NDAs are one of the most commonly used business contracts. In this post, we have covered the basic elements of an NDA, the bottlenecks in the manual NDA workflow, and how you can automate it with Zoho Contracts.
Introduction to NDAs
A non-disclosure agreement (NDA) is a legal contract that binds parties to protect confidential information they wish to share among themselves but not with any other third party. An NDA is also known as confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA). Anyone who needs legal surety for confidentiality is a potential user of NDAs. This sort of confidentiality agreement alerts the recipients of the information to the degree of privacy expected and that the owners can legally take action against them upon violation.
Businesses depend on an NDA to perform three essential functions:
Declare protected information: It sets the boundary between confidential and other disclosable information. This section clarifies the contract as both parties become aware of the information of concern.
Pre-patent protection: Before an invention gets patented, it is essential to shield it from public disclosure or, in worst cases, duplication.
Secure sensitive information: On signing an NDA, the recipient party is legally obliged to keep the sensitive information confidential. Any violation would be a breach of contract.
NDAs are either unilateral or multilateral. A unilateral NDA is a confidentiality agreement that binds only one party to protect confidential information. A multilateral NDA, also known as mutual Non-Disclosure Agreement, binds all the parties to protect each other's confidential material. Except for the number of parties obliged to protect the data, all other aspects of the contract remain the same.
Elements of an NDA
Every contract is unique and differs depending on the nature of the agreement, the authors, and the parties involved. Despite that, the following elements are common to most NDAs.
Declaration of parties: The parties to the agreement will be described straightforwardly at the beginning of the contract. It clearly states the owner of the confidential information and the recipient.
Definition of confidential information: This section describes the confidential information of concern and why it is shared. Being specific about the information guarded by the NDA will help in the event of a legal dispute.
Scope of confidential information: Simply defining the confidential information may not be enough for legal binding. Therefore, the scope elaborates on how and how not to use the confidential information.
Exceptions: In certain situations where the information is already publicly known or the recipient is forced to disclose the information through a legal process, abiding by the NDA can be too burdensome for the recipient. Hence, any author must consider the possibility of such exceptions while drafting an NDA.
Breach of the contract: A breach of contract is a failure, without legal excuse, to fulfill the obligations that a party promised in a contract. A breach is usually followed by legal action such as a restraining order or payment for damages.
Term of NDA: Every NDA should clearly state its duration of validity. The concerned parties can renew the agreement if they wish to extend the term. This term depends on the nature of business, transactions, and information.
Bottlenecks in the manual NDA workflow
While manually managing NDAs, one of the most frequently used contract types, legal teams face several challenges at each stage of the contract lifecycle.
Contract creation and authoring: The manual NDA creation process typically starts with a business user asking the legal team for an appropriate NDA template through an email with all the necessary details. This step is prone to human errors, and, in some cases, the details are not complete, leaving the legal teams without the entire context. The lack of cross-functional visibility and transparency necessitates multiple email follow-ups, making the creation and authoring process much harder than it should be.
Templatization: The absence of a centralized clause library leaves businesses with multiple versions of templates to accommodate different types of NDAs. When these versions are stored and managed in various locations, it results in inconsistency, incompetency, and risk. An outdated NDA template lacks the flexibility that an updated version offers. In addition, tracking deviations from standard NDA language becomes tedious.
Approval workflow: Every NDA must be reviewed on all aspects by the internal stakeholders before execution. Configuring approval workflows will improve compliance. However, handling the review process through emails could lead to version control issues, delays, communication challenges, and oversight of critical information.
Negotiation and execution: Traditionally, parties negotiate by sending contract documents as email attachments back and forth. When there are multiple cycles of negotiation, tracking changes, comparing them, and controlling versions become difficult. At the time of execution, there are several operational challenges involved with the email, print, sign, and scan cycles. In a manual setup, validating against wrongful or fraudulent signatures is arduous.
Storage and post-execution management: Lost contracts and the inability to access critical information when needed are two of the most prevalent problems legal teams face today. The reason for this is the absence of a centralized digital repository with search and filter options. Though contract renewals are low-hanging fruits, they are often missed due to the lack of automated alerts. Finally, in the absence of analytical capabilities that come with a digital contract lifecycle management (CLM) system, organizations miss out on critical business insights that they could gain from all their contract data.
Automate your NDA flow with Zoho Contracts
Zoho Contracts, our CLM solution, offers numerous ways to help you streamline the contract management process and eliminate manual errors.
One key way it does this is by providing a predefined, customizable NDA template that acts as a guiderail for contract authors. Even users without legal expertise can instantly create an NDA document by simply filling a few fields in our contract creation wizard. The ability to add multiple alternate language for a single clause eliminates duplication of templates for minor tweaks in the nature of the NDA.
Zoho Contracts also enables effortless collaboration during authoring while empowering the contract owners to control the access permissions for coauthors at a granular level. Admins can configure a custom approval workflow (sequential or parallel) for the NDAs so that legal, C-suite executives, or other stakeholders can review NDAs for potential risks.
Organizations can seamlessly negotiate online by securely sharing contract documents with their counterparties. The counterparty does not need a Zoho Contracts account to participate in the negotiation. The counterparty negotiators can collaborate in real-time to suggest edits and add comments to the NDA based on their access permissions.
With automatic redlining, the parties can instantly spot changes instead of screening through the entire NDA. When an NDA goes through multiple rounds of negotiation, the parties can view contract document versions from any past review cycle. Other functionalities such as compare versions, review summary, and the contextual activity tab almost entirely remove the operational challenges involved in a typical negotiation process. With our built-in eSignature functionality, businesses can execute their NDAs in minutes. Contract owners can also set a signing order to streamline the execution stage.
The automated letter templates in Zoho Contracts make the post-execution management of NDAs remarkably simple. Amending or renewing an NDA has never been easier. The central repository with advanced search and filter options improves visibility and enables users to easily access critical information when needed. On top of all the above highlights, Zoho Contracts packs in features like audit logs, data protection settings, and integrations meticulously designed with contract governance, risk mitigation, and cross-functional collaboration in mind.
Manage your NDAs effortlessly with Zoho Contracts
Are the predefined contract templates in Zoho Contracts legally validated?
Laws and government regulations vary from region to region. We currently do not support localized templates. The predefined contract templates in Zoho Contracts are only intended to act as general guiderails for contract authoring. While most of the language in our contract templates will suit the USA region, we strongly recommend that you consult with a legal counsel to ensure that the terms in the templates comply with applicable laws.
What is contract automation?
Contract automation is the process of creating, executing, storing, and managing contracts between you and your counterparties (such as vendors, partners, employees, or customers) entirely online. Contract automation will reduce your contract cycle times by streamlining the entire process and leave your legal teams with more time for high-value tasks. In addition, it will empower businesses to mitigate contract risks and improve compliance.
What are the free templates offered by Zoho Contracts?
Zoho Contracts offers 14 pre-built contract templates: Master service agreement template, Non-disclosure agreement template, Product sales agreement template, Reseller agreement template, Executive employment agreement template, Employee stock purchase plan template, Severance agreement template, Software as a Service agreement template, Subscription agreement template, Software license agreement template, Data sharing agreement template, Investor rights agreement template, Independent contractor agreement template, and Catering service agreement template.