How to Review and Comment on a Contract

[Note: this is a serialized component from my materials on Ethical Issues in Contract Drafting and Negotiation]

In a transactional practice, procedural choices can substantively affect the ultimate deal. In particular, a poor procedural choice can lead to the loss of future procedural privileges in ways that disadvantage the client; and in extreme cases, a lawyer’s poor procedural choice can tank the deal altogether.

Despite this, many lawyers transgress basic norms when generating and delivering feedback on a transaction. Most such transgressions are unintentional, so to help cure that information gap, this document mechanically details the steps that a lawyer should follow when receiving a document from the other side.

Step 1: Make sure you have the right documents that were meant for your review. I can’t count the number of times I’ve received the wrong draft of a document, such as a draft that hasn’t actually changed from a previous iteration or that was used for internal comments (so, for example, it contains comments between the other side and his/her lawyer). Few things are more irritating than to spend significant time reviewing the wrong document, especially when the transaction is on a fast track.

Step 2: Make sure that the other side did the redlining accurately. This should be self-explanatory, but far too often, the redlining is botched (usually unintentionally), and that can lead to a big waste of time—or worse, missed changes.

Step 3: Read the document from top to bottom. Unless time is critical, I usually read the document in its entirety and not just the redlines, because it’s easy to forget how the redlined changes might affect other aspects of the contract that aren’t changed.

Step 4: Mark all of your desired changes and comments. I know it’s a little silly, but I have developed a color-coding system for making notes—blue pen reflects my internal notes, red pen reflects any changes agreed upon with the other side. This color-coding speeds up my subsequent review of the document circulated by the other side or my editing when I’m making the changes (I just look for my red notes). Further, because I use these colors consistently, I can revisit transactions from months or years ago and still sort through my notes.

Step 5: Cross-check old notes/documents to make sure all prior feedback was addressed.

Step 6: THINK ABOUT WHAT IS MISSING. If I have time, I usually set the document aside for a little while to get some space, then I come back to it with a clear head to see what should have been in the document but isn’t. Identifying missing provisions is one of our toughest jobs as lawyers (there is plenty of psychological literature explaining why), but we must look beyond the other side’s text.

Step 7: Talk with your client about issues before speaking with other side. Ultimately, lawyer and client should speak with a single voice, and this requires you to coordinate your feedback with your client’s feedback.

Step 8: Where appropriate, schedule a conversation with the other side.

• At the beginning of the conversation, clarify who will prepare the next draft

– Usually, the person who received the prior draft will prepare the next draft

• Then, before getting into substance, ask the other side if anything has changed on their end. Not infrequently, things have changed since they sent the draft to you, and it’s best to hear about these changes before you start delivering your comments.

• If you are preparing the next draft

– When circulating the draft, include a cover sheet explaining any deviations from the discussions and outlining all open issues. Not only does this provide a helpful instruction manual for the other side, but it makes it easier for you to pick up the transaction when it comes back (especially if the deal goes on hold for a while)

– Prepare a clean redline. Always accept all redlined changes before editing it. Never edit a document that already has redlining in it.

– Watch out for metadata

• Never forget that you are both a representative of your client and an agent of your client. Your actions and words can affect your client’s reputation and economic prospects. If your client wants you to pound the table and act intransigently, then go ahead (so long as it otherwise comports with the Rules of Professional Conduct). But if not, your behavior may harm the client both in this deal and for subsequent deals. Further, in many cases, your words can legally bind your client, so make sure your client can stand behind everything you say.