All you need to know about redlining: a complete guide

What Redlining A Contract Is

Contracts are essential to doing business, and it is common for a company to request changes to a contract after it is initially sent. These changes are typically made using a "redline" of the original contract. During contract negotiations, redlining is beneficial to both parties—helping them agree to terms that work for everyone.
The digital age has almost entirely replaced redlines with digital track changes. It is common practice to create a redline copy of an initial contract by using track changes features in Word or other software. However, if you have received a hard copy of a contract with redlines, you will need to take physical red ink to the document and mark any changes on it.
Understanding Redlining "Redline" implies either "to strike," "to kill," or "to drive." Read literally, it implies that you are driving the deal to the finish line; however, in the context of a contract negotiation, it does not refer to completing the deal. In his book, The Complete Guide to Contract Negotiation, Michael Schwartz defines "redlining" as revising the terms of a contract with the intent of altering the language so that it is acceptable .
Redlining is the process of going through line-by-line, and paragraph-by-paragraph, removing content from the contract or adding new content in red (look at the 1940s cartoonish image of a train "redlining" two cities). The term first came about in the 19th Century in the 1870s as a way to denote a map section that was out of reach of a business, and then again in the 1920s when it referred to the practice of denying services or goods to residents of a specific area.
Payment terms, liability, warranties, limitations of liability, termination, confidentiality, and indemnity are some of the biggest targets of amending requests. The contract terms that are redlined first are often the ones a party is not in favor of or the ones that can become sticking points in contract negotiations.
History The practice of redlining was used during the Civil Rights Era to refer to racially motivated policies such as mortgages to white homebuyers and renting apartments to white renters only.
In the business world, particularly when negotiating contracts, redlining has lost its original interpretation. Redlining in modern times means to present requested changes in red or incorporated into contract terms using track changes.
The threat of redlining a contract often means that the deal may not get done unless the contract is amended to meet both parties’ needs.

Why Do You Redline A Contract

To understand why any marks are made in a contract you are working on, it is critical to understand the role of redlining. Redlining has a twofold purpose.
First, redlining a contract helps you identify what changes need to be made to the contract. Though the process of reviewing contracts usually starts with simply noticing issues with the current iteration of a contract, redlining the new contract can help you decide whether or not the contract meets your needs. Seeing where your comments fall, what has changed, and whether those changes are acceptable is important to moving forward with negotiations.
Second, redlining a contract is a way to protect an individual’s or a company’s interests. Since attorneys are the ones who usually do the redlining, it serves to protect a client’s interests first and foremost. If a contract is marked up by an individual (who is not an attorney), it could lead to issues if there are problems with a contract. Just like writing in the margins of a textbook could put you at risk of getting blamed for something that was written by a previous student, writing on a contract yourself can put you at risk of accepting more liability than you bargained for. This is why redlining best handled by an expert in contract law.

How To Redline A Contract

If you’re using Microsoft Word, you can easily redline a contract using the "review" tab. This brings up the "track changes" function, which will allow all edits to be tracked. You can also turn on the balloons feature, which lets you type in your rationale for each change. Jim discussed this in more detail in a recent blog post.
In Adobe Acrobat, you can turn on the comment function, which lets you leave comments in the right-hand margin for what edits to make. It is much less intuitive than Word, and there is no direct equivalent to the balloons feature.
Other popular tools include GoogleDocs and Adobe’s Fill and Sign for contracts that are sent as a PDF but will require amendments and redlines by both parties.
What’s important is that you ensure that all prior versions are saved so that you have a full record of where things stand.

The significance of changes

The method most agreed upon for marking up documents to convey changes between parties and specific proposals is to use the "track changes" feature of word processing software. Track changes, and its predecessors, have been around in one form or another for the last forty years.
If you don’t already know how to turn on and use track changes you should familiarize yourself with it as quickly as possible. Ideally you will use it for all review communications for agreements. But in lieu of that, whenever you are seeking or considering major substantive changes to an agreement, drafts should always be circulated utilizing track changes, and you should be careful always to use track changes when you are sending substantive changes for return comments.
One of the reasons for using track changes is to provide the receiving reviewer with an efficient workflow that enables him to quickly and easily react to multiple changes contained in a draft, without being burdened with having to respond to them one at a time or recall changes he previously addressed and find where he already addressed them. A second reason is that it provides the receiving reviewer with a distinct identification of precisely where in the document the changes appear. Third, it prevents the changes from being lost if one of the parties decides to do a poor job of redlining.
Track changes is not perfect, but it’s pretty good. Most word processing programs these days, like Word and Google Docs, have well-developed track changes features. But for this purpose, specific features are much less important than simply making commitments to use some reasonably effective method to identify and convey changes in all drafts going forward.
Many people use so-called "redline" or "compare document" features, and while some may find those features useful, I have my reservations. Putting aside the fact that these features can produce strange results, even experienced word processing users often have a labor-intensive process in using these features. I am always surprised how often lawyers use "compare document feature" to produce a redline or track changes when I know from before that they must have every version of their prior documents to do so. IMHO, that is a complete waste of time, accomplished with minimal efficiency and maximal frustration.
In my experience, the best practice is:

• Whenever you receive, review and comment on a document, you should take the time to save a copy of it to preserve the entire negotiation history for that document.
• Whenever you send a revised draft to another party, you should also take the time to save a copy of that document reflecting your changes to preserve the history of the transaction.
• In some cases you will want to send a clean copy of the document, but it’s better to always send a redline for the reasons discussed above.

I also always draft contracts with track changes visible. The key article here is the last sentence.
If for whatever reason you prefer to produce clean copies of agreements, for my personal taste, I prefer to produce a clean copy which includes a revision mark to show the document is final, and I make that mark in red so it stands out. Finally, I will only do this if I am working with an incomplete document that is likely to change.

Common redlining mistakes

Mistakes Made When Redlining Contracts
The most common mistakes when redlining are those that occur because someone did not stop to really read the contract to understand what it meant, or because the person redlining is not thinking about the situation from both sides. In commercial negotiations, both parties have a lot at stake in the deal, and therefore both parties are invested in the outcome. It is not a game, and there are no prizes for tricking the other side with "gotcha" provisions. The most common errors in redlining include the following: What’s mine is mine; what’s yours is ours. This approach is often driven by a cultural perspective that requires all aspects of life to be shared, but it is not a bargaining position that will work in commercial negotiations. There are many things that suppliers are willing to share with their clients, and many aspects of the client relationship that are not proprietary to the supplier. However, it is impossible to have a commercial relationship where everything is shared evenly , and some resources are provided for the benefit of only one party. Compromising over the wrong things. A sign of a poor negotiator is someone who compromises "just to get it done" at every step in a negotiation. Some documents are more important than others; some provisions in a proposed contract are worth fighting for and others should go easily. The skilled negotiator knows which terms are critical, and which can bend without jeopardizing bargaining leverage. Fatigue. Bad choices are made when people are tired. Either if the negotiations are very long, or if people are working on them in the evening, the interests of the parties become less central and the focus shifts to merely completing the process. Fatigue also hampers the ability of the negotiators to think clearly and creatively, and it results in less creative problem solving. It is normally better practice to walk away from the table and resume the following day, than to go on and on and have everyone spend the next day recuperating.

Legal aspects of redlining

Redlining a contract can have serious legal implications. If the omitted provision is essential to the agreement, it may be difficult to enforce the contract as written, and the party seeking such enforcement may be barred from doing so. Additionally, if the redlined provision is not consistent with the actions of the parties following execution, an argument could be made that the parties did not intend to be bound by the terms of the written agreement, and thus failed to create a binding contract.
Therefore, when redlining a contract, the parties should carefully consider which provisions are integral to the agreement. For example, if all rights and remedies are reserved, the other party may reasonably expect that the subsequent exchange of redlined versions will not constitute a waiver. In some cases, the parties’ intent may be proven following execution through the doctrine of course of performance. However, if the excluded provision provides an exclusive remedy or explicitly limits damages, there may be grounds for breaching the contract. Furthermore, if there is any question whether a redlined term will be binding, the party doing the redlining may want to consider having the other party acknowledge and initial the changes before executing the revised contract, and vice versa. This process will ensure the other party is on notice of the amendments, and likely eliminate any argument that the redlined provision was permissibly omitted from the executed agreement.

Redlining etiquette

Maintaining professionalism is key, especially when dealing with high-stakes contracts. Having the integrity to carefully review the proposed redlines, even if you are unsure about the margins or not ready to concede on a key term, shows that you have the best interests of all parties involved at heart. Oftentimes, the reviewing party will get too annoyed or entrenched and offer a harsh rejection or refuse to redline all together. This puts an abrupt stop on any negotiation, as the other party cannot accept a one-sided proposal. If you are unable to reach common ground in the beginning stages of negotiation, there is no reason to get rude or harsh. Just like you would with someone face to face, it is always advisable to take a neutral and professional tone, and simply reiterate your position. It is only a speed bump when you frame it in a reasonable way instead of immediately shooting the other party down outright.

What the future for redlining contracts involve

The future of contract redlining promises to incorporate even more sophisticated technology and tools. Artificial Intelligence (AI), for example, is having a profound impact on the legal industry as a whole, and contract review is no exception. AI-driven tools can more quickly identify and analyze specific clauses that are inconsistent with or in conflict with other agreements, and even help suggest alternative provisions . In addition, because breaches of contract can be incredibly expensive, with the potential to end relationships between co-founders, vendors, and customers, a growing trend is for certain larger SaaS contracting platforms to offer integrated contractual risk management tools to their subscribers. These tools use AI with a rules-based engine that helps identify discrepancies between standard and non-standard terms, and uses analytics from past deals and term revisions to provide guidance and next steps. For companies with significant contract volume, these cutting edge tools can help with efficiency, as well as help minimize risk.