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The Four R's of Contract Review

Guest post by: Marijo McCarthy

Article Overview: Recently, a client asked me about the process of reviewing a contract. What's involved? What does a lawyer do first when a client drops a contract on her desktop? How long does it take and why?

The Four R's of Contract Review

Recently, a client asked me about the process of reviewing a contract. What's involved? What does a lawyer do first when a client drops a contract on her desktop? How long does it take and why?

It's a question that made me stop and actually consider the process, rather than the substance, of contract review. And, it's an excellent question at that, given how quickly a contract can turn from an asset into a liability if a business owner fails to properly manage the process itself.

And so with that in mind, I present you with my "Four R's of Contract Review:" Read, Review, Reflect and Revise.

• Read the contract. While that may sound intuitive, believe me, it is not always the first step when you receive what, after all, represents the result of weeks or months of business negotiating and now is the only obstacle between you and that profitable business deal.
  
  Business owners frequently go straight to the payment section, eager to see if "the number is right."
  
  My advice? Take a deep breath… and just read it through once. No fingers hovering over keys, no pencil in hand ready to note any changes that come to mind. Just read it through for the general style, tone and content.

• Review the contract. What's the difference between reading and reviewing? You are now starting to hone in on the business terms. Whenever a business owner forwards a contract for my review, I ask for a brief synopsis of the business deal. If their answer is that they have already vetted the document for that, I gently but persistently ask for those details.
  
  Why? Because not only do I need to be sure that the document truly reflects the business deal you believe has been struck, those business terms are not always as cut and dried as you may think.
  
  My next piece of advice? Click on your highlight key and start identifying those all-so-important business terms. Then, review the context in which you find them to be sure there are no ambiguities, vagueness, or unexpected conditions.

• Reflect on the contract. This is the time that tries small business owners' souls! You've received the document; you see your business terms right there in black and white; you just want to sign it and get to work.
  
  But this is where a good lawyer slows you down and says: "But what about the indemnification provisions?… They won't pass muster and may expose you to an uninsured liability." "What about the warranties?… They are draconian!" "What about…"
  
  Well, you get the picture. Now is the time to consider all of the provisions of the contract which might stand in the way of you doing the work and getting paid. Simple as that.
  
  Another piece of advice at this stage? When your lawyer presents you with questions and comments along these lines, stop, reflect and consider the implications. Reflection is becoming a lost art in these days of instant communication. But in order to be sure that contract remains an asset of your business, this is the time to reflect on all of the pieces which make up the document, not just the ones which present the bottom line.

• Revise the contract. No customer expects that a contract will be signed, sealed and delivered exactly as offered. If it is, I often warn my clients that it is possible they have a novice on the other side and that there may be ramifications down the road, when the parties hit a bump.
  
  So, do not hesitate when your lawyer suggests revisions… just be sure they are reasonable, rational and well-explained to your customer. On that note, I find that embedded explanatory comments right next to the revision go a long way towards smoothing the process with my client's customer; the time taken to complete that part of the process is well spent.

Last piece of advice? Do not assume that your customer will always agree with or accept your revisions. But do give them the very best chance by explaining the revisions in English.

Remember, faithfully following the "Four R's" will help ensure that one of your most valuable assets is less likely to turn into a liability!

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Article Tags: business owner, contract review, lawyer, process, read, reflect, review, revise



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