Contract Triage: Your Contract Review Checklist
Is that contract worth signing? Let’s assess.
The critical first step of contract review cannot be overlooked. You may not be accustomed to doing it (yet), it may seem overwhelming until you are familiar with the process, and it may take some time. But an initial assessment – we call it “contract triage” – can ultimately save time and potentially alleviate you of a lot of risk.
It’s like going into a hospital’s emergency department or an urgent care. Step one is a quick interview by medical staff to assess your condition and determine the best way to proceed. In the same light, contract triage must take place before proposing changes and entering negotiations.
Like medical triage, your first review of a contract should be to scan it for red flags. Are there any terms in the document that could jeopardize your profits? Tie you to an unreasonable (or impossible) schedule? Put your company on the hook for extra expenses or risk you do not want to take on? This is the time to determine what jumps out at you as a deal breaker, and what changes you need to secure in order for you to sign.
Use this step to identify potential risks before they become problems down the line. Don’t sign anything that will dwindle your profits unfairly or put you in a problematic time crunch. Don’t ever assume more risk than necessary, or risk that is out of your control to mitigate. Remember, you are signing a legally binding document. And while most contracts are reasonable, they can contain hidden risks.
What should you be looking for?
Make a list of what is most important to you. Start by looking for any red flags at the outset—watch for unfair terms that don’t clearly spell out expectations or costs associated with performance. Read through the entire contract and make sure you clearly understand all its provisions. Ask for clarification if necessary, and carefully consider whether the obligations or risks outlined in the document are reasonable.
Your standard contract review checklist should include the following, but there may be other top-level issues for your area of expertise:
- Scope of work – Does the contract reflect the job you are anticipating? Be sure to pay attention to the areas it covers and any potential omissions. Also make sure that both parties understand who is responsible for obtaining necessary materials.
- Your non-negotiables – What would make you really regret taking this job? Can the other side impose unreasonable liquidated damages or claim economic damages such as lost revenue? Does the Standard of Care basically call for perfection? Are Change Orders almost impossible to get, even if site conditions change? WIll you be held responsible for price escalations and supply chain issues?
- Compensation and payment terms – What are you being compensated for this job, and when will you receive it? How will you be paid, and when are payments expected? Are there any payment milestones? Make sure these details are clearly outlined in the contract and look for a clause about dispute resolution should anything go wrong.
- Schedule – Is the timeline doable? Does the project need to be completed in stages or all at once? Remember – what you sign is what you are bound to. Make sure the timeline is realistic and that you’ll have time to do the job right. Ensure that both parties are on the same page so there’s no costly confusion down the line.
- Assumption of risk and Due Diligence – Are the proposed terms fair and reasonable? Will you be on the hook for damages or delays that are caused by other parties? Will you be held responsible for latent site conditions? Clarify who is responsible for what, and when.
Be aware of any hidden costs or contingencies that may arise from a provision or clause that has been included in the agreement. Check to see if there is anything that could be removed or added to ensure an equitable agreement between both parties. Also, make sure that both parties have a clear idea of their respective rights and responsibilities, to help avoid any potential disputes in the future.
Taking this step before digging deeper, before negotiations, and before signing, can help reduce your risk immensely. By taking a proactive approach to reviewing contracts with proper care and attention, you can help protect your business interests and build stronger relationships with your contractors down the line. Keeping yourself informed on potential risks associated with any contract – as well as having a thorough understanding of its legal obligations—will reduce headaches and complications and help foster relationships that can benefit everyone involved.
