Contract redlining is among the first and most important phases in contract management. Assessing risky clauses and inconsistencies was once done manually, but like many legal tasks, this is changing.
Key Insights
- The goal of contract redlining is to set clear goals, roles and flag risks.
- Contract redlining software helps teams work faster and is often embedded within contract management tools.
The redlining phase of contract management, reviewing clauses, tracking edits, flagging inconsistencies, has long been a time-consuming burden for legal teams. As contract volumes grow, so do the risks and delays. Contract redlining software offers a practical solution, often as part of a CLM platform, streamlining reviews and reducing manual workload in one integrated tool.
What is Contract Redlining?
Contract redlining is an essential component of contract analytics. It’s the process of reviewing and editing a contract by marking changes, highlighting key concerns and terms. This crucial step sets the right tone to ensure contracts are clear, compliant, fair and enforceable.
Main Objectives in Contract Redlining
Among the many goals of contract redlining, we can pick some common ones. Although it’s important to keep in mind objectives will always vary depending on company size, industry and strategic goals.
As a result of the redlining process, contract managers, legal teams, and other departments involved have a clear understanding of the agreements. The next steps may involve contract editing to enforce the changes that benefit all parties in fairness.
Limitations of Traditional Contract Redlining
Contract redlining is a meticulous task, and handling it manually is extremely time consuming. Such an essential step of the contract management process can’t rely on static documents to track changes and versions. Indeed, not only it can lead to significant delays, but the human error factor can also bring legal trouble. Old processes expose organizations to a series of operational risks.
Time-consuming review cycles
Manual comparison of clauses, especially across long or complex documents is slow. When the slightest edits can trigger full re-reads, the operational consequences can trickle to signature delays for other departments and business units. Ultimately, this can lead to financial losses too.
Higher compliance risks
It can happen to anyone: you’ve read the same document so many times you’re unable to keep spotting errors. When there’s no automation in contract management, oversight becomes harder, especially if the workload is heavy. After all, the goal of contract redlining is to avoid missing critical clauses or version confusion that expose the organization to contractual risks.
Fragmented collaboration
Miscommunication and misalignment is one of the most common and difficult challenges for legal teams. Contracts involve many departments, such as finance, legal and sales… There’s usually a lack of visibility into each other’s input since most teams work in silos. This leads to repeated revisions, prolonged negotiations and overall lack of clarity.
Higher operational costs
Delays in finalizing contracts can impact deal timelines, revenue recognition, and partner satisfaction. This ultimately results in delayed revenue for the organization, leading to underperforming financial results. Additionally, when the workload peaks or contracts require specialized review, external counsel may need to be brought in, adding both time and expense.
Contract Redlining Software to Solve the Challenge
In response to these challenges, many organizations are integrating dedicated contract redlining software into their contract lifecycle management (CLM) environments. These tools go above tracking changes, in fact they actively guide review processes.
Key Features to Make the Right Choice
While the market continues to evolve, several capabilities now distinguish leading tools in this space:
Rule-based playbooks tailored to contract types
Your chosen tool must enable contract playbook creation. This simply means internal teams can set-up specific contract types and rules to each type for the automated analysis to flag mistakes and inconsistencies. Each document, whether an NDA, MSA, or procurement agreement, can be reviewed against a specific set of rules.
Automated risk detection and classification
A good contract redlining software will automatically highlight potential liabilities with visual indicators. These indicators can be for instance, highlighting medium risk clauses in yellow, red for high risk clauses and so on. With this automated feature legal teams and contract managers get instant insights on changes to be made.
In-document recommendations
Rather than generating a separate report, suggested edits can appear directly in the contract, using tracked changes or embedded comments. This capability is a must have for legal teams handling high workloads. It helps reduce context-switching and can ease adoption among all the teams involved.
Seamless integrations
This applies to any LegalTech tool implementation. When evaluating potential vendors, it’s essential to double-check all available integrations. Microsoft Word and PDFs are perhaps the most common ones when it comes to contract management.
These tools are not limited to legal teams. Sales, HR, and procurement can use them to conduct first-pass reviews based on legal-approved standards. The benefits of a contract redlining software apply to everyone, accelerating timelines while preserving quality.
The Right Solution Brings the Right Outcomes
When implemented thoughtfully, contract redlining software, or feature, delivers more than just efficiency. It shifts how other departments perceive legal work, positioning Legal as an enabler rather than a blocker, without compromising control.
Key benefits
As organizations deal with increasing contract complexities, contract reviews shouldn’t be a blocker anymore. Adding a contract redlining software, or similar feature such as risk detectors embeded in your CLM is a strategic game changer.
