Contract Comparison Best Practices

Contract comparison is about identifying what changed and whether those changes matter. Surface the signal, reduce the noise.

Types of Changes

Material Changes

Changes that affect rights, obligations, or risk:

• New or removed obligations
• Changed liability caps or indemnification
• Modified termination rights
• Altered payment terms
• Scope changes
• IP ownership modifications
• Confidentiality adjustments

Administrative Changes

Changes that don't significantly affect the deal:

• Formatting and structure
• Typo corrections
• Defined term consistency
• Section renumbering
• Contact information updates

Clarifications

Changes that make intent clearer without changing meaning:

• Added definitions
• Expanded examples
• Cross-reference fixes

Comparison Output Structure

Executive Summary

• Total changes count
• Material changes count
• Risk-relevant changes to flag
• Recommendation (accept, negotiate, reject)

Detailed Changes

For each change:

• Location (section, clause)
• Type (addition, deletion, modification)
• Original text
• New text
• Materiality (High/Medium/Low)
• Commentary on implication

By Category

Group changes by topic:

• Payment and fees
• Term and termination
• Liability and indemnification
• Intellectual property
• Confidentiality
• Representations and warranties
• General provisions

Materiality Assessment

High Materiality

• Changes financial exposure
• Modifies liability limits
• Affects IP ownership
• Alters termination rights
• Changes scope significantly

Medium Materiality

• Adjusts timelines
• Modifies notice requirements
• Changes minor obligations
• Adjusts reporting requirements

Low Materiality

• Clarifications without substance change
• Formatting and structure
• Administrative details

Negotiation Tracking

When comparing across multiple rounds:

• Track who proposed each change
• Note which changes were accepted/rejected
• Identify patterns in negotiation positions
• Flag outstanding issues

Round-by-Round View

• Round 1: Initial draft
• Round 2: Their markup
• Round 3: Your response
• Current: Outstanding issues

Common Contract Sections to Watch

Payment Terms

• Invoice timing
• Payment deadlines
• Late fees
• Currency and exchange rates

Liability

• Cap amounts and calculations
• Carve-outs from caps
• Indemnification scope
• Insurance requirements

Termination

• For cause vs. convenience
• Notice periods
• Wind-down obligations
• Survival clauses

IP

• Ownership of deliverables
• License scope
• Background IP treatment
• Improvements and derivatives

Confidentiality

• Definition of confidential
• Permitted disclosures
• Term of obligation
• Return/destruction

Red Flags in Changes

Watch for changes that:

• Remove previously agreed protections
• Add unlimited liability exposure
• Expand scope without price adjustment
• Shorten termination notice periods
• Broaden IP assignments
• Add one-sided audit rights
• Insert automatic renewal

Formatting Output

For Legal Review

• Detailed redline with all changes
• Section-by-section analysis
• Risk commentary

For Business Review

• Executive summary
• Material changes only
• Plain language explanations
• Recommendation

For Negotiation

• Outstanding issues list
• Proposed responses
• Fallback positions