It should be no secret that negotiating a contract can be a very complicated process. This is because most legal and business contracts are sent back and forth between multiple individuals and parties before they are finished.
This basic process of editing a contract between multiple parties is referred to as ‘redlining.’ In essence, it’s a critical part of the contract drafting and negotiating process to ensure that all parties involved are happy with the terms and conditions of the contract.
But there’s also a little bit more to the process of redlining that goes beyond merely alternating contracts between parties and making adjustments as you go. There’s a specific process that you’ll need to follow to ensure that all parties can be agreeable to the contract and to avoid any potential legal issues in the process.
That’s what we’re going to talk about today. As we’ll also explore below, companies like LexCheck can help with making the redlining process much more efficient.
Redlining, in its most basic form, is when a contract involving two or more parties is edited. The goal of redlining a contract is to produce a legal document that is satisfactory to each party involved. Think of it as the process of parties collaboratively editing a legal contract.
The reason why the specific term ‘redlining’ is used is because red pens were traditionally used for the process of marking up and suggesting revisions to legal contracts on paper. One party would use a red pen to cross out or add words before sending it to another party, who would do the same thing.
The reason why red ink was used is because it made it incredibly easy to keep track of the suggested changes to the document, standing out against the traditional black ink used for the original text of the document. Today, this process has obviously been digitized.
Contracts are now edited on word processing documents rather than on physical paper, and contracts are usually edited with cloud-based or AI-based contract management solutions that make it easy for teams and parties to send the documents to one another. This process alone speeds up the process of editing contracts by several days or weeks.
Not all contracts are redlined. On certain occasions, parties will agree to standardized contracts when they unanimously agree with the terms and conditions of that contract.
Contract redlining is important because it ensures that all parties involved can collaborate on the contract and provides clarity to them. Any ambiguities, misunderstandings, or points of dispute can be resolved before the contract is signed and adhered to later.
You will most likely need to redline a contract whenever there is more than just one party who needs to agree to the terms and conditions in the final draft because an original or standardized version of the contract is not collectively agreeable.
Common examples of when redlining a contract is important is when an old contractual agreement needs to be revised or when a new contract template is being drawn from the ground up.
Most of the time, contract managers, legal and procurement teams, and commercial teams of parties will be responsible for redlining a contract.
Examples of specific individuals and stakeholders who are usually involved with the process of redlining a contract include:
As you can probably imagine, there are several challenges that can arise in the process of drafting a legal document. Let’s find out what those are and how they can be avoided.
It’s very easy for redlining to turn into a disorganized mess unless it's done in an orderly process. For example, if you are redlining contracts in a word processor, it can become very difficult to keep track of all the changes made to the text, making it easy to make errors or miss other provisions that should have been included.
And that’s just the start. Some of the primary challenges that come with redlining contracts include:
In other words, different people or parties involved in the redlining process may create an entirely new version (a new document) of the contract when redlining it. While this may be done with good intentions to keep a ‘clean version,’ it can also make keeping track of edits and comparing past versions difficult.
The last thing you want when redlining a contract is for there to be multiple stakeholders involved with multiple versions of a contract being sent between mailboxes. Instead, contracts should be kept to the same document, and all changes should be made within that document.
It’s also easy to lose data in a contract when different stakeholders are making edits to a contract across different formats. This may happen when they convert a document to another type of document, which could potentially cause text to be lost in the changed document depending on formatting or other issues.
Instead, it’s much wiser to set a standard based on the platform that will be utilized for revising the contract. Stick to the same version of a document and the same platform for viewing and making edits in that document.
The whole point of redlining a contract is to keep track of prior changes to the contract so it can be easy to keep track of changes. Keeping track of the changes in a contract is very important to ensure that no stakeholders or parties are misled and that everyone is kept informed of the updates that are made through the document.
The best way to avoid this is, again, to stick to the same document continuously when editing a document and to also make sure that you use contract review software (like LexCheck) that makes it easy to know what changes to make.
So, the big question: how do you actually go about redlining a contract?
As we mentioned above, the traditional way to redline a contract was for a party or stakeholder to manually use a red pen to cross out parts of a contract that they didn’t like and then to write in their own suggestions.
In today’s digitized world, the fundamental process isn’t so different, but it is much more simple and easy to keep track of changes. The most common way to redline a contract is to use a word processor, such as Google Docs or Microsoft Word, and to utilize the ‘track changes’ feature when redlining the contract.
Another strategy is to use contract review software, such as LexCheck, which provides clients the ability to see deviations from their standard positions in an agreement provided to them by a counterparty.
It’s also important to adhere to a strict process that all parties involved are aware of and agree to before the process of redlining a contract begins.
Here’s a basic outline for a process that you can follow:
The first step in the redlining process is to carefully review the first draft of the contract. In other words, one party has prepared the initial draft complete with all of the proposed terms and conditions, and now the other party needs to review this draft.
The next step is for the party reviewing the first draft of the document to propose any changes they’d like to make. This is where the actual ‘redlining’ process comes into play.
It’s when the party will make suggested additions, deletions, or changes to the document. Again, it’s important to stick to the same document and to make sure that changes are tracked. You will also want any past editions of the document to be easily accessible so they can be compared with the current version.
Once the second party has redlined their proposed suggestions, the first party will need to engage the second party in discussion. During this, they can exchange ideas and find common ground regarding the proposed changes.
Once the changes have been agreed to, one of the parties will need to incorporate them into the draft. This will result in a new version of the contract that reflects the changes. From there, this basic back-and-forth process will continue until the document is complete.
Once the entire document is agreeable, all parties will need to conduct a ‘final review’ during which the decision makers in each will need to confirm that the document accurately reflects all of the negotiated terms and meets the expectations of all stakeholders involved.
In years past, most legal and procurement teams had to spend countless hours across the span of days or weeks to manually check and revise contracts.
LexCheck’s contract review software, however, is designed to greatly reduce the amount of time that legal and business teams need to spend revising their contracts. This is because the technology that LexCheck utilizes automates much of the contract review process.
Specifically, LexCheck can create a standardized playbook that your legal team can customize before applying it to any contracts that are run through it. At the same time, LexCheck will flag any deviations from the standard positions, explain the risks of keeping that deviating language in the agreement, and offer the ability to redline the deviations so they conform with the client’s preferred positions.
In short, redlining a contract means more than just making edits or markups to that contract when sending it back and forth between parties.
Instead, redlining a contract means adhering to a strict process to ensure that all parties involved in the contract drafting process can trust and be transparent with one another. By redlining a contract, parties can carefully track each change so they can avoid future points of contention.
A contract that has been properly redlined is one that has been well-collaborated between parties and will set the foundation for a deliberate and productive relationship in the future.
Sources:
Legal Writing: Tools and Tips for formatting | Illinois College of Law Library
5 Steps to Reviewing a Legal Document | LinkedIn
How to Write a Contract Agreement | Adobe