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How to… redline by jigordon
April 21, 2009, 9:32 am
Filed under: contract management, process, risk matrix

When you’re about to enter a contract negotiation, and assuming you’ve not been successful in using your templates, the first step is to review and redline the agreement.  This How-To is intended to teach you the obvious (and not-so-obvious) skills of redlining.

  1. Ordinarily, I suggest a quick once-over.  This is a perusal designed to see if the major sections of the contract are present.  Using a checklist like the Software License Risk Matrix will help you verify that all of the headlines are covered.  Not all contracts will contain the same sections, of course, and just because a contract has a stated Header doesn’t mean that the language in that section actually matches the Header’s description.
  2. For any “missing” sections of the agreement that you would like to insert, create new sections in an appropriate place (as you read an agreement, you typically have a feel for where certain sections will need to go.  You’ll also have to make adjustments based on numbering schemes or sub-numbering schemes to match the original – so watch the blind copy-pasting.
  3. Now, hopefully you’ve got the contract in Microsoft Word (or other word processing format) to facilitate an easy redline.  Enable Word’s “Track Changes” feature via the Tools menu.  Advanced users will also note that you can quickly turn Track Changes on and off via the green-light at the bottom of that document’s window next to the “TRK”.  If the other side has sent you a document via PDF and refuses or is otherwise unable to send you a Word version, use the free service at www.pdftoword.com run by the great folks at NitroPDF.  This service will convert your PDF almost flawlessly and e-mail you a converted Word file.
  4. Read each section carefully.  Start with the definitions and make sure that all defined terms have a definition (many times this isn’t the case).  Now march your way through the agreement.
  5. Where you do not like particular language, the Track Changes feature allows you to “delete” the language – but instead of actually removing the offending words, it changes the color and puts a strike-out line through the deleted language.
  6. On the flip-side, when you insert language, Track Changes will insert your new words in the same color as the deleted text, only this time is underlined.
  7. Where possible, suggest new language that you’d prefer to be in the agreement rather than just strike-out the language you find troublesome.  This will provide a great basis for a negotiation.  If you simply delete language, I would assume that you simply want the language removed and nothing else added.  When this is the case, I will sometimes make a note to tell the other negotiator why I made a particular change:  “[JeffNote:  I don’t believe I should have to indemnify you for this.]”  This call-out makes it easier on the other reader to accept or reject your change, as your explanation might be all that’s needed for them to accept your modification.
  8. Then, when you’re the recipient of a redlined document, your first task is to review the changes to see if any of them are acceptable without discussion.  If so, simply right-click on the change and select “Accept Deletion” or “Accept Insertion” from the pop-up menu.  HOWEVER, DO NOT SIMPLY REJECT CHANGES!  This would create a presumption on your part that you shouldn’t make without talking to the other side first.  Rather, leave unacceptable changes in redline format as open for discussion.
  9. As the second reviewer (and the presumptive owner of the original), you might feel some initial pain at making any changes at all to your template.  Remember, however, that you’d do the same thing to someone else’s template.  Additionally, while I’m sure you wrote your template with every conceivable situation in mind, there might be a situation you didn’t conceive.  In other words, give the redline a chance.  Read it with the intent to accept as many changes as you possibly can.  This is a negotiation, afterall.
  10. If you need to suggest language back to the first reviewer, Track Changes anticipates this and will (unless you make changes to the Preferences settings) automatically assign each individual reviewer a different color.  If you place your pointer over a particular change, Word will tell you the name (as set in Word’s preferences) of the editor for that change and the date/time of the change.  If your name doesn’t appear on changes, make sure that you’ve entered your name in the preferences settings and you’ve also unchecked the box that has Word remove the name of the reviewer as part of its security process.
  11. So now you have a document that should have fewer redlines than when the first person was done, might have some additional redlines from the document’s original author and the document is now ready for negotiation.
  12. Set aside plenty of time for negotiation – rushing is to neither party’s benefit.  You do not have to make it through the entire contract in a single session.
  13. Once pleasantries are out of the way, discuss who will be the document owner (I typically volunteer… it keeps me alert and I feel much better about how the changes are completed).
  14. During the negotiation, systematically review the agreement from the top on down.  Continue to make any new additions or deletions in redline.  But accept/reject prior changes as agreed during the negotiation.  Thus, when done, you’ve got a document that ONLY has points of contention or new language changes still in redline.  In rare cases, in a trusting relationship, you might agree to make “blackline” changes.  If so, never breach that trust.
  15. OK, so after a few back and forth discussions, you should have resolved all open issues.  Take one more quick review to look for any open issues.  Use Track Changes to see if there are any unseen remaining edits (use the “Next Change” button to see if there are any you missed).
  16. What you’re left with is a blackline document – everything’s in black and white.  GREAT JOB!
  17. If you’ve got to do a redline by hand, here are a few additional suggestions:  a) Don’t.  Seriously.  Scan and use PDFtoWord.  b) But if you have to, learn to write very small in the margins with tiny arrows indicating where new language would go.  c) Actually strike through (with a single line) each word you don’t like.  d) Don’t waste time handwriting in entire new sections.  Just note what new ones are necessary – add new language electronically later.  e) If you must, create a separate document and create an amendment document where you describe each deletion and/or insertion.  Again, this method is HIGHLY outdated, but some organizations just can’t seem to get away from it.

Once you’re done, I sometimes also recommend using a tool called DeltaView (or even Word’s own Document Compare feature) to compare the original against the finished product.  This helps you check all of the redlines that were actually agreed upon and gives you a level of comfort that neither party tried to sneak in a change the other party didn’t accept.  However, unless I have reason to believe that the other party isn’t trustworthy, I typically have been diligent enough through each turn of the document to not require this final step.

All that’s left now is execution and managing post-contract obligations.  But that’s another day.

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4 Comments so far
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Re #7: Word comments and/or footnotes are great for adding explanations of changes (which in my experience can significantly speed up negotiations).

I usually add a Word comment or footnote to every change I make (other than typos) – that way, the comment/footnote numbering amounts to a numbered discussion agenda.

Word comments and footnotes are also useful in the first draft – when I was in-house at a software company, our standard license-agreement template was extensively footnoted for just that reason. More than one reviewer said the footnotes helped them.

Re # 8: Irene Kosturakis, chief IP counsel at BMC Software, has a CLE talk in which she suggests that a contract reviewer accept ALL changes, then redline anew (using the first-round redline as a guide).

Re surreptitious changes by the other side: I often use, as the last clause above the signature line, something like this: ‘Each party represents that it has “redlined” or otherwise flagged its revisions (if any) of drafts of this Agreement and associated documents that it has sent to the other party.’ It’s a representation, not a warranty, but that’s intentional, for reasons explained <a href=”http://web.archive.org/web/20031004015228/www.bynoother.com/2003/09/surreptitious_c_1.html”>here</a>.

Comment by D. C. Toedt

Great how-to compilation, BTW.

Comment by D. C. Toedt

Thanks for your comments, D.C.

Re: Irene @ BMC. I’m sure this could be seen as rude, but it doesn’t surprise me that a vendor does this… or that it’s an attorney who’s doing it, either. Contract professionals won’t.

The reason is simple. If you accept all and then re-redline, you force me to review EVERY single change. The longer the document, the more time that takes.

On the other hand, if you accept only the changes that you’re ok with… and then either propose new language to me or leave something in redline that you disagree with, then I can VERY quickly tell where our open issues are.

By accepting all and re-redlining, the only way to quickly see what’s happened is to print both documents in redline to see where things have changed further… or to open them side-by-side and do the same thing. Either is extremely time consuming.

Comment by Jeff

I probably didn’t adequately explain Irene’s idea. If a customer redlines BMC’s standard form, she accepts all their changes. In effect, she’s now reviewing the customer’s form. She then redlines that form anew, so that the customer can see what problems SHE has with THEIR form.

Comment by D. C. Toedt




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