Contract review is the process of analysing the terms of a legal agreement to ensure that they are valid, accurate, and do not involve potential risks. A contract review allows all parties involved to identify and implement necessary changes that align with the original intentions and objectives of the agreement.
In this article, Farrah Motley, Director at Prosper Law, shares her three valuable insights as a contract lawyer. She explains how a thorough contract review can greatly benefit you by safeguarding against legal and financial risk.
Ambiguities, inconsistencies and loopholes in contracts can significantly affect the parties involved. They create uncertainties and opportunities for exploitation, which can lead to misinterpretation or the other party taking advantage of the contract issue. A contract review can safeguard your interests and ensure a fair and mutually beneficial contractual relationship.
A comprehensive contract review can effectively address these issues. Because it closely examines all key clauses, terms and conditions to identify and correct any ambiguous or vague language. Clarity and precision in contractual language help avoid misunderstandings and disputes. Therefore, providing both parties with a solid foundation for fulfilling their obligations and expectations.
A contract review allows you to identify contradictions or inconsistencies within the agreement. This ensures that no conflicting terms or requirements can confuse or hinder the parties in fulfilling their contractual duties. This way, you can establish a coherent and cohesive contractual framework that promotes clear communication and understanding.
Contracts need to take into account various circumstances that may arise during the contract period, such as changes in external factors or unforeseen events. A contract review allows you to identify any gaps or omissions and include the necessary provisions for these situations. This proactive approach minimises uncertainties and ensures that both parties are adequately prepared for unexpected events.
Moreover, a contract review helps to detect drafting errors or oversights that could compromise the integrity of the agreement. Even minor mistakes or oversights can have far-reaching consequences and potentially expose you to unnecessary risks. A thorough contract review can help you identify and correct errors, so that the contract accurately reflects the intended terms.
Even if you have a basic understanding of contracts, you should hire a contract lawyer to review your contracts. Contract lawyers have in-depth knowledge of contract law. They are trained to identify potential legal risks, loopholes, and issues that you may not be aware of. They can carefully review a contract to identify any legal risks and issues that may be included in the agreement. An experienced lawyer can also identify legal issues early on and suggest ways to mitigate them.
For example. A service provider agreement lacked clarity on payment terms and royalties related to the use of intellectual property. During the contract review process, the business contract lawyer discovered that the contract did not specify the royalty structure. The revision addressed this issue, stating that the service provider would receive a fixed fee of $2000 per month for intellectual property usage, ensuring a clear and mutually agreed-upon payment arrangement.
The regulatory landscape and industry practices are constantly changing. Regulations and new practices are constantly being introduced, amended and, overwritten, upgraded, meaning contracts need to be updated continuously with the moving goalpost.
A contract review enables a series of checks and procedures for businesses to implement to ensure that they are in compliance with changing laws, regulations and industry standards. Moreover, contract review services enable you to adapt and succeed in the face of these changes and strengthen your business relationships.
A contract lawyer stays updated with current legal developments and industry standards impacting the contractual obligations of the parties involved. They have the expertise to review contract terms to ensure they comply with changing laws and standards.
Accordingly, after a thorough review, they can recommend necessary changes in default clauses if non-compliance or inconsistencies are found during the contract review. Thereby ensuring that contracts are compliant and your business does not get penalised.
For example. Alex, the owner of a tech startup, had hired a virtual in-house counsel to handle legal matters, including reviewing contracts. During a routine review, the lawyer discovered that the company’s employment agreement contained pay secrecy clauses that prohibited employees from discussing their salaries.
Being well aware of the recent ban on pay secrecy clauses in Australia, the lawyer immediately alerted Alex to the non-compliance and the potential legal and financial risks involved. They immediately recommended a revision of employment agreements to remove the pay secrecy clauses. Instead, they ensured that all remaining clauses were legally binding and enforceable. The lawyer review not only protected the business from legal liabilities but also fostered a culture of transparency and fairness among employees.
As businesses evolve, they change their strategies, goals and how they operate. This can affect their ability to meet their contractual obligations. External factors like economic fluctuations, market trends, technological advances and legislative changes can impact how well contracts perform. Businesses that fail to adjust their contracts to these changes may involve themselves in time-consuming disputes, wasting valuable time and ultimately reducing overall performance or breach of contract.
Contract reviews allow you to assess your existing contracts and identify necessary adjustments to the changing landscape. You can determine what modifications or amendments you can make to ensure that your business legal agreements remain relevant, effective and in line with current operations and objectives.
Experienced lawyers carefully review contract terms and provisions during the contracting process. They analyse the potential impact of changes in business strategies, external factors and legal requirements on the performance and viability of the agreements. This allows them to identify areas that need adjustment, such as deliverables, milestones, performance measures, dispute resolution mechanisms, or termination clauses.
Contract review also allows you to address potential risks, anticipate challenges, and plan for unexpected situations and specific contracting events.
For example. A company was facing performance issues with its supplier. While reviewing a contract, a contract review lawyer identified areas for improvement. The lawyer recommended clear performance metrics, quality standards, and key dates for delivery. The company requested the lawyer to negotiate on its behalf, and after successful negotiation, the contract lawyer amended the final contract. As a result, the supplier improved product quality and timeliness, which benefited the company, reduced unnecessary risk and increased its contract performance.
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