Blog Post

Data dilemma; Why Contract Management and Artificial Intelligence could be the answer to your risk problems

June 26, 2019

Contract management is laborious, time-consuming and, according to multiple statistics, not performed adequately by the majority of businesses, leading to between 5%-40% loss of value on any given deal.

The challenge of contract management is fourfold: the sheer volume of contracts to manage; the lack of visibility of your contracts; the absence of uniformity; and the manpower with which to manage the contract process from drafting to storing to execution. Contract management is, to be blunt, a painful but necessary part of a GC’s role.

But it doesn’t have to be. Given that contracts will always be a core part of doing business, considering new ways of conducting contract management – especially in light of newer technologies such as Artificial Intelligence (AI) and machine learning – could go a long way to alleviating this tedious task. This would then free you up to focus on higher value projects and create additional value for your organization.

When considered as part of a contract management process, AI is fast becoming the technology of choice for many GCs. The reason for this is that when integrated, AI and contract management systems (CMS) deliver a streamlined process that provides huge value back to the business and vitally helps manage risk, based on facts and data analysis.

AI has a variety of definitions and applications. Essentially it’s technology that can do some specific tasks more accurately and more quickly than thousands of humans. But this shouldn’t raise alarm bells – fears of AI taking legal jobs are so far unfounded, and, as with other technology, AI will inspire new jobs to be created.

From a contract management perspective, assuming all your contracts are digitized (the first step in using any CMS), AI uses this contract data to extrapolate key pieces of information to mitigate your risk. For example, it can give you oversight of when renewal dates are due or how many contracts are logged under a specific business unit, person or jurisdiction. This data extraction is a crucial element towards reaping the benefits of AI and contract management.

However, the thing that no one mentions about data is that it’s pretty useless on its own. While the business world waxes lyrical about how data is the key to solving all our business woes, the fundamental point is that data is nothing without intelligence, context, and analytics. Having reams of numbers, dates, clauses or Ts and Cs is just overwhelming and not helpful in solving any legal or business issues. Which is why data extraction from your contracts is not, in itself, a goal.

Data extraction is part of the process for mining your contracts for information that can then be analyzed and put into context to help you make more informed and better decisions. It is this analytics element that provides the most value.

For example, your real estate contracts, combined with HR data, could be analyzed by AI to discover occupancy rates and highlight areas where buildings are underutilized. This immediately helps to reduce costs across the organization.

Managing compliance is another advantage of AI and contract management by highlighting areas of risk, ensuring there are no missed deadlines and regulations are met. The technology can help manage multiple vendor contracts, alerting you to costly auto-renewals or areas where vendors are failing to abide by contractual obligations. Other areas of risk, such as contractual ambiguity or inconsistency around contract language, can also be discovered with AI, further helping to highlight areas that may leave your organization exposed.

But it is not just about using the data to manage the contracts you already have or help highlight areas of risk, valuable as this is; AI can help manage future risk.  While conducting due diligence, for example, AI can use data from previous contracts and deals to predict any areas of potential concern. AI can help predict the outcome of specific contracts based on previous outcomes of similar contracts. Having the ability to predict which contracts are risky, which are a cause for concern, or which contracts need renegotiating, gives the power back to GCs to spend less time searching and reviewing contracts and more time to effectively manage that risk.

Realistically, we’re not close to mass adoption of AI with contract management in most legal departments – yet. But the days of trying to manage your contracts manually are coming to an end.

Smart GCs are not afraid of the changes AI and contract management will bring. In fact, by adopting this technology, GCs are recovering some of the 5%-40% in lost contract value, which demonstrates their commercial awareness and puts money straight back on the bottom line.  In today’s competitive environment, when clients and the board demand more for less, it’s the GCs who embrace new technology, like AI, who will reap the rewards.

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