The contract review process is a repeatable sequence: gather your documents, screen the other party, analyze each clause against your business goals, negotiate changes, confirm who has authority to sign, execute, and archive. Each stage feeds the next, and skipping one can leave you bound to terms you never intended or holding a document that isn’t enforceable. A simple vendor agreement might move through in a few days. Complex, multi-party deals take weeks.
Build the File Before You Read a Word
Reviewing a contract starts with assembling everything around it. Pull the full legal names of every party exactly as they appear on corporate filings or government records. A mismatch between the name on the contract and the entity’s registered name can create enforceability problems later. Collect each party’s address, state of formation, and the name and title of whoever will sign.
Then gather what led to the draft: letters of intent, term sheets, email chains where key points were agreed, and any prior versions of the agreement. These become your measuring stick. If the draft says something different from what the term sheet agreed, you’ve found a problem before the clause review even starts. Add the supporting materials the contract references or should reference—price sheets, technical specifications, project timelines, scope-of-work documents.
Put all of it in one shared folder. The primary agreement, every exhibit, every addendum, every piece of background correspondence. Chasing down a missing exhibit three rounds into negotiation wastes everyone’s time and signals disorganization to the other side.
Screen the Counterparty Before You Review Clauses
Before you invest time in contract language, confirm you’re allowed to do business with the other party at all. The U.S. Treasury’s Office of Foreign Assets Control maintains a Specially Designated Nationals List of individuals and entities subject to economic sanctions. OFAC doesn’t mandate a particular screening tool, but you are prohibited from doing business with anyone on that list, and violations carry civil penalties that are adjusted upward annually.1U.S. Department of the Treasury. Basic Information on OFAC and Sanctions A quick search of the counterparty’s name and known affiliates against the SDN list can save you from a far more expensive problem later.
This is also the stage for basic due diligence: confirm the entity is in good standing with its state of formation, check for pending litigation that could affect performance, and verify that the business holds any licenses or permits the contract assumes it has.
Analyze Money and Performance Terms First
With the file assembled and the counterparty cleared, start with the money. Confirm payment amounts, schedule, and method match what was negotiated. Watch for ambiguity. “Payment due upon completion” begs the question of who decides when the work is complete. The more specific the trigger for each payment, the fewer arguments later.
For contracts involving the sale of goods, an agreement can still be enforceable even without a nailed-down price. Under Uniform Commercial Code Section 2-305, parties who intend to form a contract can do so with an open price term, in which case the price defaults to a reasonable amount at the time of delivery.2Legal Information Institute. Uniform Commercial Code 2-305 – Open Price Term Relying on that fallback is risky in practice. Explicit pricing avoids the cost of proving what “reasonable” means when the parties disagree.
After pricing, read the performance obligations. What exactly does each side promise to deliver, by when, to what standard? Vague deliverables are the single most common source of contract disputes. “Consulting services” without defined scope, hours, or acceptance criteria will cost more in arguments than it would have taken to spell out in the draft.
Work Through the Risk Allocation Clauses
Indemnification
Indemnification clauses determine who pays when something goes wrong, specifically which party bears the cost when a third party brings a claim arising from the contract’s performance. A one-sided indemnification obligation where only your company takes on risk may be appropriate in some deals, but you need to understand what you’re accepting. Check whether the obligation covers just third-party claims or also direct losses between the parties, and look for carve-outs that limit the scope.
Limitation of Liability
Most commercial contracts cap the total damages one party can recover from the other, often tied to the contract’s value or the fees paid over a specific period. Equally common is an exclusion for indirect or consequential losses like lost profits, lost data, or business interruption. These caps and exclusions are standard. The details are not. A cap set at fees paid during the prior twelve months looks very different from one set at total contract value over a five-year term. Watch for carve-outs too: breaches of confidentiality, intellectual property infringement, and willful misconduct are commonly excluded from the cap, meaning full liability applies for those categories.
Representations and Warranties
Representations are statements of existing fact (“we own this intellectual property”). Warranties are promises that something will remain true going forward (“the software will perform as described for twelve months”). Together, they shift risk to whichever party makes them, because a breach typically triggers the indemnification obligation. Read each one to confirm your company can actually stand behind it. If the contract states you have no pending litigation and you do, that’s a ticking time bomb. Where a blanket statement is too broad, qualify it—add “to the best of the company’s knowledge” or disclose known exceptions in a schedule.
Read Termination, Restrictive Covenants, and Force Majeure
Termination Rights
Termination clauses fall into two categories. Termination for convenience lets a party walk away without needing a reason, usually after a 30- or 60-day notice period. Termination for cause kicks in when the other side materially breaches the agreement and fails to fix the problem within a specified cure period. Check both. A contract that only allows termination for cause but defines “cause” narrowly can trap you in a deal that isn’t working. If the other party can terminate for convenience on short notice, consider whether that leaves you exposed on costs you’ve already committed to.
Restrictive Covenants
Non-compete and non-solicitation clauses can limit your ability to work with competitors or hire certain people after the contract ends. The FTC attempted to ban most non-compete agreements through a 2024 rule, but federal courts vacated that rule, and the agency formally withdrew it in February 2026.3Federal Trade Commission. Noncompete Non-competes remain governed by state law, and enforceability standards differ significantly between states. If a contract includes any restrictive covenant, pay close attention to three things: geographic scope, duration, and the definition of “competing business.” An overly broad restriction may be unenforceable, but litigating that question is expensive.
Force Majeure
Force majeure excuses performance when extraordinary events—natural disasters, wars, government actions, pandemics—make it impossible or impractical to fulfill obligations. The pandemic was expensive for companies whose contracts lacked this clause or defined triggering events too narrowly. Check whether the list of qualifying events actually covers the risks relevant to your deal. A supply chain contract that doesn’t mention trade embargoes or tariff changes has a gap. Look at procedure too: most clauses require the affected party to give prompt written notice and mitigate the impact, and many include a termination right if the disruption lasts beyond a specified period.
Confidentiality
Almost every commercial contract includes confidentiality obligations, and almost everyone skims them. That’s a mistake. The definition of “confidential information” controls the entire clause. Too broad, and routine business information becomes a compliance burden. Too narrow, and your trade secrets aren’t protected. Look for standard exceptions: information that’s already public, independently developed, or required to be disclosed by law should be carved out.
Check duration. Some confidentiality obligations survive two or three years after the contract ends; others last indefinitely. For trade secrets, negotiate for the longest duration you can. For ordinary business information, a fixed term is more practical. Confirm the clause addresses what happens to confidential materials when the relationship ends. Most require the receiving party to return or destroy them.
Governing Law and Dispute Resolution
Two clauses near the back of the contract deserve more attention than their placement suggests. The governing law provision determines which state’s laws apply when interpreting the agreement. The forum selection clause determines where disputes get litigated. These are different choices, and forum selection is usually the more consequential of the two. Applying another state’s law to your dispute is manageable; being forced to litigate in another state’s courts is a concrete operational burden.
Many commercial contracts include mandatory arbitration clauses instead of, or alongside, forum selection. Under the Federal Arbitration Act, written agreements to arbitrate disputes arising from commercial transactions are valid, irrevocable, and enforceable.4Office of the Law Revision Counsel. 9 USC 2 – Validity, Irrevocability, and Enforcement of Agreements to Arbitrate Courts will generally enforce these clauses. One boundary to know: disputes involving sexual harassment or sexual assault cannot be forced into pre-dispute arbitration regardless of what the contract says.5Office of the Law Revision Counsel. 9 USC 402 – No Validity or Enforceability Arbitration is typically faster and private, but it can be expensive, discovery is limited, and appeal rights are almost nonexistent. If the contract mandates arbitration, check who administers it, where it takes place, how many arbitrators will hear the case, and which party bears the costs.
Redline, Negotiate, and Get Internal Approval
Once your analysis identifies problems, the redlining stage begins. Use your word processor’s track-changes feature to show every deletion, addition, and revision. Precision matters. Don’t just flag a clause as “needs work.” Replace vague language with specific requirements, adjust dates to match your actual project timeline, and propose alternative formulations where your interests diverge from the draft.
Send the marked-up document back with a cover note summarizing the most significant changes and explaining your reasoning. This isn’t politeness; it speeds up the process. A counterparty who understands why you need a change is far more likely to accept it than one who has to guess.
Expect multiple rounds. When a counter-proposal is unacceptable, provide a written explanation and a compromise version rather than simply rejecting it. Keep strict version control. Label each draft with a date and version number, and keep every iteration. Unauthorized changes slipped into a “clean” version is a real problem, and the only defense is comparing against the prior draft line by line.
Most organizations also require internal sign-off before anyone can agree to final terms, and the approval threshold typically scales with the contract’s financial commitment. A department manager might have authority up to a certain dollar amount; anything above requires executive or board-level approval. If your organization doesn’t have a formal delegation-of-authority policy, this is where deals stall because no one knows who can say yes. Map those thresholds out before the final round of negotiation.
Verify Signing Authority and Execute
This is where many deals quietly go wrong. A contract signed by someone who lacks authority to bind their organization may not be enforceable. Before execution, confirm the person signing for the other side actually has that power. For corporations, request a corporate resolution or secretary’s certificate—a document where the board formally authorizes a specific officer to sign. For LLCs, the operating agreement usually specifies who can bind the company. If you can’t get a formal certificate, at minimum confirm the signer’s title and cross-reference it against the entity’s public filings.
Federal law treats electronic signatures as legally equivalent to handwritten ones for transactions in interstate commerce. Under the ESIGN Act, a contract cannot be denied enforceability solely because it was signed electronically.6Office of the Law Revision Counsel. 15 USC 7001 – General Rule of Validity Most electronic signature platforms generate an audit trail that records a timestamp, the signer’s IP address, and identity verification for each signature. If the parties prefer traditional wet-ink signatures, print the final version and have authorized representatives sign every copy. Either way, distribute a fully executed copy to every party immediately after all signatures are collected.
Archive and Track What Comes Next
Once executed, the contract goes into long-term storage, not a desk drawer. Upload it into a contract management system or organized digital repository, tagged with metadata: effective date, expiration date, renewal deadlines, notice periods, and the names of internal owners responsible for performance. Physical backup copies in fireproof systems are worth maintaining for high-value agreements.
Retention periods depend on what the contract covers. The IRS requires businesses to retain records supporting their tax returns for at least three years after filing, with longer windows in specific situations—six years when income is underreported by more than 25% of gross income, seven years for claims involving bad debts or worthless securities, and at least four years for employment tax records.7Internal Revenue Service. How Long Should I Keep Records These are IRS minimums. Industry-specific regulations, potential litigation holds, and the contract’s own survival clauses may require longer retention.
If the contract includes an audit clause—many service and licensing agreements do—calendar the windows and notice requirements now, not when you need to exercise them. Standard audit provisions typically require 30 days’ written notice, limit audits to once per year, and restrict them to normal business hours. If you’re on the receiving end, confirm the clause protects against unreasonably disruptive audits and that costs fall on the auditing party unless the audit reveals a material discrepancy.
Beyond audits, track every date that requires action: renewal opt-outs, rate escalation deadlines, insurance certificate delivery dates, and notice periods for termination. A contract that auto-renews for another year because you missed the opt-out window by a week is one of the most common and most avoidable contract management failures. Calendar it at the archiving stage and the problem goes away.