Contract due diligence checklist

At a glance

Start with scope and a complete inventory

Diligence fails most often at the first step: reviewing the contracts the seller chose to upload instead of the contracts that exist. Ask for the list first.

1. Request a contract register from the target and compare it with accounts receivable, accounts payable and the general ledger. Large counterparties that appear in the money but not in the register point to missing contracts.
2. Agree materiality thresholds with the deal team: by annual value, by strategic importance, by term length, or by all of these.
3. Set a review depth for each tier. Top contracts get full legal review. The middle tier gets extraction of key fields and clause flags. The long tail gets a spot check.
4. Fix a cut-off date and keep a log of documents received after it.

Extract the same fields from every contract

A review that records different things for different contracts cannot be compared. Define the fields before reading. A practical minimum:

• Counterparty and entity, with the party's role.
• Effective date, term, renewal type and next renewal or expiry date.
• Notice period and method for non-renewal and termination.
• Termination rights and any penalty or fee.
• Change-of-control, assignment, exclusivity and non-compete terms.
• Price, payment terms, indexation clause, caps and floors.
• Liability cap, indemnities, insurance and security requirements.
• Governing law and dispute forum.
• Data-protection terms where personal data is processed.
• Amendments, order forms and side letters, listed in order.

Record the source for each field, meaning the document and page or clause. A finding with no source cannot be checked by the reviewer, the client or the other side.

Establish the effective terms

The original agreement is rarely the whole story. A master services agreement sits under order forms and statements of work. Amendments change prices and terms. Side letters change both. Build the effective terms by reading the documents in order and writing down which version of each clause governs today. Where the documents conflict, check the contract's order-of-precedence clause and flag the conflict for the lawyers.

Clauses that move value in a deal

Change of control and assignment

These decide whether the deal needs a counterparty's permission. Capture the trigger, the right it creates and the time limit. See the change-of-control guide for how the clauses work. As one example of why structure matters, a Delaware court held in 2013 that a reverse triangular merger did not trigger an anti-assignment clause covering assignment by operation of law; the result depends on wording and governing law, so each contract needs reading.

Renewal and termination

Auto-renewal and long notice periods can lock the buyer into costs, or leave revenue exposed to a termination for convenience on short notice. List the next notice deadlines inside the diligence period and shortly after closing. A deadline that falls between signing and closing needs an owner and a plan.

Exclusivity, most-favored terms and non-compete

These clauses can bind the buyer's existing business after closing. Check whether they extend to affiliates, which a buyer's group usually becomes.

Price and indexation

Look for escalation formulas, caps, floors and the index used. A price that tracks an index may be higher next year than the budget assumes, and a fixed price may be locked below cost.

Security, insurance and data protection

Collect guarantees and bonds, with expiry and return conditions, and insurance certificates, with limits and dates. Review processor agreements and transfer terms where personal data moves across borders.

Where the law differs

This table is general information, not legal advice. Local counsel should confirm all points.

Running the review

1. Request list and data room. Ask for contracts, amendments, order forms, side letters and correspondence about disputes.
2. Triage by tier. Top contracts first.
3. Extraction. Fill the standard fields and record sources.
4. Verification. A reviewer confirms every field flagged as important or uncertain.
5. Issues list. Each finding states the clause, the risk, the source and a proposed response.
6. Conditions and covenants. Turn consents and notices into closing conditions or post-closing tasks.
7. Handover. Move the verified data into the buyer's contract record so the work is not repeated.

Reporting findings

A useful report is short and specific. For each issue: contract, clause, what it says in plain words, why it matters, the deadline, and a recommended action. Put a one-page summary above the detail. Separate confirmed facts from open questions.

After closing

The review is also the first draft of the buyer's contract record. Move the fields, sources and deadlines into the system that will run the contracts, then assign owners. Update notice addresses, approval workflows and the party names that changed in the deal.

How Pactinel helps

Pactinel imports a batch of contracts, proposes the dates, clauses and values it finds with a link to the source text, and puts them in a verification queue where a person accepts, corrects or marks each field as not present. Clause search answers portfolio questions such as which contracts have change-of-control clauses, and critical dates and obligations then live in one record after closing. Pactinel does not give legal advice and does not replace your deal lawyers. You can start on the free plan.