NEW REPORT: The State of CLM and AI-Powered Contract Intelligence

What is Contract Redlining?

Succeed at contract negotiations with our practical, how-to guide. Learn: What is contract redlining and why it matters, what are the best practices, what are the pitfalls of manually managing redlines, and how an AI-powered contract management tool can empower your business for the best contract outcomes.

In business and legal agreements, the term "contract redlining" has become increasingly common. This process is essential in contract negotiations, ensuring all parties agree on the terms of a contract. In this article, we will explain contract redlining and share best-practice tips for efficient collaboration and better negotiation outcomes.

What is Contract Redlining? 

Contract redlining, also known as document markup or tracked changes, refers to the process of editing and revising a contract during negotiations. It derives its name from the common practice of using different colors or annotations to highlight the document's proposed changes, additions, or deletions. This collaborative process allows all parties to clearly see and understand the changes being made, facilitating a more transparent and efficient negotiation process.

Support for contract redlining is an important part of contract lifecycle management (CLM) software as it allows parties to collaborate together and agree on contract terms. Redlines draw attention to the terms that need discussion before finalizing a contract. Intuitive redlines streamline the process by providing clarity for parties before signing a contract and helps parties avoid costly disputes later.

Best Practices for Contract Redlining: 

Use a Collaborative Platform:

A digital contract management tool designed for collaborative editing is crucial for effective contract redlining. It can help you track changes, compare versions, collaborate with stakeholders, and automate workflows. It can also integrate with other software platforms you already use, such as Microsoft Word, e-signature, and other systems of record, to create a seamless end-to-end contract lifecycle

Establish Clear Objectives:

Before you start redlining a contract, nail down your negotiation objectives. What are your must-haves, nice-to-haves, and deal-breakers? What are your alternatives and fallback options? Knowing these must-haves, nice-to-haves, and deal-breakers will accelerate contract time by allowing you to focus on what matters and ignore what doesn’t. Define roles and responsibilities, specify the deadline for revisions, and outline the preferred method of communication. Having a clear strategy can help you prioritize your redlines, communicate your expectations, and reach a win-win outcome.

Version Control:

Maintaining version control is essential to avoid confusion and ensure that all parties are working with the latest iteration of the contract. Clearly label each version and use a digital system that allows changes to be easily tracked, making it simple to revert to previous versions if needed. To avoid errors and delays, you should always use the latest version of the document, name your files consistently, and store them in a secure, digital, cloud-based platform. You should also use track features in your digital CLM tool to highlight your edits and suggestions and review them carefully before sending them back to your stakeholders. Think of version control as your negotiation safety net, preventing stumbles on old drafts and outdated clauses.

Color Coding:

True to the name “redlining,” a simple visual aid can go a long way to help all parties get on the same page in a contract negotiation. Use color coding to differentiate between proposed changes, comments, and responses from each party. The visual aid makes it easier for stakeholders to quickly understand the nature of the modifications, encouraging clear communication and reducing the likelihood of misunderstandings.

Provide Explanations for Changes:

Contract redlining often requires constant communication and collaboration between parties to ensure everyone is on the same page and that issues are resolved quickly. Use concise explanations or comments for each proposed change to encourage productive collaboration between parties. This helps parties understand the rationale behind each modification, promoting a more constructive and collaborative negotiation process. Clarity in communication is vital to building trust among stakeholders.

Prioritize Key Changes to Focus on Must-Haves:

A critical contract negotiation strategy is to identify the must-haves and prioritize these changes in the contract. Prioritization helps to streamline the negotiation process. It ensures that critical points are addressed promptly to prevent unnecessary delays. For the best outcomes, focus on the most significant aspects of the contract to keep the discussions efficient and effective.

Regular Communication:

Building an environment where open and regular communication can take place among all stakeholders is essential to the success of contract redlining. Schedule regular check-ins or meetings to discuss progress, address concerns, and, most importantly, ensure everyone is on the same page. Clear, concise messages pave the way for smooth interaction. Be transparent about your goals and concerns, and respond promptly to feedback.

The Challenges of Managing Contract Redlines Manually 

Too often, contracts are edited on local machines and then emailed back to counterparties. This process tends to be manual, error-prone, and often challenging to maintain clause consistency at scale. One significant challenge is the potential for version control errors, as manual tracking may lead to confusion regarding the latest document iteration.

Without a centralized platform, collaborators may inadvertently work on different versions, leading to miscommunication and potential legal complications. Additionally, manual redlining lacks the real-time collaboration features found in digital tools, making it difficult for stakeholders to contribute and review changes simultaneously. The absence of a standardized system for tracking changes adds to the complexity, as it becomes challenging to discern the nature of each change quickly. Moreover, collaborating on contracts with stakeholders over traditional email-based methods leaves businesses vulnerable to loss of crucial details, important deadlines, and even security breaches. 

Overall, the manual management of contract redlines is prone to errors, delays, and miscommunications, highlighting the need for businesses to adopt a digital contract management solution to streamline and enhance the negotiation process.

How a Contract Management Tool Can Help 

Ditch the document ping-pong and say goodbye to scattered edits. Icertis Contract Intelligence, a dedicated CLM software, revolutionizes contract management and redlining by centralizing everything on one secure, AI-powered platform. Track changes, add explicit annotations, and keep everyone on the same page in real-time. The ICI Platform’s automated alerts and notifications keep stakeholders informed of updates, deadlines, and discussions based on the contract’s approval workflow, reducing the likelihood of oversights, from the first suggestion to the final signature. No more wondering, "Who changed what, and when?" Everyone sees the whole picture, building trust and ensuring a smooth journey from draft to deal.

Collaboration often extends beyond internal walls. ICI Platform’s Collaboration Portal securely connects you with external parties like suppliers and customers. They can submit their redlines, review contracts alongside your team, and participate in real-time discussions, ensuring everyone is on the same page. No more waiting for external feedback or chasing signatures across continents.

The best contract management software does all the above and comes ready to integrate with the tools you already use. Icertis Contract Intelligence natively integrates with Microsoft Word so that you can leverage its advanced capabilities even without leaving the Word document.

Can AI Help with Contract Redlining? 

Yes. As with many industry practices, contract management is quickly changing with the advent of AI. The Icertis Platform AI technology can quickly surface risk in the form of clauses that do not comply with company standards. This makes it easier for negotiators to determine what parts of a contract require redlines based on risk criteria. Contract reviews and redlines are faster and reduce risk. Then, it surfaces the optimal clauses to you. These examples are just a glimpse of the power of AI in contract management.

By leveraging these amazing capabilities, businesses can execute contract redlining more efficiently, reducing errors, minimizing delays, and fostering a more collaborative and streamlined negotiation process.

The Icertis Platform

In conclusion, contract redlining is a vital aspect of the contract negotiation process, promoting transparency and collaboration among parties involved in drafting and revising contracts. By incorporating these best practices and the right CLM technology, businesses can enhance the efficiency of their redlining processes, ultimately leading to more successful and timely agreements. Request a demo today to learn more about Icertis Contract Intelligence and what it can do for your contract redlining process.

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