Many entrepreneurs struggle when it comes to reviewing contracts. Here’s a two step process to make it a little easier for you.
At the outset, you should look at things from a high level. Then, dive deep into the nitty gritty.
[Learn More: How to Negotiate a Contract]
High Level Review
At a high level you can use these five steps to make sure the contract accurately reflects the deal terms as you understand them:
- Step 1: Make sure you understand what you expect and want out of the contract.
- Step 2: Review the contract’s action sections to make sure the deal terms are properly documented.
- Step 3: Read the rest of the contract (all of it) to make sure everything else aligns with your expectations (see the checklist below).
- Step 4: Consider whether any important terms are missing.
- Step 5: Consider your markup options and negotiate your change requests. This can be in the form of a conversation with the other party, an email outlining your requests, a redline version of the contract, or in extreme situations, responding with an entirely new contract.
Deep Dive: A Contract Review Checklist
When reviewing the contract’s terms you might consider using the checklist below to make sure you hit the key points:
□ Are the parties properly identified?
□ Are any capitalized terms not defined?
□ Are the signature blocks correct?
□ Are references to exhibits and schedules correct? Are they attached?
□ Have you double checked all mathematical formulas?
- Term & Termination
□ Is the term and expiration identified?
□ Can you terminate early? If so, how?
□ Can the other party terminate early? If so, how?
□ What are the rights of the parties following an early termination?
- Action Terms
□ Are your performance obligations accurate?
□ Are the other party’s performance obligations accurate?
□ Are the payment terms accurate?
□ Are the payment dates and payment methods accurate?
□ Are expenses reimbursable? If so, how?
- Representations & Warranties
□ Are your representations and warranties accurate?
□ Are you asking the other party for sufficient representations and warranties?
- Other Legal Terms (depending on your circumstances, these may not be necessary)
□ Is there a well-drafted NDA provision?
□ Is there a non-compete and/or non-solicitation?
□ Who will own the intellectual property created under the agreement?
□ Are indemnifications provided?
□ Is insurance required? Should it be?
- Boilerplate Provisions
□ Are the “boilerplate” provisions present? (Learn more about “boilerplate” provisions)
□ Do you agree to the governing law, jurisdiction, and venue?
□ Do you want an attorneys fee provision?
□ If the agreement is an MSA to which SOWs will be attached, is it clear which precedes the other if the MSA and SOW have conflicting terms?