Contract negotiating and reviewing can take a lot of time for the legal department. All parties involved have expectations and needs, and it can be challenging to reach an agreement that everyone is happy with. Compromises will have to happen so relationships can move forward. The right practices, however, can make workflows move easier so that contracts aren’t getting stuck along the way.
A key component of contract lifecycle management is contract redlining. This occurs during negotiations and involves each party marking up the document with changes and comments, either by hand or through a digital system.
Legal teams often need to fight for better terms or indicate that they’re unable to comply with something stated in the contract. Negotiations then continue back and forth until a final agreement is reached, and redlines are accepted or rejected to create a clean contract.
Putting redlining best practices in place will help you improve your approach. This guide will cover what redlining is, how to redline a document, and some best practices to follow.
What Is Contract Redlining?
Contract redlining is the process of editing and commenting on a contract document from all parties involved in an agreement. The contract will often go back and forth many times before everyone agrees to the terms and the relationship. Redlines take the form of insertions or deletions that change the language in the document.
It’s called redlining because, with traditional paper contracts, a law firm would often use red ink to markup documents with edits and suggestions. Sometimes blue or another color would help to distinguish the edits from the original text.
Now, contract management software tools have features that track any changes made to a contract digitally. This helps organizations and legal counsels avoid longer wait times associated with sending physical documents back and forth.
Often there are many different versions of contracts, all with differing redlines and language. A big challenge is ensuring that the most recent version of the document is being used and referenced so that redlines aren’t lost.
Redlining documents is a critical part of the contract negotiation process. It ensures that involved organizations aren’t at risk for legal consequences. The goal of contract review and redlining is to agree on all terms, creating a clean final document that is ready to be signed. A “redline contract” is not a type of agreement but a document that contains redlines and is thus not a final, executed contract.
Best Practices When Redlining Contracts During Contract Negotiations
Incorporating best practices helps you improve the contract redlining process, which, in turn, can improve vendor or customer relationships and productivity. These best practices are great places to start when you’re learning how to redline a contract and create your contract process.
Take Extra Time If Necessary and Never Rush the Redlining Process
It may be tempting to approach redlining with one goal in mind: to get the final document prepared as fast as possible. The business relationship at hand can’t begin until the entire process is over and the contract has been fully executed, so you want the negotiation process to move quickly.
But, never rush the process of redlining a document. You need to ensure that you’re never putting the company at risk. Terms need to be favorable to you, so take extra time to consult with legal counsel or other departments to ensure you can meet all obligations outlined and that they work for your organization. Even if negotiations have been ongoing for a while, take the extra time you need to get the best terms possible.
Monitor Possible Compliance Issues
It’s important to closely review contracts for any compliance issues. This is why it’s helpful to loop in legal counsel early on, if necessary. You have to be sure that anything and everything in the contract is both realistic for your company and that you’ll be able to comply with the terms.
Sometimes a compliance issue may not be clear right away. If you can’t confirm terms that are related to another department, bring in the team to redline the contract or provide feedback. For example, you may need to check with the accounting team about invoicing expectations to ensure that they will be able to comply before you agree to it in the contract.
Maintain Clean Version Control of All Legal Documents
There are some risks associated with contract redlining. When you have formatting issues or errors in change tracking, the terms and language could be accidentally altered in the process. This could lead to headaches down the road and even risks for the company.
Another challenge can be version confusion. Without a proper approach to document naming and sharing or a good contract workflow management system in place, it may be unclear which document is the latest version and which is the original document.
Contract redlining software helps you address these issues. All versions are maintained and categorized, so there are never version confusion issues. Plus, it’s easy to accept or reject redlines, manage insertions and deletions, and make comments. You can conduct side-by-side document comparisons to get a better overall view of any changes.
Use the Right Contract Management Software Solution
Contract management software helps you manage and improve how to review a contract, streamlining workflows and opening the door to faster and easier processes. The right software solution (like Lexion) will include features like:
- A dashboard that summarizes contract stages and data
- A feature to automatically request approvals from other teams and departments
- Draft management tools to see complete contract history in one place
- Communication features
- Reports to view performance metrics
- Seamless integration with other processes and teams
- Storage solutions for contract and deal history
Lexion gives you all of these features and more with our contract management software. Using our tools, you can gain key analytics and insights about your contract process, search through document versions, and coordinate with non-legal departments. Legal teams can easily review a contract after receiving a review request from another team via email.
Learn more about contract automation software by contacting our team or requesting a demo.