Contract redlining is an important part of the contract negotiation process. This guide tells you everything you need to know, from what redlining involves to why it matters and how best to do it.
What is contract redlining?
Contract redlining is the process of marking up a contract with proposed changes and revisions.
Redlining typically happens during a contract negotiation where the parties review the contract’s original language and highlight which edits they’d like to make and where. This can include asking for certain terms to be changed, added, or removed.
The process is called redlining because these edits were traditionally made by annotating physical copies of a contract with a red pen. Few business contracts are kept as hard copies and redlined with red ink today, though. Instead, businesses use digital redlining tools to negotiate their contracts.
However, the process continues to be known as redlining, and it remains an important stage of the contract lifecycle.
Why is contract redlining important?
Contract redlining is important because the process enables parties to collaborate on contracts and hopefully reach an agreement on the terms.
Redlines achieve this by drawing attention to the terms that need to be discussed before a contract can be finalized. This streamlines the process and provides clarity for parties.
It also gives parties the opportunity to clear up any ambiguity and misunderstandings before a contract is signed, and this prevents costly contractual disputes post-signature.
Who is responsible for contract redlining?
In-house legal teams and contract managers are typically responsible for redlining contracts. This is because they have the expertise needed to negotiate complex terms and understand legal terminology.
Commercial teams can redline contracts too, though. In fact, it’s quite common for simple contracts to be negotiated by commercial teams, especially in businesses with lean legal teams and fewer resources.
In short, a company’s risk appetite will determine who can redline the contract, and when. But the process can involve multiple stakeholders, and each might want to add their own redlines.
When should you redline a contract?
Usually, a contract is redlined when it’s shared with the counterparty for review. The counterparty receives the contract, downloads a copy of it, and redlines any parts they want to discuss or change.
They then send the redlined copy back to the contract owner who will add their own redlines, and this back and forth continues until all points have been agreed between the parties.
Not all contracts will need to be redlined, though. In fact, many standardized contracts will skip the negotiation stage altogether because the parties are happy with the terms included in the original version.
This often happens with NDAs, for example. But it can also happen with HR contracts, so long as the candidate is satisfied with the terms they’ve been sent.
Why is contract redlining difficult?
Contract redlining is a complex process and many businesses experience the same challenges when redlining documents. Let’s cover a few of these now.
1. Lack of version control
It’s common for parties to create new versions of a contract when redlining. This is because they like to keep a clean version and a redlined version to make comparing the edits easier.
However, some contracts have lots of stakeholders and plenty of iterations. Before long, there can be lots of versions of a contract floating around in email inboxes and across shared drives. This makes it difficult to retain version control and almost impossible safely to capture all the edits made to a contract during its lifecycle.
2. Contracts become messy
The more redlines a contract has, the harder it becomes to read the original terms.
This is especially true for physical copies of contracts that are redlined using wet ink because the redlines aren’t interactive and can’t be isolated easily. But it’s also painful during digital redlining processes where simple formatting issues create confusion.
3. Loss of data
Contract redlines can be lost or displayed badly when a file is converted into a different format. This can happen because one platform lacks the functionality offered by another platform, or simply because the formatting options differ between the tools.
To avoid this confusion and data loss, it’s important to make sure you’re redlining contracts in the same platform as counterparties are downloading them in, or that the two solutions are compatible in both directions.
4. Untracked changes
It’s also possible for parties to make changes to a contract without adding a redline to mark them. This can mislead counterparties into thinking that non-redlined parts of the contract remain unchanged, causing them to slip through the net.
This can be solved by adopting a contract management solution like Juro with a detailed audit trail to track changes at a granular level. Otherwise, it’s difficult to put these safeguards in place and track the individual edits made to a contract.
How to redline a contract
Traditionally, contracts were redlined by annotating a physical copy of the contract with a red pen. Parties would cross out parts they didn’t like and add their own suggestions to the contract as annotations. But with contracts moving online, it’s rare for contracts to be redlined like this in 2023.
Today, the most common way to redline a contract is by moving into a word processor like Microsoft Word and using the ‘track changes’ feature. Other businesses will use the same functionality but in Google Docs. To find out more about these processes of how to redline a contract, check out the following guides:
Alternatively, you can redline a PDF version of a contract by adding comments and markups in Adobe Acrobat. You can find out more about how this process works in this guide on how to redline a PDF.
However, the best and most efficient way to redline a contract is by using redlining software, or contract management software that offers redlining functionality like Juro. This is because the software offers better version control and can streamline your entire contract workflow, bringing all contract-related tasks into one workspace.
But it’s important to check which contract tools offer native redlining features and which don’t. This is because some contracting solutions rely on an integration with Microsoft Word to redline contracts, which can result in a disjointed process.
This is the case for businesses that choose to redline in DocuSign CLM, for example, as the tool doesn’t offer the native functionality to negotiate contracts within the platform.
Juro’s all-in-one contract automation platform enables users to negotiate contracts in one secure platform, which means no more juggling Word, email, Google Docs and PDFs. Instead, Juro users can negotiate contracts in Juro’s browser-native editor, rather than switching between systems to create and action redlines.
Juro users can run redlines natively in Juro, with split internal and external versions to make collaboration seamless. Juro users can also use threaded comments and suggestions, making online contract redlining simple.
"In-browser negotiation means I can be on a call with the prospect, editing a document in real time, and they can sign it two minutes later" - Cleo Anderson Garwood, Senior Legal Counsel, Paddle
“The time I spend negotiating terms has been reduced by 75% thanks to Juro” - Karolina Plaskaty, People team, Curve
To find out more about Juro’s redlining and negotiation functionality, fill in the form below to book a personalized demo of the tool.