Contract Analysis – What it is and Why it’s Important

by Josh Biggs in Tips on 4th May 2021

Drawing up an agreement is one thing; analyzing it efficiently and correctly is another. Therefore, understanding contract analysis is an important aspect of starting, owning or running a business as well as entering into different projects and agreements.

What is Contract Analysis?

Contract analysis is the breakdown of an agreement into smaller, less complex bits. Doing this makes it easier for everyone to understand.

Every detail is laid bare before the contractors so that they are aware of what they are getting into. It is folly to enter into any form of agreement with anyone before analyzing it, no matter who the other party is.

As important as contracts are in any business, analyzing them can give you insights into your business. It can also help you draft better ones down the line.

Importance of Contract Analysis

While it is true that a contract is meant to protect a business and its owners, one with errors can only cause problems. You can click here to read up on opportunities that contract analysis offers. Some of the errors that can come up are:

  • Unspecific clauses that lead to poor outcome
  • Language that doesn’t fit new innovations and developments
  • No provisions for resolving disputes
  • Terms that clash with existing contracts
  • Changes that need to be made to accommodate new regulations or laws

These errors and more can be avoided if a contract is critically and expertly analyzed before it is signed. It saves everyone time, stress, and money.

Benefits of Analyzing a Contract

The following are some of the benefits of doing good analysis:

Helps You Pick Out Risky Outdated Terms

Price, economic and political factors as well as changing regulations and laws all affect a business. Leaving a contract made, say, 5 years ago without any changes is detrimental to a business.

However, if you make adjustments and updates to them regularly, even old ones can remain valid. You may not need to draw up new ones to incorporate new laws and regulations. This way, you cut losses down.

Helps You Avoid Repeating Mistakes

Many of us have wished for a chance to change something in the past, one time or another. But if you have a chance to avoid that past mistake, you will take it.

Part of what good analysis does is to reduce the occurrence of the same mistakes. You can protect yourself against breaches and unspecific clauses that could be detrimental to your business.

Simply study old contracts to see where you got it wrong in them. Then, when drafting new ones, you will be better able to take the right steps for the future of your business.

Helps You Solve Business Problems

You will find that analyzing agreements periodically will draw your attention to ways of optimizing different aspects of the business.

The key is to understand how different aspects of a contract boosts the performance of your business. Then, if you have been missing it in any key area, you will be able to find a solution to what is lacking.

In other words, analyzing a contract can move a business forward in leaps and bounds. That is if it is done in the best interest of the business.

Key Steps in Contract Management

Below are the key steps of which contract analysis is a part of:


Develop a system that will cater to the resources and needs of your business. 

What types of contracts do you hope to handle and how many? Who performs what job at what stage? Do they have the required tools to do it? What are the possible problems that could come up and how to solve them?

Answering these questions successfully is part of the planning process.


Put to work what you have detailed in your plan and see if it works. Let everyone in your team know their duty and provide what they need. And if you have a software for contract management, deploy it now.

Pre-contract Implementation 

Set things in motion to see how they go. Implement what you have set up for new contracts. You will have to develop a document that will reduce risks yet deliver your needs. While this sounds simple, it can be difficult if you are not careful.


It is important to smoothly hand over a contract if you are not the one to execute it. To do this, see to it that every stakeholder knows their role and has what they need to successfully execute it.

Don’t assume they know what to do and when to do them. Walk them through the processes and let them know milestones, too.


This is where the whole thing comes together. You must pay close attention to the workings to ensure everything goes smoothly.

It may help to have a plan to monitor how well the contract does during execution. This will help you detect problems on time and monitor milestones according to the contents of the agreement.

This is part of contract analysis. It will help you plan better for the future.

If it is a one-off, it will end after a successful execution. But be sure to tie up every end and clean house. Write down the ups and downs and learning curves from the experience so you can plan better in the future.

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Gone are the days when contracts once made are depended upon for years. Periodic reviews of these documents are lifesavers. Therefore, analyze existing ones. It is important to find an expert to do this. And if there are loopholes, correct them.

Categories: Tips