Contracts make the world go round. Businesses have contracts with individuals, individuals have contracts with each other, and governments have contracts with businesses.
Even when the general terms have been agreed upon verbally, there’s still a lot of work to do when hashing out the nuances of the contract. That’s where contract redlining comes into play.
In this guide, you’ll learn the nuances of what contract redlining is, its benefits, and how to do it properly for your contract processes.
What is contract redlining?
There are two aspects that need to be understood to get a handle on document redlining. First is what a redlined document is and then what redlining is.
A redlined contract is a contract that has been edited with the involvement of two or more parties. These could be individuals, businesses, agencies, and or their representatives.
Redlining is the process of editing a contract until the terms and conditions are satisfactory to all of the parties involved. It does not involve signing a contract.
The name redlining comes from the way Microsoft Word would track changes to a document using red font. Over time, the name has stuck and is associated with editing official documents and contracts. Redlining can be done manually, but it’s much more efficient to use software to do the heavy lifting associated with editing important documents.
Benefits of document redlining
There are many benefits that come with using redlining software to edit and collaborate on documents. Below, I’ll name a few but keep in mind that there are many more benefits that come with it.
- Robust version control
When you have a complex document or a complex contract, it’s natural for you to go back and forth a few times to get all of the terms and clauses right.
Redlining software allows you to create a new version of the document every time it’s edited. This ensures you’re working on the most recent version and you can go back and check on the changes that were made and prevent mistakes or malicious terms from slipping into the final document.
- Easily track all changes
This goes hand in hand with version control. You’re able to see exactly what was changed. This makes it so that you don’t have to go over a long legal document with a fine-toothed comb every time it’s updated.
When you’re able to track changes, you can also revert or comment on any changes that aren’t in line with the original terms. In some industries, like commercial real estate contracts in Australia, it’s expected for one party to try to sneak in additional terms and conditions.
Contract redlining software will save your skin if those terms and conditions are harsh.
- Simple workflows to improve efficiency
Without redlining tools, you’ll likely have to open an email, download the document, make changes, save it, email it back, and wait for updates. This is inefficient, puts you at risk on many fronts, and is not the most secure way to go about managing documents.
With redlining tools, you can often share a link to give your collaborators access to the documents. Or, they can create a ‘guest’ account and access it that way. When any changes are made, you’ll get a notification and be able to see the updates in near real time. The versions of the document are kept in a place for you to easily access them.
When does redlining matter?
There are situations where you don’t need to redline a document and situations where it’s essential. Here are some of the most common situations in which redlining is used.
When you’re still in the process of negotiating the terms and conditions of a contract with a third party, redlining is important. This is also the most common way that redlining is used.
As mentioned previously, you’re able to track the changes that are made and prevent any detrimental changes from sneaking in.
Each step of the negotiation process is accompanied by a new version of the document that has undergone edits. This keeps everyone organized and honest.
- One person edits but at least one other person needs to provide input
This situation usually occurs when someone that’s not the document owner is making changes on behalf of the document owner. For example, an assistant is making changes based on the instructions given to them.
After they’ve finished making those changes, the document owner will need to review them and sign off on the new version of the document. If there are any mistakes or something that needs to be improved, they’ll provide a new set of instructions or comments on the document.
Using this approach allows document editing to proceed much faster and keeps a clean log of the updates that were made.
- Document editing for internal use
Redlining in this way is usually done when one department is making changes to the contracts and documents of other departments. For example, the legal department is making changes to the contracts the sales department uses.
The reason you want to use redline software is so that the sales team can easily provide input when the legal team makes changes. Maybe they see a clause that they know customers will push back against. Redlining allows them to communicate that to the legal team without hassle.
What should be tracked when redlining
At the bare minimum, the following should be tracked when contract redlining is underway.
- Content changes. The specific areas of the document that have been changed should be highlighted and easily visible. Without that, changes can be missed and additional clauses slipped in.
- Formatting changes. This may seem like a minor issue but presentation matters. You should be able to see, similar to content changes, how formatting has been changed within the document. If those formatting changes are detrimental, you can take corrective actions.
- The version of the document. Each group of changes should make up a single version of the document. Tracking each version can help you build a picture of the redlining process and ensure that questionable changes weren’t made.
Depending on your situation, you may want to track other aspects of the contract redline process. To make sure you don’t miss anything, create a checklist before you start editing. It should contain all the things you want to keep track of. Once the process starts, refer to your checklist to make sure you’ve covered all your bases.
How to redline documents effectively
- Determine who will participate in the edits
This is an essential step so random people aren’t making changes to the document. Instead, they’ll have to effect changes through the designated editor. This ensures that there’s one point of contact to discuss any changes made.
It also prevents editing by committee. This is especially important when different organizations are making changes to a contract. The entire process moves faster and more smoothly when there’s one person in charge.
- Have a final copy editor
A copy editor is someone who, after all of the contract or document clauses have been approved, goes through and checks for grammatical and spelling errors. They do not change the clauses or the overall structure within the document.
As you’re probably aware, there’s nothing worse than getting to the signing process and realizing that someone’s name is spelled wrong or there are typos throughout the document.
This becomes even more important when there have been a lot of changes during the redlining process throughout the document. Some of the clauses may have been put together hastily and need to be refined without changing the overall message.
- Use software to track every change made
We’ve touched on this multiple times through this guide so this is just a final reminder. Make sure that every change made is properly tracked. As soon as you stop tracking, you leave yourself open to unforeseen liability.
At this point, you should have a simple checklist to stay on top of the types of changes you want to watch out for. For every new situation that you encounter, add another item to your checklist.
- Every time edits or approvals are made, create a new version of the document
This is taken care of for you automatically if you’re using redline software. If you’re not then this process may need to be done manually. For example, within Microsoft Word, you’ll need to save the document as a new version to preserve the previous version.
My recommendation is to choose software that does this automatically so that you have one less thing to worry about while negotiating contracts. If that’s not an option, keep all the versions of the document in the same place so they can be easily accessed and referenced.
Conclusion about contract redlining
Contracts are an essential part of how we do business and otherwise form agreements with other people and organizations.
To get the agreement just right, it’s important to negotiate on the nuances of the legal language used. That’s where redlining comes in.
This guide has walked you through what contract redlining is, the benefits it brings to the table, and how to make the most of it in your document management processes. Take the insights you’ve gained here as a starting point for understanding and using contract redlining to your advantage.