Contract Review and Analysis

The Contract That Almost Slipped Through

In the previous lesson, we explored legal research with ai tools. Now let’s build on that foundation. A corporate attorney was reviewing what seemed like a standard vendor agreement—30 pages of familiar boilerplate. On page 23, buried in the indemnification section, was a sentence that expanded the client’s indemnification obligations far beyond the norm. It would have exposed the client to unlimited liability for the vendor’s own negligence.

She caught it because she read every word. But she’d spent 3 hours on a contract that should have been routine.

With AI-assisted review, that clause gets flagged in the first pass. You still read the contract. But you know where to focus your attention. That’s the difference between 3 hours and 45 minutes.

The Structured Contract Review Process

Effective AI-assisted contract review isn’t one prompt—it’s a systematic process:

Step 1: Initial Overview

Get the lay of the land before diving into details:

Provide an executive overview of this contract:

[Paste contract text—anonymize parties if needed]

Identify:
1. Type of agreement
2. Parties and their roles
3. Key commercial terms (price, term, scope)
4. Contract duration and renewal provisions
5. Termination provisions
6. Overall structure (number of sections, exhibits, schedules)
7. Governing law and dispute resolution

Summarize in 1 page. Note anything unusual
about the structure or approach.

Step 2: Risk Identification

The highest-value use of AI in contract review—finding the provisions that create exposure:

Analyze this contract for legal risks:

[Paste contract or specific sections]

Identify and categorize risks:

HIGH RISK (could result in significant liability):
- Unlimited indemnification obligations
- Broad IP assignment or license grants
- Inadequate limitation of liability
- One-sided termination rights
- Missing or weak confidentiality protections

MEDIUM RISK (unfavorable but manageable):
- Non-standard warranty disclaimers
- Unusual force majeure provisions
- Restrictive non-compete/non-solicitation
- Auto-renewal without adequate notice periods

LOW RISK (departures from standard but acceptable):
- Minor definitional differences
- Non-standard notice provisions
- Formatting or structural issues

For each risk, cite the specific contract section
and explain the potential impact.

Step 3: Defined Terms Analysis

Defined terms shape everything. A broad definition of “Confidential Information” or “Intellectual Property” can change the entire meaning of a contract:

Analyze the defined terms in this contract:

[Paste definitions section]

For each defined term:
1. Is the definition standard for this type of agreement?
2. Is it overly broad or narrow? How?
3. Does it create any unintended consequences?
4. Is it used consistently throughout the contract?
5. Are there terms used in the contract that should be
   defined but aren't?

Quick check: When you review contracts, do you start with the definitions section? Many lawyers jump to the commercial terms first. But definitions are where hidden risks often live.

Step 4: Clause-by-Clause Analysis

For critical sections, go deep:

Analyze this [type of clause] in detail:

CLAUSE TEXT: [Paste the specific clause]
CONTRACT TYPE: [Type of agreement]
MY CLIENT'S ROLE: [Buyer/seller/licensor/licensee/etc.]

Evaluate:
1. Is this standard market language for this clause type?
2. What obligations does it create for my client?
3. What protections does it provide (or fail to provide)?
4. How does it compare to industry-standard versions?
5. What specific changes would make it more favorable
   for my client?
6. Draft proposed redline language for key changes.

Step 5: Consistency Check

Contracts written by multiple authors or assembled from templates often have internal inconsistencies:

Check this contract for internal consistency:

[Paste contract]

Look for:
1. Defined terms used inconsistently
2. Cross-references that point to wrong sections
3. Conflicting provisions (e.g., termination rights
   that contradict notice requirements)
4. Missing definitions for terms used as if defined
5. Numbering or formatting errors
6. Exhibits or schedules referenced but not attached

Comparison Against Your Standard

When you have a standard template, AI can identify every deviation:

Compare this contract against our standard template:

OUR STANDARD: [Paste your template or key provisions]
THEIR DRAFT: [Paste the received contract]

For each difference:
1. Section/clause reference
2. What our standard says
3. What their draft says
4. Risk assessment (high/medium/low)
5. Recommended response (accept/negotiate/reject)
6. Suggested counter-language if negotiating

This produces a negotiation roadmap you can review and prioritize.

Common Contract Types: Specific Review Checklists

SaaS / Software Agreements

Review this SaaS agreement focusing on:
- Data ownership and data processing obligations
- Uptime/SLA commitments and remedies
- Security obligations and breach notification
- IP ownership (especially regarding customer data)
- Subscription term, auto-renewal, and pricing changes
- Data portability and return upon termination
- Limitation of liability scope

Employment Agreements

Review this employment agreement focusing on:
- Non-compete scope (geography, duration, activity)
- Non-solicitation provisions
- IP assignment breadth (does it capture pre-existing IP?)
- Confidentiality obligations post-termination
- At-will vs. for-cause termination provisions
- Change in control / severance triggers
- Dispute resolution (arbitration vs. litigation)

NDAs / Confidentiality Agreements

Review this NDA focusing on:
- Definition of "Confidential Information" (breadth)
- Exclusions from confidential information
- Permitted disclosures (employees, advisors, legal requirements)
- Duration of obligations (especially post-termination)
- Return/destruction of information obligations
- Remedies for breach (injunctive relief clause)
- Residuals clause (if present, assess impact)

Building Your Review Templates

Over time, build contract review prompts specific to your practice:

CONTRACT REVIEW LIBRARY
├── General Review
│   ├── Executive overview
│   ├── Risk identification
│   ├── Defined terms analysis
│   ├── Consistency check
│   └── Standard comparison
├── By Contract Type
│   ├── SaaS agreement checklist
│   ├── Employment agreement checklist
│   ├── NDA checklist
│   ├── MSA / SOW checklist
│   ├── License agreement checklist
│   └── Vendor agreement checklist
└── By Clause Type
    ├── Indemnification analysis
    ├── Limitation of liability
    ├── IP ownership/assignment
    ├── Termination provisions
    ├── Non-compete/non-solicit
    └── Force majeure

Generating Redlines and Counter-Proposals

Once you’ve identified issues, AI helps draft responses:

Draft redline language for these contract issues:

ISSUE 1: [Description of the problem]
CURRENT LANGUAGE: [Quote the current provision]
DESIRED OUTCOME: [What my client needs]

ISSUE 2: [Description]
CURRENT LANGUAGE: [Quote]
DESIRED OUTCOME: [What my client needs]

For each issue:
- Draft proposed replacement language
- Include a brief explanatory comment
  (for the negotiation conversation)
- Provide a fallback position if primary proposal is rejected

Exercise: Review a Contract

Take a contract from your current workload (anonymize if needed):

Run the executive overview prompt
Perform the risk identification analysis
Analyze the top 3 highest-risk clauses in detail
Check for internal consistency issues
Draft redline language for the two most critical issues
Compare your AI-assisted findings to what you would have caught manually

Key Takeaways

Break contract review into specific tasks rather than asking AI for a general review
Start with defined terms—they shape the meaning of every other provision
Risk identification (finding hidden exposure) is AI’s highest-value contract application
Always compare received contracts against your standard template to create a negotiation roadmap
Build practice-specific review checklists for contract types you see regularly
AI generates redline suggestions, but your judgment determines what to negotiate and how

Next: using AI to draft legal documents from scratch—efficiently and accurately.

Up next: In the next lesson, we’ll dive into Document Drafting and Templates.