are unclear, suggest changes where possible, and only sign a contract after you’ve decided you can live with the final language.
Second, a contract should be reviewed when it’s yours but hasn’t been used recently. This may be a contract template that hasn’t been used since last year. It’s always a good idea to carefully review these contracts for revisions, since a lot can happen in a year. Changes in your business model, risk tolerances, regulatory environment, and many other considerations come to mind. Also, every time a contract is reviewed with a critical eye, there is an opportunity to correct mistakes, typos, and grammatical issues. These changes are more clearly recognized when reviewing a document you haven’t seen in awhile.
Third, a contract should be reviewed when it is up for renewal. Many times, there is a tendency to simply reuse the existing contract for fear of jeopardizing the renewal itself. This is a valid concern but it is still a best practice to go through the review process to see if there are changes that should be made; ones that really shouldn’t be ignored. Blindly reusing a contract without considering modifications is not a sound business practice.
You may be wondering what is involved with reviewing a contract. Great question. Here are some of the things to consider:
· Is pricing accurately stated?
· Are payment terms also clearly stated?
· Is the structure of the contract easy to follow with similar provisions grouped under descriptive headings?
· Has legalese been removed and replaced with plain language?
· Are provisions involving risk, liability, indemnification, termination, etc. equitable?
· Are there any provisions that are unclear?
· Is there anything that deserves to be questioned or negotiated further?
A common misconception is that a client’s contact is a “take-it-or-leave-it” proposition. This is not true. In my experience, contract language is often negotiated, just like prices are. But it does require a review of the contract and a willingness to engage in negotiation over contract provisions. You are more likely to win the negotiation if you offer alternative contract language along with a reasonable explanation for the alteration.
If you have contracts you’d like to have reviewed, please let me know. I’d be happy to help you out. You may reach me at email@example.com.
Now go forth.