29 June, 2023

What does it mean to redline a contract?

To "redline" a contract means to make revisions or edits to the contract document to best represent the interests of your company. The process is typically a first stage in negotiating terms with a potential customer, vendor, or partner, or preparing a document for regulatory approval.

The term "redlining" originated in the age of paper documents, when a team marked up a contract proposal using a red pen or marker to highlight sections under review, indicating text to be added, revised, or deleted. In today’s digital age, redlining is performed using digital tools.

Goals of Redlining

The redlining process is designed to meet specific goals:

Clarity: Ensure the contract is free of unclear or ambiguous language

Protection: Ensure the terms protect the best interests of the company

Risk Mitigation: Identify and revise text to avoid potential issues or adding text to provide indemnifications against potential damages

Compliance: Ensure that the contract complies with legal or regulatory requirements

Redlining is a Collaborative Process

The redlining process typically is led by a core project team with primary responsibility to get the contract ready. The team will gather reference documents, then call on the assistance of contributors from other departments, subject matter experts, lawyers, and analysts. While the redlining project may require dozens of documents, the focus is on developing a single document: the contract term sheet or regulatory submission.

Redlining is a Transparent Process

During the redlining process, the original document is examined thoroughly to identify any provisions or sections that need changes, amendments, or are subject to negotiation. The goal is to highlight areas of potential disagreement, ambiguity, or legal risks that could stand in the way of a finalized agreement. These modifications can include clarifying ambiguous language, adjusting payment terms, changing deadlines, adding or removing clauses, or addressing legal or regulatory concerns.

Redlining is typically a multi-stage project that occurs during negotiations. Once the contract originating team submits their version, the “other guys” – potential client or partner or vendor – repeat the process at their end. Redlining continues its back-and-forth until both parties are satisfied with the terms and conditions. Redlining is important because it allows both parties to easily see and review proposed changes. It enables a transparent and collaborative approach to contract negotiation and helps ensure that both parties agree with the final terms before signing the finalized contract.

How Redlining Works

Here's a step-by-step guide on how to redline a contract:

Generate the initial contract: The contract initiating team creates a contract document, often using an existing contract or boilerplate as a reference.

Review the contract: The contract project team carefully reads the contract in its entirety and uses a highlighting tool to mark up any terms, clauses, or provisions that need to be modified, deleted, or added.

Revise text: There are different methods to mark up the contract document. For example, additions may be underlined or highlighted in a specific color, while deletions may be crossed out or displayed in a different color. If the team is using Microsoft Word or Google Docs, the team can use “track changes” mode to mark deletions with a strikethrough and add new text in a different color. Review the software's documentation on how to enable and use track changes effectively.

Add comments: Since redlining is a collaborative exercise, it can be helpful to provide comments or explanations to clarify proposed modifications. These comments can be retained when the contract is submitted to help the other party understand the reasoning behind wording or terms.

Share the redlined contract: Provide the redlined version to the other party involved in the contract negotiation.

The finalized contract document should accurately reflect the agreed-upon terms and conditions and adequately protects the interests of all parties involved.

How to Maintain Security during Contract Development

For the contract development team, document security is key; the contract document and the many reference documents used all contain confidential information. The team needs to protect these documents from the competition and from hackers.

Both the contract initiating party and its customers need protection. The best security strategy is to develop the contract using a Virtual Deal Room (VDR), an online platform that protects documents. The VDR protects documents in multiple ways:

  • With a quality VDR provider like ShareVault, the contract development team can drag-and-drop upload a virtually unlimited number of reference documents
  • Every document uploaded to the VDR is automatically encrypted
  • Only authorized parties can enter the protected online environment
  • Authorized users can access the VDR from anywhere in the world, 24/7
  • Additional security features, including permissioning protocols like two-factor passwords and device IP registration, ensure the contract and supporting documents are only accessible by the right people
  • When the contract is ready for review, the initiating party can authorize password-protected access to the VDR for the receiving party, who can then review and redline their revisions in a secure and protected environment

Collabloop is Secure Contract Redlining Software

In addition to providing a secure environment for storing reference documents, ShareVault offers Collabloop, software specifically designed to streamline the redlining process.

  • With Collabloop, both the contract development team and the customer team are always working on a single document
  • When a party makes a comment or revision, their input is visible to everyone, much as it would in Word’s track changes annotations, but in real time, which improves the speed of collaboration. Collabloop can reduce the contract development project timeline by up to half.
  • Collabloop maintains a history of every version of a contract document with details of the date, time, and identity of the contributor, a useful tool for the contract development team and a necessary report for a regulatory audit
  • Since Collabloop is housed in a ShareVault VDR, every version of the contract and all reference documents remain protected throughout the contract development process

Collabloop Integrates with DocuSign

Once the proposing and receiving parties have completed their redlining efforts and come to an agreement, Collabloop integrates with DocuSign for the final signatures.

Collabloop 24-hour Support

ShareVault knows that with a contract on the line, time is everything. That’s why ShareVault provides round-the-clock support, with an experienced IT team to answer questions and resolve issues quickly and efficiently.

ShareVault and Collabloop Save You Money

Collabloop redlining software and ShareVault’s secure virtual deal room provide maximum document security and speedy contract development. Since each company has unique document security needs, ShareVault feature sets and pricing are customized to fit your company. To receive a customized ShareVault proposal, contact us today!

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