Artificial intelligence (AI) has certainly changed the way various functions in an organization operate. And contracting is not left behind. Numerous decision-makers will vouch for the fact that AI has successfully been able to reduce inefficiencies as well as various challenges that organizations face right from request to renewal in the contracting process.
Turning back the clock to 2019 – during the onset of the 4th industrial revolution – organizations across industries started undergoing digital transformation to adopt new technologies and witness significant results faster than ever.
Coincidentally, the pandemic broke out in early 2020 and technology became a major motivator. Progressive businesses tried to solve their most pressing problems by leveraging technology to automate workflows, reduce costs, and save time.
Automating contract management was one of the top priorities. The reasons?
a. 60-80% of transactions in an organization are governed by contracts, according to Gartner.
b. With an average enterprise company managing 20k to 40k contracts at a given time, failure to meet or understand a contract clause could directly affect the organization’s bottom line.
According to WCC, organizations lose between 5 and 40% of the contract value on a given contract based on the circumstances.
The journey of digital transformation in contract management began with the digitization of documents and the adoption of electronic signatures. These advancements allowed organizations to move away from cumbersome paper-based processes, enabling faster contract execution and improved accessibility. However, it was the emergence of AI that levitated organizations by streamlining contracts throughout their lifecycle.
The legal industry has been one of the latest candidates to implement AI due to its highly sensitive nature. However, this fear has been put to rest since AI's foray into contract management can be traced back to the development of natural language processing (NLP) and machine learning (ML) algorithms. These technologies enabled AI to author, understand, interpret, and extract critical information from contracts with utmost precision, unlocking new possibilities for automation and analysis.
By leveraging AI's cognitive capabilities, organizations could now process vast volumes of contracts, extract valuable insights, and make informed decisions in a fraction of the time it would have taken manually.
Contract lifecycle management (CLM) helps Legal, Sales, Procurement, and Finance teams throughout the contract lifecycle. With the latest advancements in the tool, AI contract management software has empowered procurement and sales teams to author contracts without relying on legal teams.
CLM is more than just an in-house legal counsel’s secretary that reorganizes the filing system for contracts. The benefits of AI-powered contract management software allow legal teams to focus on advising and let the technology do the deeds.
Legal teams that leverage AI-powered contract management software can author contracts, analyze contract clauses, extract critical data, and manage obligations better than ever before.
AI has impacted contract lifecycle management in 3 primary areas:
a. Intelligent Contract Authoring
b. Smart Search and Data Extraction from Active Contracts
c. AI-Powered Obligations Management
Contract initiation and drafting are the foundational steps in the CLM process that require precision and attention to detail. AI-powered contract management software leverages natural language processing (NLP) algorithms to analyze large volumes of existing contracts, identify patterns, and extract relevant clauses, terms, and obligations.
This accelerates the contract creation process by converting legal expertise into enterprise playbooks. With 100+ pre-approved templates and standardized language, users can minimize human errors and ensure compliance with legal requirements.
AI also assists in clause analysis, saving hours of clause-level comparisons against internal templates in case of any deviations. Users can also automate version tracking and save all iterations from stakeholders in a central contract repository for audit trails.
Contract negotiations often involve multiple parties, complex discussions, and frequent revisions. AI facilitates efficient collaboration by providing a centralized platform where stakeholders can access, edit, and comment on contract documents in real-time. The platform avoids critical data slipping through the cracks in email chains and chat threads.
With the ability to analyze vast amounts of text and extract relevant information accurately and efficiently, AI-powered contract management software can extract any unstructured data.
By training on a wide range of contract documents, AI can recognize patterns, language structures, and contextual cues to pinpoint relevant clauses such as termination, indemnification, or payment terms. This allows contract managers to quickly locate and review specific sections without the need for manual searching, saving significant time and effort.
AI can extract metadata from contracts, capturing essential information like contract dates, parties involved, contract types, and more. This metadata extraction enables organizations to organize and categorize their contracts efficiently, simplifying the process of contract management and retrieval.
Contracts often contain tabular data, such as pricing schedules, service-level agreements, or deliverables. AI-powered CLM can intelligently extract this tabular data and convert it into a usable format. By leveraging optical character recognition (OCR) technology and machine learning algorithms, AI can accurately identify table structures, interpret the data, and transform it into a structured format, making it easier for organizations to analyze and leverage the information contained within these tables.
By analyzing contract language, terms, and obligations, AI algorithms can evaluate the level of risk associated with specific clauses or contractual provisions. This risk-scoring capability enables contract managers to identify potential areas of concern, prioritize their attention, and take proactive measures to mitigate risks. AI-powered risk scoring enhances decision-making, enabling organizations to assess the overall risk profile of their contracts and allocate resources effectively.
Once contracts are executed, organizations need to monitor their performance and ensure compliance with contractual obligations. AI can play a crucial role in this stage by automating the monitoring process, tracking key performance indicators (KPIs), and flagging any deviations or non-compliance issues.
By integrating with other enterprise systems and leveraging data analytics capabilities, AI-powered contract management software can provide real-time insights into contract performance, identify bottlenecks, and facilitate data-driven decision-making. AI can also alert teams to upcoming renewal or expiration dates, enabling timely actions, and minimizing the risk of missed deadlines or auto-renewals.
With the introduction of AI, there is no stopping the AI tide now. Start by investing in technologies that help you run your administrative tasks on auto-pilot mode.
Our AI-powered contract management software can streamline the end-to-end contract lifecycle to let you focus on providing good legal advice.
Explore how SimpliContract can intelligently manage contracts for you!