A commercial contract review checklist is an indispensable tool for businesses to ensure that all relevant legal and business considerations are taken into account when entering into agreements. It helps to ensure that contracts are comprehensive, accurate, and compliant with relevant laws and regulations.

Businesses that don't have a contract review checklist face a number of issues, including:

• Missed deadlines: Without a checklist, it is easy to overlook important deadlines and contingencies, leading to missed opportunities and potential liability.
• Inadequate protection: Contracts that are not properly reviewed may not provide adequate protection for a business's interests, leading to increased risk and potential financial loss.
• Legal non-compliance: Contracts that are not properly reviewed may contain provisions that are not compliant with relevant laws and regulations, exposing a business to potential legal liability.

We spoke with experts and legal leaders who undergo contract review processes every now and then to create this contract review checklist. But first, let's understand what contract review is.

What is Contract Review?

Contract review is a process where you read, understand, and revise your contracts to ensure that they meet the requirements of the negotiation and business relationship at hand. It involves analyzing the terms and provisions of the contract to ensure that they are fair, reasonable, and legally binding.

The main objective of contract review process is to identify potential risks and issues that could arise during the business relationship and mitigate them through negotiation and revision of the contract terms. It is important to note that most contracts are negotiable, and it's essential to balance the need to protect your business's interests with the objective of closing the deal and getting the customer signed up.

Ultimately, the aim of business contract review is to agree on a framework for a long-lasting and mutually beneficial working relationship. By completing a thorough contract review, you can ensure that the terms and provisions of the contract are fair, reasonable, and legally binding. If you choose to forego the recommendation to review a contract, you could find yourself locked into an agreement that you're not happy with, which could have significant financial and legal consequences.

The Perfect Contract Review Checklist

Here is a commercial contract review checklist template that businesses can use to ensure that all relevant considerations are taken into account before entering into an agreement:

• Identifying the parties: Verify that the correct parties are identified in the contract and that their names, addresses, and other relevant information are accurate.
• Purpose of the agreement: Ensure that the purpose of the agreement is clearly defined and that it aligns with the business's goals and objectives.
• Term of the agreement: Review the start and end dates of the agreement, as well as any renewal or termination provisions.
• Consideration: Ensure that the consideration being exchanged is clearly defined and that it is reasonable and fair.
• Representations and warranties: Review the representations and warranties made by each party, and ensure that they are accurate and sufficient.
• Covenants: Review the covenants and obligations of each party, and ensure that they are reasonable and feasible.
• Indemnification: Review the indemnification provisions and ensure that they provide adequate protection for the business.
• Limitation of liability: Review the limitations of liability provisions and ensure that they are reasonable and appropriate.
• Confidentiality: Review the confidentiality provisions and ensure that they are adequate and comply with relevant laws and regulations.
• Dispute resolution: Review the dispute resolution provisions, including any arbitration or mediation provisions, and ensure that they are fair and effective.
• Governing law: Review the governing law provisions and ensure that they are appropriate and comply with relevant laws and regulations.
• Assignment: Review the assignment provisions and ensure that they are appropriate and consistent with the business's goals and objectives.
• Entire agreement: Review the entire agreement clause and ensure that it accurately reflects the parties' understanding of the agreement.
• Counterparts: Review the counterparts provisions and ensure that they are appropriate and consistent with the business's goals and objectives.
  
• Amendments: Review the amendment provisions and ensure that they are reasonable and appropriate.

This is a comprehensive contract review checklist template, but it is important to note that each contract is unique and that the specific provisions that need to be reviewed may vary depending on the specific circumstances and goals of the business. This checklist should be used as a starting point and adapted as necessary to meet the specific needs of each contract.

If you’re preparing for a contract review session, it’s best to follow the below guidelines to come up with a consolidated contract review checklist for your specific business functions.

How to Create the Perfect Contract Review Checklist

#1 Get acquainted with the contract and note important timelines

“As an in-house lawyer, it is vital that you understand how to read contracts – they are the lifeblood of any company and working on them is, in my opinion, the highest and best use of the legal department.  Even if you don’t work on contracts every day, it’s an important skill to develop and it will help you with your day-to-day work because at some point someone will slide a contract over to you to look over for some purpose – yes, even the litigators kept chained to the wall down in the basement waiting to be unleashed.”

‍~ Sterling Miller, CEO and Senior Counsel for Hilgers Graben PLLC 

Getting familiar with the contract can help ensure that you're aware of the obligations and can plan accordingly, reducing the risk of disputes. Read the entire agreement, including all provisions and any exhibits or schedules, to get a complete understanding of the terms and conditions. Highlight or mark any key provisions, such as payment terms, delivery dates, and termination provisions, to make them easier to locate and review later.

Review the agreement for any important timelines, such as deadlines for performance, payment, or termination, and make note of them. While doing this, ensure that the timelines in the agreement are consistent and that they align with each party’s expectations.

At the end, don’t forget to consider the impact of the important timelines on the parties and the agreement, and ensure that they are realistic and achievable.

#2 Examine key terms and clauses and insert missing terms

You must have already highlighted the key terms while skimming through the contract but now it’s time to examine those terms and clauses. Ensure that important clauses like Pricing, Scope, Indemnification, Limitation of Liability, Confidentiality, Term, Termination, etc. are defined accurately and clearly.

Compare the key terms in the agreement to your expectations and ensure that they are consistent and in line with both parties’ understanding.

If any key terms are missing from the agreement, identify them and discuss them with the other party to determine if they need to be included. You could also simply add the provision/clause from your agreement to the counterparty’s agreement and highlight it for them to know.

Finally, after inserting any missing terms, review the agreement for consistency and ensure that all provisions are clear, concise, and in line with each party’s understanding.

#3 Check for termination and contract renewal rules

Contracts are meant to be agreed upon for a predetermined period, meaning that the contract will have certain rules for termination or renewal. Whether you’re undergoing a contract renewal process or simply terminating a contract, you must ensure that the rules are in line with your company’s understanding.  

Review the grounds for termination of the agreement, whether by either party or automatically after a certain time period. Confirm if there are any notice periods required for termination, and whether the termination is immediate or subject to a cure period. Also, don’t forget to check if any terms or provisions of the agreement survive termination, such as confidentiality obligations or warranties.

Verify what happens upon termination of the agreement, including obligations to return or destroy confidential information, return of property, or payment of damages. 

If the agreement includes a renewal option, check the conditions and process for renewing the agreement, including the notice period required and any changes to the terms and conditions.

Also read: 6 essential types of contract clauses you need to know

#4 Carefully read contract language to find hidden items

When reviewing a contract, it is important to be mindful of any complex language that may cause confusion. Take the time to thoroughly read the entire agreement, focusing on any language that appears unclear or misleading. Create a list of these items to address with the other parties involved in the contract, and don't hesitate to request modifications - this is the purpose of the contract review process.

While auditing contract language, ensure:

• Clarity: language is clear and unambiguous, avoiding any vague or overly complex terms
• Consistency: terms and definitions are consistent throughout the agreement without contradictions
• Relevance: language is relevant and applicable to the parties and the purpose of the agreement
• Legal terminology: legal terminology used is accurate and commonly understood, and that the terms are not too technical for the parties to understand
• Tailored language: language has been tailored to the specific needs of the parties and the agreement, and that any boilerplate language is appropriate and relevant
• Governing law: governing law is clearly stated and consistent with the parties' understanding and expectations.
• Integration clause: the agreement constitutes the entire understanding of the parties and supersedes all prior negotiations and agreements

Also read: 5 Most Negotiated Terms and Clauses in a Contract

#5 Verify confidentiality provisions

Confidentiality provisions must, at all times, be clear and enforceable and should help protect sensitive information and maintain the parties' business interests.

While reviewing a contract, clarify the purpose of the confidentiality provisions and the extent to which information can be shared. Also, verify the definition of confidential information and ensure that it is specific, clear, and relevant to the parties and the agreement.

Make sure to confirm if any exceptions or exclusions apply to the confidentiality provisions, such as information that is already publicly known or information that is required to be disclosed by law.

Finally, confirm the identity of the parties who are authorized to receive confidential information and the extent to which it can be shared with third parties. Don’t forget to verify the obligations of the parties upon termination or expiration of the agreement, including the return or destruction of confidential information.

At last, check for any remedies available for breach of confidentiality, including injunctive relief or damages.

#6 Take one last look at the contract

You’re done with reviewing the contract but the closure is still pending. After all is said and done, taking a final look at the contract can help ensure that it accurately reflects the parties' intentions, protects their interests, and reduces the risk of disputes.

You must take a look at these six things before passing on the contract for any additions/omissions:

• Grammatical errors: Review the agreement for spelling, punctuation, and grammar errors, and ensure that the language is clear, concise, and error-free.
• Formatting: Verify that the agreement is formatted consistently and professionally, with clear headings and subheadings, and that it is easy to read and understand.
• Consistency: Check that the agreement is consistent in terms of font, spacing, and margin, and that any exhibits or schedules are clearly labeled and easy to locate.
• Cross-referencing: Confirm that any cross-referencing within the agreement is accurate and that the referenced sections are easily located.
• Numbered sections: Ensure that the agreement has been numbered for easy reference and that the numbering is consistent throughout.
• Tables and charts: Check for any tables or charts in the agreement, and ensure that they are formatted correctly and easy to understand.

How long does it take to review a contract?

The time it takes to review a contract can vary significantly depending on the nature of the contract and its complexity. A straightforward contract with boilerplate language that your business uses routinely can be reviewed much more quickly than a complex, bespoke business contract.

The contract review process can take anywhere from a few hours to several days, depending on the length of the contract and the complexity of the terms. However, it's important to note that the entire process from initial review to final execution can take anywhere from four to eight weeks.

Finally, the relationship between the contracting parties can also affect the timeline for contract review process. If the parties have a pre-existing relationship, the process may be quicker as they may have already negotiated and agreed on some of the key terms.

It's essential to allow enough time for a thorough contract review. Rushing through the process can lead to missed opportunities for negotiation and revisions that could benefit your business in the long run.

Review Contracts 5x Faster With SpotDraft

“A manual approval process makes approval tracking difficult and doesn’t provide a clear trail of who gave a sign off on the contract, which means you could miss getting crucial approvals and this may lead to costly mistakes."

‍– Diwyata Burbure
Senior Vice President - Legal Tech @SpotDraft

SpotDraft is a CLM software designed by lawyers for lawyers. While MS Word and Google Docs certainly has its place in the world, neither one of these are built to really support the complex work that lawyers end up doing.

When a new contract is imported into the system, SpotDraft pulls out key terms and clauses using powerful machine learning models. This enables contract reviews and due diligence processes to happen a lot faster.

The SpotDraft editor is jam-packed with features to help you review contracts faster. Key features include being able to see contract definitions in-line, identifying common drafting mistakes in a contract and the ability to add scoped comments on a contract. Find out how Open reduced turnaround time for contract approvals by 90% with SpotDraft.

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