Mastering Contract Redlining:Tips for Seamless Redlining and Negotiations

‍What is contract redlining? 

Contract redlining is the process of making edits, suggestions, and comments on a contract to reach a mutually agreeable version between the negotiating parties. Understanding the concepts behind the most frequently employed clauses and the “etiquette” of contract redlining is essential, whether you are a legal professional or someone new to the world of contracts. So in this article, we will explore a comprehensive set of steps and tips that will ensure a smooth negotiation process.

First steps?

• Go through the entire document, identify the type of contract you are reviewing and get acquainted with its context, wording and purpose;
• Make notes of any language that seems unclear or that is not in line with your objectives at first glance so that they don’t slip your mind later on;
• Identify potential weak spots or missing provisions within the contract;
• And don’t forget to turn “track changes” mode on while making edits!

Now that we've covered the foundational steps, it's time to delve deeper into the main types of clauses that are often subject to discussion and require more attention to detail and precision:

Confidentiality clause

‍- a fundamental element in every contract. A well-crafted confidentiality clause should preferably be mutual rather than one-sided. This approach ensures a balanced commitment from the parties involved, creating a more harmonious and trustworthy foundation for their business relationship. An effective strategy for safeguarding a contracting party's interests even further is to incorporate a provision within the clause that allows for exceptions when the information is considered publicly available (both at the time of disclosure or after) and when the fault for such public availability does not lie with the recipient of the information. Ultimately, we aim to avoid establishing a loophole that would enable the recipient to get around the restriction by disclosing the confidential information.

Choice of law clause

‍- in essence, the choice of law provision specifies the substantive law that should be used to interpret the contract. It should be differentiated from “choice of venue” which determines where legal proceedings will take place. A great tip for such provisions would be to keep them in the same jurisdictions. Why complicate matters when you can keep things simple? 

Limitation of liability clause

‍– an indispensable clause you simply cannot skip when reviewing agreements. A standard limitation of liability clause establishes that neither party can be held responsible for damages that exceed a specified threshold. Occasionally, certain parties may prefer to exclude data breach or indemnification provisions from the liability limit. In such cases, a clever approach is to suggest implementing a 'super cap'. What does this entail? Essentially, it allows the contracting parties to mutually agree on an elevated cap amount for specific liabilities, especially prevalent in the information technology sector. This 'super cap' can be a valuable strategy to employ during the negotiations. Another crucial aspect to be vigilant about is the potential misplacement of indemnities within the contract. For instance, certain sections may be categorised under a confidentiality provision, yet they would encompass other matters such as data privacy. Consequently, you might unintentionally agree to uncapped liability for a type of claim that wasn't your intention!

Force majeure clause

‍– another classic must-have provision. A good tactic in regard to this clause would be to narrow down the specific events the other party can cite by refining the definition. Additionally, a good tip would be to ensure the force majeure event definition stays distinct and separate from the provided examples. This way, the listed events come into play only when they align with the clear, stand-alone definition.

Of course, it is also in our best interest to include provisions such as “no waiver” and “entire agreement” to ensure clarity, enforceability, and completeness of the contract.

Lastly, a particularly effective technique when redlining contracts is making use of the comments option. The comments could serve to shape how the other party interprets your revisions. Rather than prompting different questions and causing confusion, your reasoning and intent are immediately evident. 

I hope you found this article helpful and that your next redlining and negotiation process will be a much smoother one!