Redlining refers to the process of reviewing and making edits or revisions to a contract. The process typically begins with one party initiating and submitting a draft contract, which is then reviewed by one or more stakeholders involved in the contract, who do their own redlining process to generate a counter proposal. The two sides continue the back-and-forth process until a suitable agreement is reached.
The term "redlining" was coined in the pre-digital age, when a printed document under review was marked up using a red pen or marker. Today, redlining is performed using digital tools to highlight areas under review and revision.
Why Redlining is Important for a Contract
While each party may engage a number of collaborators in generating a contract, the end goal is a single document that satisfies all parties involved. As such, every word or phrase takes on a larger significance. Here are some reasons why redlining for a contract is important:
Clarity and Accuracy: Redlining allows parties to identify and correct any ambiguous, vague, or inconsistent language in the contract. By marking up the document, parties can ensure that the terms and provisions are clear, specific, and accurately reflect the intended meaning.
Protection of Interests: Redlining enables each party to identify any clauses or wording that may be unfavorable or disadvantageous to their position and propose alternative language that better aligns with their needs. The redlining process helps ensure a fair and balanced agreement that safeguards the interests of all parties involved.
Mitigating Risks: Contract redlining is a crucial risk management practice. It allows parties to identify potential legal, financial, or operational risks associated with the terms of the contract. By making modifications, parties can reduce or eliminate these risks, protecting themselves from potential disputes or liabilities in the future.
Negotiating Terms: Redlining serves as a negotiation tool during the contracting process. The redlining process allows the parties to propose changes or additions to the contract, creating a transparent platform of back-and-forth negotiation over terms of the deal. The goal is to strike a balance of interests and reach a mutually acceptable agreement.
Legal Compliance: Redlining is a collaborative process with each side employing lawyers and subject matter experts on the regulatory and legal implications of the contract terms. Parties can modify the contract language and terms to align with regulations specific to their company and industry. The legal compliance aspect of redlining review ensures that the contract is enforceable and legally valid and helps prevent legal challenges or disputes arising from non-compliance.
Accountability and Transparency: Redlining promotes transparency and accountability in contract negotiations. The redlining process clearly identifies any proposed modifications made by each party. In doing so, redlining facilitates trust-building between parties by ensuring that everyone has an opportunity to review and discuss any proposed modifications.
How Redlining Works
Digital tools and software are commonly used in contract redlining. These tools provide collaborative editing features, making it easier for multiple parties to contribute, track changes, and comment on specific sections of the contract.
During the redlining process, the original contract proposal document is examined thoroughly to identify any provisions or sections that need changes, amendments, or further negotiation. To aid the process, each proposed change is identified and marked using specific formatting conventions, such as underlining a word or phrase or highlighting the copy in a different color.
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 or adding or subtracting clauses, adjusting payment terms, changing deadlines, or adding or addressing legal and regulatory concerns.
In some cases, areas of ambiguity require input from the contract team, which may include third-party subject matter experts. These comments, along with the identity of the commentator, appear in a designated column, generally to the right of the primary document text. Collaborators agree with comments and amend the document accordingly or disagree and dismiss comments.
Digital Redlining Tools Improve the Process
Digital tools and software are commonly used in contract redlining. These tools provide collaborative editing features, making it easier for parties to mark up the contract document using highlighting, cross-outs, copy in a different color and other standard word processing software features to make edits and revisions.
Another valuable digital tool is “Track Changes”. When a claim or a word choice is in dispute, the team can click ‘track changes’ and identify who is responsible for the current wording and what other wording could be considered. The Track Changes command is available in popular business word processing apps like Microsoft Word and Google Docs.
Why Version History is Important
The copy in “Track Changes” is retained in the software’s “Version History”. However, in Word or Docs, the history of an edit ends once that edit has been accepted; earlier versions of edits disappear.
Among software providers, only ShareVault’s Collabloop maintains a detailed history of every version of a contract document with details of the date, time, and identity of the contributor. Collabloop’s detailed history is not only helpful for the contract development team, but is also a key element during a legal or regulatory audit.
Ensure the Security of your Contract Development
For the contract development team, document security must always be a front-burner priority. As a practical matter, the fact that a contract is in development is likely to be news in your industry—including to your competition. Disclosure of the terms of the deal could have a negative impact or even derail the deal. Even more ominous, hackers also monitor business activities and watch for contract negotiations.
The security risk extends beyond the contract’s terms. The contract development process typically requires accessing many reference documents that contain confidential information, such as company financials.
Both the contract initiating party and its customer(s) 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
- ShareVault provides advanced document organization and sharing tools
- 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 has developed Collabloop, task management software for redlining, Collabloop streamlines the redlining process and addresses vulnerabilities in Word and Google Docs:
- 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 and all its online features 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 from our IT team, who can 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!