If you are in a business and are keen on growth, you will at some point get into commercial contracts. Contract review process is one of those things you must know and just to add on to that list, you must also learn how to negotiate.
Whether you are thinking of getting into a partnership, renting out some office space or even buying goods and services, you have to make sure that your interests are protected. All these just leads to ensuring you have a firm grip on terms and conditions of the agreement you are about to get into.
In this article we are going to look at key practical steps in commercial contract review process.
Contract review process
Step 1: You have to read the whole contract
You cannot review what you have no idea about so the first place to start is by reading the whole contract. You are probably thinking that this is common sense but you will be surprised by the number of people who just scheme through a contract.
Think about it. A contract is a legally binding document and yet people just rush over it!
Avoid falling into this trap – take time to read the entire contract, paying special attention to any clauses and provisions that you find relevant to your business. Well, the alternative is to skim through the document, fingers crossed and hoping for the best. You do that and it’s your business’s funeral.
Here is a practical look at that. Assuming you are a small clothing retailer interested in leasing a shop in a busy shopping mall and you receive the lease agreement from the agents managing the mall, and you give it a quick skim and sign it. Later you notice that the signed agreement has a clause requiring you to pay a given percentage of money as a “common maintenance fee”. Clearly this is going to cost you and in reality, you would have negotiated that clause or walked away had you read the contract thoroughly.
Step 2: identify areas you are not comfortable with
To understand the second step in contract review process, let say you are the owner of a software development company that is about to go into business with a new client. As you are reading the contract you notice that the client requires you to sign a non-disclosure agreement that is not properly detailed and that will in fact hinder you from even discussing your work with other potential clients in future.
What you have here is a red flag that you will have to bring up in you discussions or negotiations with the client
When reading through a contract, make a list of things that you don’t agree with or are concerned about in that contract. These could be one sided favours to the party you are contracting with, terms that are ambiguous or very restrictive. This is how you avoid making mistakes in the contract.
Step 3: Check with your legal advisor
If you are not that conversant with contract law or you have a list of red flags and doubts, its simple, consult your legal adviser. Do not let your ego get you into legal hell. Your legal advisor’s job is to ensure that you understand the consequences of getting into that contract on the presented terms.
If, for instance, you are a marketing agency and you are about to close this deal in which you are to provide social media management service to the client. As you go over the contract you notice that the client requires you to indemnify them for any losses or damages that may result from your services. Obviously, this is a big deal for your business and you will need to ensure that you know the options you have and how you can protect yourself legally if you choose to get into the contract with those terms.
Step 4: Negotiate for changes and modifications required
This is not a very complicated process which is why you need to be good at it. Ok look, let’s say you are going through a contract and you notice that the client requires you to commit to a long-term contract and you don’t see any provision for early termination. What are you going to do? This is obviously of concern to your business and if the business means that much to you then you need to find a solution to these requirements.
It’s simple, after noticing any red flag you have to negotiate for the changes. The process may not be as simple as we put it here especially since you will have to find a way of protecting your business interests without alienating your client’s interests.
Step 5: Time to review and finalize
This is the last step in your contract review process. After making modifications and necessary changes to the contract, then review and finalize the contract.
Ensure you read the contract again and check that everything is to you satisfaction then you can sign it and officially get into the agreement
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