Have you been asked to review a commercial contract and prepare a contract summary for your board or commercial team? Lawyers know what to look for in a commercial contract, but condensing a lengthy contract into a succinct and practical summary is not always easy. The aim is to provide your board with the information they need to make an informed decision without paraphrasing (or worse, copying or pasting) the entire contract.
Whether you are a contract review novice or have many contract reviews under your belt, Holding Redlich's William Kontaxis sets out his top tips to help you sharpen your contract review and summary writing skills
1. Always start with an overview
This should go without saying, but a good contract summary should start with a one or two-line overview of the contractual situation. Is your organisation the supplier or customer? Is this a brand new relationship or the renewal of an existing one? Is there other historical context to the arrangement that will be useful to the board or commercial team?
The commercial context can shed valuable insights on the legal issues. Don’t always assume that your reader will have that context to hand.
2. Focus your summary on the key issues
Consider what issues need to be included in your contract summary, and if an issue is included, to what level of detail. Just because you reviewed something does not mean it needs to be included in your summary. The summary should focus on the issues that matter to the reader and that require their input. If an issue can be easily resolved without any input from up-the-chain (e.g. correcting details of the contracting parties, updating execution blocks, etc.), keep it on your list of action items but out of the summary.
If there are any key issues that you really want to draw to your reader’s attention, always include these upfront. Lawyers all hope that people reading our advice will take in every word, but it is safer to assume that your reader will focus on the early findings – so be deliberate in the order that you present your findings, even if it that means deviating from the order of clauses in the contract.
3. Know what to look for
The types of issues that may arise in a commercial contract are endless. Further still, the types of issues that may be relevant to your organisation, or even to particular directors on your board, may vary from contract to contract or project to project. Common areas that boards are interested in include:
- fees or pricing
- term and renewals
- default events
- warranties and indemnities
- limitations of liability
- restraints or exclusivity arrangements
- ownership and use of IP
- privacy and data protection
- insurance obligations
- third party consents
- restrictions on subcontracting.
The above is just a starting point and is by no means an exhaustive list. The proposed transaction, the purpose of your review and your organisation’s particular circumstances will determine what your contract review and summary should focus on.
4. Add value when presenting your findings
Copying and pasting an entire clause of a contract into a contract summary is probably not helpful – your reader can read the clause for themselves. Paraphrasing a clause is not much better. A well-written contract summary will consider the implications of each issue raised, apply it to your organisation’s particular circumstances, risk appetite and the nature of the proposed transaction and include recommendations on how to resolve the issue.
For example, if a contract includes a restraint clause you might apply your findings as follows:
“The restraint clause may restrict division X of our business from providing Y services to Z customers. Division X management should consider whether this is workable now and as part of the business’ future plans. If it is not, we recommend seeking to carve out division X’s activities from the restraint.”
After each contract review and summary, consider asking for feedback from your readers on whether the summary was useful for their decision-making or whether the format, level of detail or nature of recommendations could be improved for future reviews.
This article was originally published in the October edition of Holding Redlich’s Junior In-House Monthly, which you can subscribe to here.
Disclaimer: The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.