Reviewing a contract involves carefully assessing its terms to ensure they align with your expectations and obligations. By following a structured approach, you can identify risks and ensure clarity in the agreement.
Key Takeaways about How to Review a Contract
- A contract defines the rights, responsibilities, and obligations of the parties involved.
- Understanding the industry and contract type helps identify relevant terms and risks.
- Reviewing key clauses, including indemnities, limitations of liability, and termination terms, is essential.
- The Contract Particulars and Technical Documents contain specific terms that impact execution.
- A structured review process helps ensure that all terms are clear and enforceable before signing.
Introduction to Contract Review
Contracts define rights, obligations, and expectations between parties. Whether reviewing a contract for business, employment, or services, knowing how to identify key clauses and potential risks ensures the agreement is fair and enforceable. A structured contract review process allows you to understand what you are agreeing to and avoid unexpected obligations.
Here’s how to read a contract and gain a high-level overview
If you are wondering how to review contracts, and you don’t have a legal degree, there are certain steps you can take:
- Determine what industry the contract relates to, so you know the features the contract is likely to have.
- Identify what type of contract it is, so you can find the similarities with other like contracts.
- Scan the Table of Contents (looking for provisions like indemnities, limitations of liability, KPIs, liquidated damages, etc).
- Read the relevant clauses and consider the risk allocation.
- Look at the Contract Particulars.
- Review the Technical Documents.
- Read the contract – your previous contract review ensures you will understand it better.
By carrying out the above steps, you can ensure you carry out a thorough contract review, whether it is a simple or a complex contract and regardless of how much legal jargon the contract contains.
How to gain a high-level overview of the contract
Here are some steps to take in order to quickly gain a high-level overview of the contract and review contracts regardless of their type or industry:
1. Determine which industry the contract relates to
There are similarities between many contracts in the same industry:
- Contracts in the Construction Industry generally have similar features to other contracts in the Construction Industry (eg a defects liability period, the concept of practical completion, construction works insurance, a Statement of Requirements/Specification etc); and
- ICT contracts generally have similar features to other ICT contracts (eg Acceptance).
2. Identify what type of contract it is
After identifying the relevant industry, ask yourself what type of contract it is. This will help you work out the likely contract terms.
Services Contracts have similar features to other Services Contracts (eg fitness for purpose, professional indemnity insurance, etc. So, if you’ve read a Services Contract before, you’ll have a good idea what will be in this one.
3. Scan the Table of Contents (looking for provisions like indemnities, limitations of liability, KPIs, liquidated damages, etc)
Have a quick scan of the Table of Contents. Once you’ve read a few contracts, you can start to identify the more unusual clauses in the contract you have to review from a glance at the Table of Contents.
Most contracts have standard “boilerplate” clauses which are pretty similar – particularly at the end of the terms and conditions of contract. These often don’t change during contract negotiation.
You’ll be more interested in the less-usual clauses. For example, any clause with “indemnities” in the title or text. The Table of Contents give you a quick overview of what unusual clauses are in the contract.
4. Look at the Contract Particulars
Have a look at the Contract Particulars or Contract Details (often in Schedule 1).
Usually, the Contract Particulars contain the variable terms in a contract, as well as the important dates for each of the parties involved. For example, the payment clause in the terms of the contract will say that the Contractor gets paid, but the Contract Particulars will say what amount the Contractor gets paid and the timing of the payment (ie the specific payment terms that apply to the contract and the contract parties).
5. Read the relevant clauses and consider the risk allocation
Follow each Contract Particular item back to the relevant clause to see what that clause says. Often, clause numbers are on the left side of the Contract Particulars table, so it is easy to find relevant clauses. Alternatively, reference the clause you want to look at (eg payment clause) in the Table of Contents or do a word search for “payment.”
Also read the clauses that you identified from the Table of Contents – the clauses with the greatest potential ramifications. In each clause, consider the risk allocation of the clause, and which of the parties involved is favoured by the drafting.
6. Review the Technical Documents
Check out the documents in the schedules or annexures. These are the technical requirements that say what must be done and to what standard, and are present in most contracts.
7. Read the contract
Depending on the task you are carrying out, you will likely still need to read the contract.
However, the above steps will help you get a high-level overview of the legal agreement first – this will make it easier for you to digest the contract when it comes time to reading it.
Conclusion
Reviewing a contract using the correct approach ensures you understand its terms, obligations, and risks. A high-level review of industry relevance, contract type, key clauses, and risk allocation helps in identifying potential issues before committing to the agreement. If a contract contains unfamiliar or complex clauses, seeking legal advice is always a good idea.
FAQs
1. What is contract review?
Contract review is the process of assessing a contract’s terms, obligations, and risks to ensure it aligns with your interests before signing.
2. Why is it necessary to review a contract before signing?
Reviewing a contract before signing ensures you understand your obligations, identify potential risks, and confirm the terms are fair and enforceable.
3. What are common clauses to look for in a contract?
Common clauses include indemnities, limitations of liability, termination terms, dispute resolution, and payment terms.
4. How do you identify risky clauses in a contract?
Risky clauses often include broad indemnity provisions, excessive penalties, unclear obligations, or clauses that heavily favour one party over the other.
5. What happens if I sign a contract without reviewing it?
Signing a contract without reviewing it can lead to unexpected obligations, legal disputes, or financial liabilities.
6. Can I negotiate terms in a contract?
Yes, most contract terms are negotiable, especially if they impose unfair risks or obligations.
7. What should I do if a contract contains legal jargon I don’t understand?
Seek clarification from a lawyer or legal expert to ensure you fully understand the contract before agreeing to its terms.
8. What is the purpose of Contract Particulars?
Contract Particulars outline specific details such as parties, payment terms, and key dates that apply to the contract.
9. Why is the Table of Contents useful in contract review?
The Table of Contents helps locate critical clauses and identify key areas that may need further scrutiny.
10. How do technical documents affect a contract?
Technical documents define performance standards, specifications, and obligations, which impact contract compliance and execution.
11. What should I do if a contract is missing key information?
Request amendments or additional clauses to ensure clarity before signing the contract.
Contract Review Related Articles
Commercial Lease Review
Document Review
Construction Contract Review
How to Review a Construction Contract
What to Look Out For When Reviewing a Construction Contract
Contract Review
Business Contract Review Lawyer
The 7 Key Ways an Employment Contract Review Can Protect Your Business
How our Contract Review Lawyer Can Save You Money
How to Review a Contract
