Contract Review Checklist: 12 Key Points to Check

Every contract you sign carries legal and financial weight. A single oversight - like unclear terms or missed deadlines - can result in disputes, penalties, or revenue losses. In fact, poorly managed contracts cost businesses up to 9% of their annual revenue. To avoid these risks, a structured contract review process is essential.

Here’s how to protect your business:

• Use a checklist to ensure all critical aspects are reviewed, from payment terms to liability clauses.
• Leverage AI tools to detect risks, flag missing terms, and save time.
• Collaborate across teams (legal, finance, etc.) for thorough reviews.

12 key areas to examine in every contract:

1. Confirm parties’ identities and authority.
2. Define scope of work and deliverables.
3. Check term length and termination clauses.
4. Review payment terms and invoicing details.
5. Verify representations and warranties.
6. Analyze indemnification and liability clauses.
7. Protect sensitive data with confidentiality terms.
8. Understand dispute resolution methods.
9. Ensure clear processes for amendments.
10. Comply with relevant laws and regulations.
11. Evaluate assignment and subcontracting rules.
12. Confirm insurance and performance guarantees.

Biggest pitfalls to avoid:

• Ambiguous language (e.g., "reasonable timeframe").
• Missing key terms (e.g., governing law, deadlines).
• Over-reliance on boilerplate clauses.
• Rushed reviews due to workload pressure.

Pro tip: Combining AI tools with expert legal oversight reduces errors and speeds up reviews by up to 60%. While technology helps, human expertise ensures contracts align with your business needs and legal standards.

Contract Review Checklist [Top Tips for Contract Review]

Why Use a Contract Review Checklist

A contract review checklist simplifies the often-complex process of contract evaluation while safeguarding your business's financial health. Without a structured approach to managing contracts, companies can lose up to 9.2% of their annual revenue. Inefficient practices alone can drain as much as 40% of a contract's value. According to WorldCC, this "contract value leakage" could cost businesses up to 9% of their yearly turnover. For a company generating $10 million in revenue, that means a potential $900,000 loss annually - stemming from overlooked clauses, missed deadlines, or unfavorable terms.

Checklists bring consistency to the review process, ensuring every contract is scrutinized with the same level of care. They also help standardize procedures, making agreements more enforceable and reducing the risk of disputes by catching potential issues early. Common red flags like vague payment terms, automatic renewal clauses, one-sided indemnity agreements, and hidden fees are easier to spot. Checklists also clarify roles and responsibilities, preventing misunderstandings down the line.

"A contract review checklist is more than just a helpful tool - it's a safeguard for your business. In a world where small details can make or break your bottom line, having a checklist reduces the likelihood of costly mistakes. Don't sign without it."
– LegalFix

On average, lawyers spend 92 minutes reviewing a single contract. A well-crafted checklist can significantly reduce this time, saving money and avoiding unplanned expenses. The upfront effort pays off by preventing costly corrections, disputes, and renegotiations. Plus, it strengthens trust with vendors, partners, and clients.

With these advantages in mind, it's worth exploring how to create and use a checklist that maximizes efficiency.

How to Use Checklists Effectively

To make the most of a contract review checklist, tailor it to suit the specific type of agreement you're reviewing. Vendor contracts, leases, employment agreements, and licensing deals all come with unique requirements.

Work with legal professionals to ensure your checklist addresses industry-specific risks and regulatory needs. Regular updates are essential - laws change, businesses evolve, and new types of agreements emerge.

Apply the checklist early in the negotiation process. Identifying issues at the start gives you leverage to shape favorable terms before committing significant time or resources.

Adopt a multi-reviewer approach. Involve team members from finance, legal, and other relevant departments, each using the checklist to spot different concerns - from payment inconsistencies to compliance risks. Be sure to allocate enough time within your contract timelines for thorough reviews and necessary revisions.

"It's legal's responsibility to protect the business from risk, but they have to balance this risk with the commercial interest of the contract."
– Daniel van Binsbergen, CEO at Draftpilot

Some organizations establish monetary thresholds to determine the level of review required. For example:

"We looked at our average contract value and came up with a specific monetary threshold, below which we'll generally not have a full legal review. However, if it's a business-critical service, or if a lot of personal data (or sensitive data) is involved, then regardless of cost, legal would need to be involved."
– Zeno Capucci, Chief Legal and Risk Officer at DocPlanner

12 Key Points to Check in Every Contract

When reviewing a contract, it’s crucial to focus on specific aspects to protect your legal and financial interests. Below are 12 key areas to examine for a thorough contract review.

1. Parties and Authority

Start by confirming the identities and legal standing of all parties involved in the agreement. Check that businesses are properly registered and that individuals signing the contract have the authority to bind their organization. This can be verified by reviewing documents like certificates of incorporation, business licenses, or regulatory filings.

It’s equally important to ensure the person signing has the necessary authorization. Companies often define these levels of authority in internal policies. Additionally, take time to assess the reputation, financial health, and prior contract history of the other parties to avoid potential issues.

2. Scope of Work and Deliverables

The scope of work should be clearly defined to prevent misunderstandings. Include specific tasks, deliverables, and timelines that align with the initial proposal presented to the client. Measurable milestones should be established, with payment terms tied to their completion. Use precise language, and incorporate clauses that address changes in scope or timelines and how such changes may impact payment terms.

3. Term and Termination

Carefully review the contract's duration, including start and end dates, and check for any automatic renewal clauses. Make sure the termination process is clearly outlined, specifying notice periods and remedies for breaches, such as penalties for late payments.

4. Payment Terms and Pricing

Payment terms should be detailed to avoid confusion. These should cover how and when payments will be made, the currency (e.g., U.S. dollars), and any conditions tied to the payment schedule. Include invoicing procedures - such as format and frequency - and link payments to specific dates, milestones, or events. Late payment penalties, such as a 1–3% weekly fee, should also be included.

5. Representations and Warranties

Representations and warranties are the promises each party makes about key facts, compliance, and performance standards. These commitments help establish trust. Ensure all parties fully understand their obligations and the consequences of breaching these terms before signing the contract.

6. Indemnification and Liability

Indemnification clauses allocate risk by requiring one party to cover losses, damages, or liabilities, often tied to third-party claims. These provisions should clearly outline what events (like negligence or breaches) are covered, along with any exceptions, such as the indemnified party’s own negligence.

"Indemnification provisions allow a contracting party to: Customize the amount of risk it is willing to undertake in each transaction and with every counterparty; Protect itself from damages and lawsuits that the counterparty can more efficiently bear." - Thomson Reuters

Ensure the language is explicit, especially when indemnifying for gross negligence or willful misconduct, as courts require clarity in such cases.

"Indemnity provisions can work to shield you from liability but they have to be carefully and correctly drafted in accordance with applicable laws. One size doesn't fit all." - Patrick Barthet, Founder and Principal of The Barthet Firm

Coordinate these clauses with adequate insurance coverage and ensure consistent terminology throughout the document. Include waivers of subrogation to prevent insurers from seeking reimbursement from the indemnified party.

7. Confidentiality and Data Protection

Confidentiality clauses should safeguard sensitive information. Clearly define what constitutes confidential information, outline how it should be handled, and specify how long the obligations last. Include provisions for returning or destroying materials when the contract ends.

8. Dispute Resolution

Review the dispute resolution process outlined in the contract. It may specify arbitration, mediation, or litigation. Each method has its pros and cons: arbitration is often quicker but limits appeal options, while litigation provides more procedural safeguards but can be time-consuming and expensive.

9. Amendments and Modifications

Ensure the contract includes a clear process for making changes. Typically, this requires written amendments signed by authorized representatives from both parties. Such provisions help prevent disputes over informal or unauthorized modifications.

10. Compliance and Regulatory Requirements

Verify that the contract adheres to all applicable federal, state, and local laws, as well as any industry-specific regulations. Non-compliance could lead to significant penalties, both legal and financial.

11. Assignment and Subcontracting

Check for restrictions on assigning rights or subcontracting obligations to third parties. While such provisions can ensure control over who performs the work, they may also limit flexibility. Evaluate the potential business impact of these clauses.

12. Insurance and Guarantees

Confirm that the contract specifies required insurance coverage and performance guarantees. Insurance requirements should align with the risks involved and provide adequate protection for all parties. Consult insurance agents early to understand coverage details and costs. Performance guarantees should be realistic, measurable, and tied to the scope of work. Additionally, review remedies available if performance standards are not met to ensure the contract is adequately reinforced against unforeseen liabilities.

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Common Pitfalls and How to Avoid Them

Mistakes in contract reviews can have serious financial consequences. For instance, one company reportedly lost $50 million due to missed deadlines and overlooked clauses. Identifying these pitfalls and taking proactive measures can help your organization avoid similar setbacks.

One major issue is ambiguous language. Phrases like "all necessary personnel" or "reasonable timeframe" often lead to disagreements. Take the case of a food manufacturer: their contract required "all necessary personnel" for an expansion project, but differing interpretations of "necessary" led to costly legal disputes. These kinds of misunderstandings can rack up hundreds of thousands of dollars in legal fees.

"Unclear, careless communication undermines trust." - Stefania Passera, contract design specialist

To minimize ambiguity, use straightforward, precise language. Define critical terms and clauses clearly - adding a glossary for technical jargon can help. Also, consult all relevant business units before finalizing the contract to ensure clarity and alignment.

Another common problem is missing key terms. Contracts lacking essential details - such as price, quantity, delivery dates, or governing law - become hard to enforce. Always include explicit consideration clauses that outline what each party is providing, and specify the governing law to avoid jurisdictional confusion.

Over-reliance on boilerplate clauses is another trap. While standard clauses are convenient, they often fail to address the specific needs of a particular agreement. Legal teams must review and customize these provisions to ensure they fit the context and requirements of the deal.

Inadequate review processes further compound these risks. A study by the Solicitors Regulation Authority revealed that over 60% of in-house lawyers struggle with heavy workloads, and 16% feel overwhelmed. This pressure can lead to rushed reviews and overlooked details.

Fortunately, technology offers solutions. Leveraging technology tools can significantly improve the accuracy and efficiency of contract reviews. Companies that centralize contract management often cut processing times by up to 50%, while robust tracking systems reduce missed obligations by 30%. Standardized approval workflows can speed up contract cycles by 40%.

Modern tools like Docgic use AI to scan contracts for missing clauses, flag unusual terms, and highlight potential risks. These tools ensure agreements align with company policies and help mitigate risks before they escalate. Integrating these insights into a structured checklist can further strengthen your review process.

Despite technological advancements, omitting professional review remains a critical mistake. Complex agreements still benefit from expert legal scrutiny. Using a risk assessment matrix to analyze the likelihood and impact of potential issues - and setting clear escalation procedures for high-risk contracts - can add another layer of protection.

Lastly, centralizing contract storage in a single repository and using automated tracking systems with real-time analytics can prevent missed deadlines and obligations. Companies that invest in contract management training report 40% fewer errors in their processes.

Key Takeaways

Taking a structured approach to contract review helps shield your organization from expensive errors and legal challenges. The 12 points in this checklist provide a solid framework for evaluating critical elements of your agreements, from identifying the parties involved to addressing insurance requirements.

Technology is reshaping how contracts are reviewed. On average, lawyers spend 40–60% of their time drafting and reviewing contracts. AI-powered tools can significantly lighten this workload, with some modern solutions enabling teams to review contracts up to 60% faster.

Beyond saving time, advanced AI tools improve accuracy in contract review. These tools can pinpoint key clauses, flag risks, and detect inconsistencies. They also provide insights into clause usage patterns and their impact on negotiation timelines, helping streamline processes. For instance, AI can analyze supplier contracts to identify cost-saving opportunities, check employment agreements for labor law compliance, and highlight potential risks in sales contracts.

Even with these efficiency gains, human expertise remains vital. Ryan Groff, Senior Solutions Consultant at Thomson Reuters, highlights this balance:

"Verification is the responsibility of our profession and that has never changed".

AI acts as a valuable assistant, but complex agreements still benefit from expert oversight. This combination of automation and human input strengthens the thorough approach outlined in the checklist.

When adopting AI tools, focus on transparency, explainability, and data privacy compliance. Look for systems that integrate seamlessly with your existing platforms, allow bulk uploads with auto-categorization, and offer clear pricing along with reliable customer support.

Finally, prioritize security and reliability in every step of using AI. Contracts often contain sensitive and confidential information, so ensure your chosen AI solution includes strong security protocols and supports compliance audits and record-keeping. Regular training and updates to the AI models are equally important to maintain their effectiveness.

FAQs

How can AI tools improve the contract review process and help identify potential risks?

AI tools simplify the contract review process by automating the analysis of detailed documents, cutting down on manual work and saving valuable time. These tools rely on advanced algorithms to spot risky clauses, inconsistent language, and compliance issues, ensuring contracts align with both legal and business requirements.

By flagging potential concerns - like unclear obligations, unfavorable indemnity terms, or ambiguous termination clauses - AI enables legal teams to tackle risks head-on. This approach not only improves precision but also reduces the likelihood of costly mistakes or disputes, making the review process faster and more dependable.

How can I customize a contract review checklist for different types of agreements?

To create a contract review checklist that fits a specific type of agreement, focus on the clauses and terms that matter most for that contract. For instance, confidentiality clauses are crucial in NDAs, while payment terms take center stage in sales contracts. For service agreements, termination provisions often require close attention. The key is understanding the agreement's purpose and scope to pinpoint the most important elements.

You should also factor in any industry-specific risks or legal requirements tied to the agreement. Adjusting the checklist to cover these considerations not only helps ensure compliance but also lowers the chances of overlooking critical details. A tailored approach like this makes the review process more efficient and reduces errors.

Why should multiple departments collaborate during the contract review process, and how does this help minimize risks?

Involving various departments in the contract review process is crucial for a well-rounded and accurate assessment of agreements. By engaging teams like legal, finance, and operations, companies can spot potential risks, ensure compliance with internal policies, and confirm that the contract supports overall business objectives.

This teamwork helps uncover details that might otherwise be missed - like vague responsibilities or unfavorable terms - minimizing the risk of disputes or financial setbacks. It also improves communication between departments, accelerates approval timelines, and creates a more efficient, risk-conscious review process. Drawing on the expertise of multiple teams allows businesses to make smarter decisions and better protect their interests.