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Without a doubt, contract redlining is an important stage in a contract's lifecycle. 

It's an opportunity for all contracting partners to take a red pen to the agreement. They flag unclear clauses or incorrect terms. They may negotiate for outcomes that better align with their goals. A single document can go through several rounds of back-and-forth before being finalized. That said, you want the right tools and resources to make this process as smooth as possible. 

According to a recent poll on LinkedIn, 91% of lawyers use Microsoft Word for creating legal documents. Yet, the right contract management tools can help streamline the entire workflow.

In this guide, we’ll discuss what redlining means, the benefits of redlining, and how to do it more efficiently using Word and contract management tools. 

What is contract redlining?

Contract redlining occurs when legal teams finalize a contract. During contract negotiation, parties make suggested changes and then share the now-redlined contract. Counterparties review the recommendations and then accept, deny, or adjust them. These changes are usually colored in red and made open for approval or refusal.

“Moreover, ensure that the solutions you find work in the long run. Sustainable legal solutions will not only put processes and procedures in place but also structure workflows that will ease the load on the legal team.” 

~ Bhavna Singh, GC & DPO, Subex Limited

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Back in the day, revisions or amendments to contracts occurred on physical documents. Reviewers used a red pen to strike or underline the agreement's contents. Hence, the term "contract redlining".

When do contracts need redlining?

Contract redlining happens during the contract review and negotiation stage. All signing parties must voice their concerns during this stage of the contracting process. If not, they risk signing into effect terms that don’t align with their goals. Once a contract is finalized and signed, all parties must fulfill their obligations. 

Also read: Government Contract Management: Ensure Compliance with CLM Software

Not all contracts require this back-and-forth negotiation stage. Standardized contracts often bypass this stage because their contents are simple. All participating parties are satisfied with their conditions from the beginning. Leases and non-disclosure agreements (NDA) are good examples of this. 

It’s a good idea to identify the kind of contract you’re dealing with so you know when it's appropriate for redlining. 

6 tips for effective contract redlining

#1 Go slow

Odds are, you want the contract lifecycle process to run as quickly and smoothly as possible. After all, the contents of a contract aren’t actionable until it’s been finalized and signed. However, don’t move too fast during the contract redlining process. 

This stage of the process is designed to identify errors or discrepancies that could create bottlenecks later in the contract’s lifecycle. If you review it too quickly, you increase the risk of those errors slipping through to the finalized document. It’s worth it to take the extra time to ensure the contract's terms and conditions are accurate. 

#2 Always explain your redline comments

It can be helpful to explain your thinking behind suggested redline changes. Adding this context provides the other signing party with background information to help them understand you better. Giving this extra information can make signers more likely to agree with you because they see your reasoning as a logical revision to the document. 

“The right answer is always ‘no, however…’ or ‘yes, but…’. Always find a path forward.”

~ Jonathan Franz, Head of Legal, Crunchbase

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Make it a habit to include the “why” behind your revisions. Include links to resources that can support your suggestions. Now, there are a few exceptions to this best practice. The first includes any obvious or minor formatting changes that often won’t require an explanation. The second is any revisions that are better suited during a live conversation. Always make sure to keep an open dialog for boosted transparency throughout the contract redlining process. 

#3 Consider redrafting large redline revisions

If you encounter a section of the contract that requires hefty revisions, don’t be afraid to redraft it entirely. Taking this initiative yourself can help save everyone time later on. You’re making clear what you’d like the agreement to read and hopefully answering any questions the counterparty may pose. You’ll reduce the need for back and forth between signing parties. 

As a general rule of thumb, the more work you put into your redlining of contracts, the more likely your suggestions are to be accepted. It shows the level of thoughtfulness you put into your work and positions your revisions as more reliable. 

#4 Encourage transparency about every change made

The simplest way to foster transparency during contract redlining is to keep your “Track Changes” or “Suggesting” mode turned on. It captures all the edits and comments made to a document without you having to think twice about whether or not your suggestions are getting captured. 

“Larger customers are traditionally going to be more risk-averse. They're not going to be as flexible, and they might want to use their contract paper. So, you need to consider how to apply different levels of risk tolerance to those discussions. And you actually might need to acquiesce on some provisions that are important to you in an effort to get the negotiation completed.”

~ Adam Glick, VP of Legal Affairs, Front

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If you’re reviewing a redlined contract with its changes tracked, it’s easy to accept, deny, or reply to the suggested changes. As a result, both parties rest assured they have accurate version control and can streamline the contract review process. 

Also read: How to Leverage Outside Counsel to Manage Multiple Priorities

#5 Ensure the draft is clean before requesting signatures or redlining

When you start redlining, you should be working from a clean document. You’re either the first party to review its terms or all the revisions from the previous have been accepted. Taking this extra step will help mitigate any setbacks that could arise from poor version control. When you’re redlining, always make sure you're working from the most recent and clean document. It’ll help remove the risk of setbacks later on in the process. 

This same principle applies once the redlining is complete and the contract is ready for signatures. It should be a clean and clear document during its final read-through before it’s signed.  

#6 Use legal technologies to streamline the process

Think about all the times you’ve worked through the contract redlining process by hand. In most cases, the risks of setbacks and discrepancies outweigh any potential benefits. All these potential bottlenecks are remedied when you enhance your legal tech stack to support contract redlining.

Great contract management software will streamline the entire redlining workflow by pinging individuals when it’s their turn to review the document and keeping everyone on track. It ensures version control without in-house legal teams needing to manage multiple documents by hand. 

How does contract redlining software work?

Instead of making comments across multiple Word Docs, contract redlining software helps keep everything organized using a single digital copy. Signing parties can leave comments or suggest changes, then tag the necessary people in the counterparty. 

Digital redlining strikes a balance between efficiency and compliance. It makes the entire contracting process more transparent for all signing parties. 

Tools like SpotDraft have integrations with Microsoft Word, which makes it easy to share and update contracts during the redlining stage. Unlike Word, SpotDraft allows you to leave comments for specific stakeholders and make specific sections editable by only authorized parties. 

Its redlining automation feature scans documents to identify even minor changes. SpotDraft will also have version control, so you can rest assured you’re always working on the most recent redlined document. 

3 benefits of contract redlining software

#1 Cross-functional collaboration all in one place

With the contract redlining tool, all actions by all parties happen in the same place. You can leave comments for specific people to ensure contract revisions get to the right person. 

The software also reduces the risk of human error. If you have a process with too many moving parts and rely on manual processing, the likelihood of mistakes and errors increases. By leaning on a contract management tool, you can help mitigate this risk by keeping everything in one place. 

#2 Improved version control

One of the most significant setbacks of using Word for the contract redlining process is version control. Depending on how many rounds of revisions are required, you could end up with several versions of the same agreement. Managing all these documents becomes a headache for legal teams. 

Also read: Positioning Your Legal Team as Key Asset in Times of Uncertainty

Contract redlining software tracks all the changes made to an agreement in real-time without creating multiple versions. There is one agreement that gets redlined and passed between signing parties. All in all, this helps mitigate confusion and improves collaboration to result in an explicit final agreement.

#3 Capture and store all contract data

Most contract redlining software uses cloud storage, some even use AI, to capture and store contract information. You can use this knowledge to improve your existing contract processes. This continuous iterative improvement will help streamline the process in the long run. You’ll also leave a clear audit trail if you need to provide these changes.

How modern CLM tools like SpotDraft help with redlining

While legal professionals can create and redline contracts in Word, far better tools are built specifically for this purpose.

SpotDraft is an all-in-one Contract Lifecycle Management (CLM) platform to help you create and execute contracts faster and safer. 

“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business. Rather than going back and forth over email, Slack, Word, Zoom, DocuSign, and a whole tech stack, the CLM acts as a single source of truth.” 

~ Jonathan Franz, Head of Legal, Crunchbase

Navigating Economic Turbulence and Thriving in Chaos

SpotDraft makes redlining more productive by providing robust editing features, powerful security layers, and automated review functionalities to ensure that legal teams complete contracts faster and worry less about contractual risks. The contract editor looks like Word, letting you achieve more within a familiar interface.

It also has an AI-powered error detection engine that automatically detects duplicate definitions and undefined terms, making reviews a cakewalk.

See it for yourself!

To keep up with the ever-evolving challenges of contracting in modern business, you need a robust, specialized, and tech-led contracting tool—a CLM. 

Ready to try all the valuable contract editing and redlining features SpotDraft offers? Request a demo today.

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