Is Contract Editing Necessary?
Critical to mastering the art and science of contract editing is a basic understanding of why, in the first instance, it is so important. As you might expect, there are a number of reasons.
One is that getting contract terms and business processes right the first time is fundamental to good client service. This is one of those business axioms that you hear again and again because it is that important. Yet, to satisfy this fundamental, there is an equally critical need to identify and implement the right contract organization, process, review, and approval mechanisms in order to provide the most efficient contract editing. The critical point of focus here is making sure that the best possible contract is produced (it is always a waste of time if you have to go back and fix a contract that should have been right the first time).
Along the same lines, getting the contract editing and approval process right the first time is essential to contract compliance. The problem for either the contract drafter or the reviewer (or both) is that when the contract provisions are inconsistent, open issues from one section to the next, or simply create confusion, there is a significant likelihood that something critical has been missed . Worse still, if the person charged with closing the deal is merely a transactional processor, focusing only on getting the right signatures before a pre-determined deadline, then neither the contracts nor the contract review truly matter. At least not until a dispute arises.
And make no mistake – a dispute will arise, and probably sooner rather than later, when a contract – by virtue of all of the above – has become ambiguous or unbalanced.
Moreover, the stakes surrounding contract editing and review may be even higher than you think. A finding of willful breach of duty or breach of contract can be devastating – damaging or destroying entire companies and wiping out significant equity positions. In addition to potentially exposing an entity to money damages, as a practical matter, a contract provision that is ambiguous or unbalanced, and therefore has to be interpreted, may expose the business seeking to enforce such a contract, to a costly and disruptive litigation process that, while progressing through the various stages of the adjudication process, can distract the business and its personnel from day-to-day affairs, and is likely to consume significant management time and company money.
How to go about editing a contract
The initial and subsequent revisions to contracts should follow a particular approach, allowing for a more efficient and effective method of editing. When a contract is received, there are a few crucial questions to answer that will dictate how the contract should be reviewed. Are changes by both parties permitted? If so, which party will need to do the reviewing and editing? After this point, the drafting and editing parties can begin to make the necessary changes.
A contract can sometimes seem like a puzzle, with its many pieces requiring a careful approach in order to transform that contract into something cohesive and also beneficial to both parties. That approach is systematic editing.
While every contract or document may be different in nature, there are still some similarities in the process of editing that can be beneficial to follow. The hints that can help with editing and rewriting may be universally applicable to any type of legal document but, more importantly, can help with the specific areas of the revision process by focusing on the different pieces in front of you.
- Identify and become familiar with the provisions of the contract.
- Read it again, and with a fine-tooth comb, identifying specific issues or concerns and putting them into understandable terms.
- Look for those issues which repeat themselves throughout the contract.
- Respond to those repeat issues one last time.
- Read it another time in order to ensure that all issues have been addressed and to verify that it is clear and concise.
Contract editing pitfalls to tackle
A contract negotiation and execution process can be an arduous task. The last thing you want is to find out you made an error during the review and approval stage! This means spending even more time correcting it. Here are a few common mistakes to look out for during the contract review and approval process.
Omission of key clauses Parties can forget to include key clauses in the contract or other incorporation by reference, like: warranties, disclaimers and limitations of liability. Sometimes, these elements are missed due to incorrect application in context. Other times, clauses are omitted because the software or tools used don’t provide the correct visibility and functionality to allow reviewers to efficiently see the relevant clauses within a contract. As a result, it can be difficult to indentify certain areas of concern that may be missing, out of date or need more detail.
Incorrect terminology Many times, users overlook or fail to notice the use of incorrect terminology, including: specific provisions of statutes, definitions of terms, specific terms of art used in the industry, or specific terms set out in the contract for the transaction at hand. It’s important to monitor the changes made to a contract and ensure the relevant terminology is used throughout. For instance, if a contract is first drafted referring to the parties as "Supplier" and "Customer," and later on during the review process it is changed to "Seller" and "Purchaser," this can change the meaning of the contract significantly and can lead to ambiguity and problems later on if not identified and updated.
Tool limitations Lastly, the tools you rely on to review and edit contracts can cause problems if they do not function correctly, provide visibility on an entire view of the contract (to see and analyze contractual element at one time), or allow for real-time collaboration and interaction with the contract. Manual processes reduce visibility into errors, and do not provide an efficient means to track, see and update changes, all while collaborating with other contract users. This can lead to confusion and many times, errors are made during editing without recognizing that a secondary party had previously stricken out a relevant clause or made an update that changed the meaning of the contract altogether.
Top tools for contract editing
With the advent of cloud computing and other digital tools, contract editing has become easier and more efficient. Software platforms that allow for collaboration, revision control, and simplified feedback mechanisms are widely available. Using such tools can reduce one of contracting parties’ biggest headaches: sifting through emails looking for the latest contract draft, only to find that there are multiple new drafts added to the chain since the last time you looked. Reviewing the same contract drafted over several months (or even over several years) and trying to determine what happened to each of its different versions is tedious and error prone—software tools that reduce the back-and-forth of emails and improve version control will thus save time and efforts, and improve accuracy and consistency in editing.
Some commonly used contract editing tools include:
• DocuSign and other document management systems. These platforms allow various parties to collaborate on a document (e.g., adding notes and changes, tagging parties for action, etc.), track revisions, incorporate update requests and feedback, and even manage electronic signature workflows. Such document management systems are cloud-based and offer security options, including protection from data loss due to physical damage of the computers on which the documents are stored.
• Microsoft Word’s Track Changes and Compare tools. Most practitioners are likely already familiar with these Microsoft Word features, which allow — if used correctly — to track changes to a document and compare multiple different document versions to determine what was added or removed from each version. Take some time to understand how these recently revamped features work, to ensure that your review of the changes made to the contract during negotiations does not overlook any important issue. And when you receive a newly revised contract for your review, be sure to confirm that a collaborative document management platform (above) was used for the previous revisions. Otherwise, you may easily miss changes that were inadvertently hidden under revisions made to the change tracking features (e.g., text highlighted as "No color" or "Hidden text").
Partnering with outside counsel to review and edit contracts can also greatly improve the contract drafting process. An effective mediator, who acts as a trusted advisor in bringing negotiating parties together to address the terms of a contract, can identify potential issues and pitfalls in a contract, and make recommendations to address those risks.
Consider the legal implications when editing
Editing a contract is not simply a matter of changing words and phrases; it affects the rights and obligations of all parties involved. When entering into a contract, each party has certain rights that are created by the terms of the contract. Those rights remain intact until the contract is legally amended.
In order to be legally enforceable, amendments need to be made within the confines of the original contract and under the current contract law. When editing a contract, all parties must be in agreement regarding the changes and how the parties’ rights will be affected now and in the future.
If the edits are significant enough , a new contract should be drafted and signed by all parties. All alterations to a binding contract or a draft contract should be reviewed by legal counsel. A lawyer will be able to make sure that the changes are effective or that the contract can be properly terminated. Proper document preparation and negotiation of terms are vital parts of the process.
You do not want to assume that certain changes will be accepted by all parties until you have confirmation. Otherwise, you might end up spending unnecessary time and money redoing parts of the process.
Version control after editing a contract
Version control is crucial for any long-lived work product faced with regular amendments and updates. Without it, you can quickly find yourself lost in a tangle of documents where each person is referencing different versions (and worse, different versions in different locations). Contracts are prime candidates for this sort of disorganization—hence the ever-popular (and equally maligned) "redline" documents. If you’re working out of the same document, and if you stick to only redline changes, then your current working copy will be your last good shared revision, and it will look exactly how you want it to. But too often, the changes made to a contract are too extensive to be fully captured with striking through and underlining. The contract may need completely new sections or an entirely new formation. The editor might pull information from outside sources and incorporate them into the in-progress contract. Moreover, trying to work from a copy with crossed-out text and interspersed explanations will make you look like an amateur.
Instead, when redlining becomes inadequate, choose to circumvent the redline altogether. First, as with any order you’ve received, make a copy of the original document. If you are using a word processor, be sure to "Save As" under a new name, properly labeling the document with the current date or version number. And don’t forget to keep the original intact in its own folder under a dedicated subdirectory.
If you have to break out the red pen, be sure to maintain two different versions before any major changes to the contract. Update your in-progress copy with any additions to the contract and annotate the contract with change or comment balloons that explain your updates. If your company approves the edits to the contract, make the updates permanent in the next version of the contract and save it to your contracts directory. Don’t forget to add the date to the file name or change the version number, and be sure to update all your posts and internal wiki pages with the latest copy.
Of course, if your contract organization is good, you should never have to remember what the previous version of the contract was. If you’re the contract administrator, you should have a copy with each contract revision stored in chronological, numerical, or some other easily searchable order. This way, when someone asks what the previous version of the contract looked like, you can confidently retrieve the relevant version by searching for its metadata or through file name recognition.
Corrected contract finales
Once the contract is edited and both parties are in agreement with the terms, it is time to finalize the document. This involves obtaining signatures to make the deal binding, distributing final copies of the contract to all involved parties, and making sure that all revisions to the document are acknowledged by each party. The finalization process can vary based on the complexity of the contract, but in most cases, all of the involved parties need to sign the document to indicate their approval. This step is crucial, because without a signature, the contract is not legally binding . Next, the finalized document should be distributed to each party as a record of the agreement. Having a signed copy of the contract on hand is essential in maintaining a solid relationship with clients or establishing one with a new vendor, as it will allow for the easy referencing of contract terms. Finally, it is important to make sure that the other party is aware of every revision. This may involve cataloging every change and communicating those changes to the other party in writing, but it is important for both parties to understand every term of the contract.